Interim evaluation
The Rural Micro-enterprise Finance Project (RMFP) was supported by
the Government of The Philippines through the Department of Finance and
Land Bank of the Philippines (LBP) and executed by the People's Finance
and Credit Corporation (PCFC). Of the total cost of USD 65m, Asian Development
Bank (ADB) and International Fund for Agricultural Development (IFAD)
financed USD 20m and 14.7m, respectively. The project became effective
in April 1996; all funds were disbursed by June 2002; the closing date
was extended from July to December 2002 in order to process all the withdrawal
applications.
Evaluation mission. For the preparation of a second project phase
requested by GOP, ADB fielded a mission in mid-2002. IFAD carried out
an interim evaluation in July 2002. The evaluation follows the standard
approach of the Office of Evaluation and Studies (OE) and its new impact
evaluation methodological framework. Preliminary conclusions were presented
during a wrap-up meeting on 1 August 2002 and finalized in a workshop
on 24 January 2003.
Main design features and
implementation results
The project rationale was based on the assumption that “access
by the poor to adequate and appropriate financial services is a critical
factor in helping to break the poverty cycle” and that such services
had been successfully provided in The Philippines through the Grameen
Bank Approach (GBA), with “significant income, employment and other
social benefits.” At the same time, the Agricultural Credit Policy
Council, a government agency which had replicated Grameen banking in The
Philippines since 1990, had found that the costs of the donor-driven program
were very high and outreach was low. Despite warnings of IFAD team members
at earlier missions, Grameen banking, with its emphasis on credit channelling
through joint liability groups of five women was selected as the sole
methodology. This made RMFP a risky project – yet the actual results
have exceeded expectations by a wide margin.
Project objectives and target group. The Project aimed at poverty
reduction, the creation of employment opportunities and the enhancement
of rural incomes of the bottom 30 percent of the rural population, i.e.,
the poorest of the poor. The project supported two components: an MFI-support
component comprising the establishment and strengthening of Grameen replicators,
through an institutional development loan of USD 7.4m; and a credit component
of USD 34.1m for on-lending to final borrowers through NGOs, cooperatives
and local banks. By supporting conduit institutions that employ the GBA,
the project sought to provide 300,000 people, 90% of them women, with
access to credit for income and employment generating microenterprise
activities. Emphasis was to be given to the 20 poorest provinces. RMFP’s
target impact was to increase rural family incomes by at least 40%.
Implementation partners and arrangements. At the national level, three
agencies were involved in project implementation: DoF, LBP and PCFC. DoF,
on behalf of the Government of the Philippines, borrowed from ADB and
IFAD, assumed the foreign exchange risk and on-lent to LBP. LBP, an agricultural
development bank created in 1963 to support agrarian reforms, was the
official depository and trustee bank of the RMFP funds. It would act as
a fund manager for PCFC, provide transfer services, and assist in monitoring
and auditing. PCFC, the executing agency of the project, was established
in 1995 as the country’s bank for the poor, with the mandate of
providing credit through conduit partners to the rural population below
the poverty level; its main business has been RMFP. At the local level,
the Grameen Bank Approach Replicators (GBARs) provide loans to the final
borrowers at their own risk and at interest rates of their own, but not
lower than 24% per annum. RMFP was to be implemented with full recovery
of costs and as a profitable activity for PCFC and the participating GBARs.
Changes in microfinance policy and institutions. The project has profited
from improved macroeconomic stability, a legal framework conducive to
the development of a differentiated rural banking infrastructure, and
favourable attitudes to microfinance among the financial authorities.
Issuance of a national microfinance strategy in 1997, recognition of microfinance
in the Banking Act of 2000, exemption from BSP regulation regarding unsecured
loans and the lifting of the moratorium on branching out for banks engaged
in microfinance in 1/2001 have created powerful incentives for rural banks
to engage in GBA as a commercial activity with rapidly increasing outreach
to the poor. This has led to a shift in project emphasis from NGOs and
cooperatives to rural banks. Based on the approval in July 2002 by the
National Credit Council of a policy document on the regulation of microfinance,
steps are now being taken to bring cooperatives under effective supervision,
to transform deposit-taking NGOs into banks, and to establish a credit
rating agency for microfinance.
Design changes. A prominent feature of the project has been its ability
to learn from experience and leave leeway to participating institutions
for experimentation and adjustment. Some freedom to modify the design
in line with lessons learned has been important to allow the methodology
to be adapted to the organisational culture of each MFI and the characteristics
of local clients. In the process, GBA has moved from creed to financial
product, adopted by rural banks in increasing numbers. Among the modifications
are product diversity, variability in interest rates and loan terms, group
size and rules of loan release, meeting cycle, and the role of groups
vs. centres.
Implementation results. PCFC has successfully marketed microfinance
for the poor through GBA, using both liquidity and training in the methodology
as the two crucial selling factors. In the process, increasing numbers
of MFIs have adopted GBA and adhered to the solidarity group approach
of financial intermediation. But they have not done so out of compliance
with government instructions, but because of the tested and proven advantages
of that approach: credit discipline and profitability. In the process
and in contrast to the original focus on NGOs and cooperatives, an increasing
number of banks – particularly rural banks - have turned into GBARs,
accounting for 54% of all actively involved replicators, 57% of clients
and 61.5% of loans outstanding.
Compared with targets. The project has exceeded all key performance
targets such as 435,654 micro-enterprise clients (only cumulative figures
are available!) with increased employment (target 300,000); 98% of which
are women (target 90%), establishment or expansion of 92,504 self-help
groups (target 50,000) in 14,828 centres and 447 branches (target 305);
establishment of three training centres and an additional three in process
(target three); 10.8% savings mobilisation in relation to loan releases
(target 10%); and disbursement of US$ 34.1m investment loan and US$7.4
institutional loan (fully complied with). Recorded collection rates are
high (on average, 98% from MFIs to PCFC, 96.2% and past due rate 6% from
final borrowers to MFIs).
Training, MIS and institutional development. Most training has been
effectively provided by two MFIs, CARD, NWTF and by PCFC. These are now
joined spontaneously by increasing numbers of rural banks and other institutions
providing training and exposure opportunities to new replicators. Training
in microenterprise and social development to SHGs has been scanty; in
a number of cases, its place has been taken by mutual monitoring, which
could benefit from organised strengthening. With ADB technical assistance,
a MIS has been installed in a number of institutions, but is not found
useful by most of them, as it is not integrated into regular banking software.
PCFC has actively participated in the policy dialogue described in par.
6. Its privatisation, for which no pronounced demand was found during
the field visits, is still under discussion.
Rural poverty impact
Targeting. As per the loan agreement, PCFC requires MFIs to conduct
a means test or client-profiling index of each sub-client to determine
eligibility. The rigorous GBA discipline (i.e., small loan amounts, regular
weekly meetings and instalments, joint liability, strict centre discipline
and mandatory savings) has shown to favour poor clients and serious microentrepreneurs.
In terms of leakage, it is estimated that about 20% of clients were above
the means test criteria at the time of joining the program (yet they belonged
to the non-poor vulnerable population). In actual fact, the MFIs have
mostly targeted the enterprising poor around the basic food threshold
although, in several instances, the poorest households (chronically below
the food threshold) have been served. Out of the 23 MFIs interviewed by
the IFAD mission, only two rural banks and one cooperative (and none of
the 4 NGOs surveyed) reported concentrating on the “ultra poor”
as their main clients.
Income. Impact assessments of different origins have shown that there
are increases in income, assets and employment generation. A 28% income
differential between borrowers and non-borrowers was identified by the
ADB impact survey. A steadily rising rate of income increase was noted
with successive loan cycles in most households. However, in the absence
of a baseline survey and given the methodological problems with income
data in the informal sector, these data are of limited validity. Moreover,
such data are rarely presented on the basis of annual increases or for
a precisely specified time period; nor do they take inflation into account.
Assets. Increase in assets (average of 25% from commencement) is
less pronounced than increase in income. Assets are also used as savings
and may be sold as income levelling strategies, particularly livestock.
Assets are also kept as loan protection insurance, to be sold to repay
the loan in times of hardship. Increase in assets is more pronounced at
higher loan cycles, but cannot be attributed solely to the project. Growth
in savings and diversification of saving strategies within the household
is an important impact, not only in improved asset base but also in terms
of asset management. There were numerous examples where borrowers had
been able to sustain their market fluctuations due to the buffer of accumulated
savings. During the first phase of the project, the overall volume of
savings mobilisation has been limited. Some MFIs, particularly cooperatives,
have been more effective in encouraging voluntary savings and financial
asset growth – as proof that the poor can save. It is important
that a savings habit has been instilled, with the prospect of continual
saving over time.
Micro-enterprise development. The project followed a minimalist approach
to microenterprise development, focusing mainly on finance. There was
no provision for non-financial services and market linkages. The increased
access to microfinance has stimulated microenterprise growth and diversification.
An estimated 75% of centres with borrowers on the third loan cycle engage
in three or more income generating activities. This is a major risk minimisation
strategy for the household and greatly contributes to food and livelihood
security. It was found that seasonality has a major effect on the capability
of the borrowers to repay their loans but that by diversification of their
household livelihood portfolio, household income fluctuations can be levelled.
Further graduation of microenterprise into small enterprises calls for
graduation to individual loans, further training and access to medium-term
credit (the current framework provides short-term credit only).
Employment Generation. The increase in employment was found to be
significant. According to the ADB survey, 8% of the responding members
employed on average three workers from outside their household (the survey
does not provide information on household members working in the enterprises
in addition to the owner-borrower). 40% of these workers were hired full
time, 38% part-time, 6% irregularly and 17% seasonally.
Empowerment of women. 98% of GBAR clients are women and are to some
extent creators of GBA social capital in the Philippines. All positive
and negative impact dimensions presented concern women and their families.
This includes the recognised benefits and risks of microentrepreneurship.
Women face additional risks of disapproval of husband and lack of time
to attend weekly meetings. These are main reasons for dropping out. However,
among those who stay on, there is evidence of women having greater determination
of their own lives and livelihoods, plus stronger family bonds through
joint economic activities, shared household chores and social benefits.
Ultimately, it is women, as much as PCFC and MFIs that made this project
a successful experience.
Social capital. The project has substantially contributed to the
formation of social capital, embedded in Grameen banking in The Philippines,
as the shared normative system of a group or organisation which shapes
the capacity of people to work together and produce results according
to the group’s or organisation’s purpose. Most GBARs involved
have passed the "performance test" for the worth of social capital
in MFIs, based on viability, sustainability and outreach. Successful replicators
share the original core social capital of Grameen banking:
- High moral commitment of leaders based on values enforced through
training;
- Peer selection and peer enforcement, precluding adverse selection
and moral hazard;
- Credit discipline, but have added new social capital dimensions
of Grameen banking in the Philippines;
- Bank status (rural);
- Deposit mobilisation through differentiated products;
- Differentiated loan and insurance products which cover all costs
and yield a profit; and
- Client differentiation through larger-size loan and deposit products
for poor and non-poor members (generating additional loan capital to serve
the poor) and graduation opportunities for the poor.
Food security. Profits from the enterprise are spent for daily household
expenses. The impact survey did not collect anthropometric data on children
but shows that, on average, a client-household spends P760 (+23%) more
on food per month than a non-client household.
Policies and the regulatory framework. PCFC has been actively involved
in the policy dialogue on microfinance legislation and banking with the
poor. To a considerable extent, the issuance of a national microfinance
strategy, its recognition in the Banking Act of 2000, the opening of a
central bank window for microfinance, the lifting of the moratorium on
branching out for banks engaged in microfinance, their exemption from
regulation regarding unsecured loans and the resulting expansion the branch
network of some rural banks are due to PCFC’s active participation
and the weight of the underlying ADB/IFAD program. This also includes
the recent increase in numbers of NGOs establishing banks.
Institutions. The promotion of Grameen banking has enabled MFIs to
significantly expand their operations and reach out to the poor. The early
emphasis on NGOs and cooperatives has shifted to rural, cooperative banks
and thrift banks. Of the total number of 189 GBARs which joined the project,
162 were actively involved by June 2002. Formal financial institutions
account for 56% of actively participating GBARs, 58% of clients and 63%
of PCFC loans outstanding. In terms of repayment performance, with a global
average past-due rate of 6% and a collection rate of 96% across all GBARs,
rural banks and thrift banks did best, cooperative banks worst, with NGOs
and cooperatives in between. The mission visited 23 MFIs and three PCFC
retail sites. Among them, the rural banks are emerging as GBA market leaders,
including NGOs which have established rural banks. Each MFI has its own
story to tell, among them:
- CARD, with 56,400 Grameen borrowers, the first NGO establishing
a rural bank and a seminal trainer of new entrants;
- Producers Rural Bank Corporation, with 12,500 GBA borrowers (72%)
out of a total of 17,300, which found GBA highly profitable and proposes
a Grameen franchising/Build-Operate-Transfer business on a commercial
basis as a rapid expansion strategy across the country;
- Enterprise Bank, with 14,500 Grameen borrowers (69%) out of a
total of 21,000, which has also experimented with USAID-supported individual
lending (MABS), but finds GBA far more profitable and its growth potential
exponential;
- New Rural Bank of Victorias, which abandoned the GBAR as a failure
and found individual lending under MABS profitable, but with an outreach
of a mere 342;
- People’s Bank for Caraga, with 6,422 Grameen borrowers
(56%) out of a total of 11,543, originating from a failed NGO and a distressed
rural bank, now a new rural bank with broad ownership deriving most of
its profit from Grameen banking;
- ASKI, an NGO with 10,626 Grameen borrowers (79%) out of a total
of 13,729, which almost failed with both group and individual lending,
but is now recovering, though still in the red, and will turn over its
portfolio to a new thrift bank in co-ownership with five other NGOs;
- Cebu People’s Multi-purpose Cooperative, which has graduated,
since 1997, some 55% out of 3,840 Grameen clients to individual borrowers
with full cooperative membership;
- Lagawe Highlands Rural Bank, established by an NGO in 2000, with
1,078 Grameen and 673 individual borrowers, which is struggling to survive
- calling into question the suitability of GBA in marginal areas; and
- Sinpangabong Multi-Purpose Cooperative, which is turning into
a sole Grameen replicator with 1,336 Grameen borrowers, but finds it difficult
to mobilise funds from poor clients in a marginal area and has little
prospect of self-reliance.
Savings and the safety of savings. The main deposit products in GBA
are compulsory savings as a part of instalments. Voluntary savings in
this initial phase are negligible. In most of the financial institutions
visited, Grameen deposits account for 30-50% of Grameen loans outstanding.
Savings mobilisation by NGOs is tolerated by the financial authorities
if it does not exceed the volume of their loans outstanding. In contrast
to banks, cooperatives and NGOs are not effectively regulated and supervised
and have no deposit insurance. PCFC, as a custodian of the GBA program,
has to take special care in the selection of conduits and has an important
role to play in the ongoing policy dialogue on regulation and supervision
of NGOs and co-operatives.
The mainstreaming of Grameen replication in the Philippines. There
are several important conclusions from the case studies which are, in
contrast to earlier findings, of great relevance to the international
debate over group vs. individual technologies and of sustainability vs.
outreach:
- Mainstreaming GBA as a product of regulated financial institutions
is feasible;
- GBA as a product of healthy financial institutions can be highly
profitable and produce a share in profit far in excess of its share in
the loan portfolio; but in weak institutions, both Grameen and non-Grameen
banking does not pay off, neither in terms of outreach nor in terms of
profitability;
- Compared to 1993, the cost per Peso lent has gone down: from
47% (ACPC 1995) to 35% and 34% in CARD and NWTF, respectively, and 12.3%
in Producers Bank’s GBAR program (IFAD mission);
- The high profitability is due to the high repayment of women
and to very high interest rates;
- Outreach could be substantially increased by stronger support
to branching out through institutional loans;
- The restriction of loans to productive purposes and microenterprises
(e.g., excluding agricultural and educational loans) interferes with institutional
autonomy;
- GBA as a group lending methodology is flexible: clients may stay
in the groups, graduate to individual lending, or do both;
- Institutional sustainability and rapid increase in outreach to
the poor are not only compatible, but also mutually reinforcing;
- Not every methodology is for every bank: non-collateralised group
lending works in some, collateralised individual lending in others: for
reasons of management preference or others; and
- In either case, sound banking practices and adequate monitoring,
guidance and staff training are necessary.
Project policy. Converges with IFAD and ADB rural and microfinance
policies, with the exception of its exclusive focus on GBA; choice of
approach should be left to the institutions and not imposed.
Sustainability. Given the high profitability of GBA among several
of the participating banks and cooperatives, combined with access to sources
of refinance, sustainability for them is no issue. With assistance from
PCFC, NGOs may establish banks to make their financial operations sustainable.
While the Grameen operations of MFIs, refinanced at market rates, are
on principle viable, self-reliance remains a distant goal; rapid expansion
by existing and new institutions will require continued access to liquidity
– and perhaps more vigorous savings mobilisation from the poor and
non-poor.
Innovation and replicability. The most fundamental innovation of
the project lies in its commercial approach and the mainstreaming of microfinance.
Rural banks and NGOs-turned-rural-bank have played a crucial role in the
process: as autonomous partners which have adapted GBA as a financial
product in innovative ways (see par. 7). In the process, franchising Grameen
has emerged as a commercial proposition.
Overall impact assessment. The project has had a notable impact on
income and asset formation among the enterprising poor, including a number
of the very poor – sometimes within the very first cycle of credit.
It has empowered poor women to organise themselves in groups and expand
or start their own microenterprises. Its far more significant impact has
been on financial institutions, which have adopted and adapted Grameen
banking as a highly profitable outreach strategy to the poor and very
poor as a new market segment. In its first phase, the project has thus
laid the foundation for sustainable banking with the poor and its expansion
throughout the country.
The risks of success. The project’s success will breed failure
if it comes under political pressure to expand at a pace exceeding the
existing human and organisational capacities. Development takes time -
the evolution of microfinance in some of the now developed countries (albeit
without donor support) has been measured in half-centuries, rather than
decades. Rural banks in the Philippines have just completed their first
half-century of development – and are just at the beginning of profitable
banking with the vast numbers of rural poor.
Performance of the
project
Relevance of objectives. The poor have proven to be bankable, the
MFIs have adopted Grameen banking as a profitable outreach strategy to
the poor, targets have been over-fulfilled, there are virtually unlimited
prospects for further expansion – provided MFIs continue to be given
room for experimentation and innovation, including the adoption of methodologies
other than Grameen, particularly for graduating clients. Two objectives
are unrealistic if interpreted rigidly: the sole focus on the ultra poor
(as this would exclude a number of rural poor and raise portfolio risks
and costs); and, with a view to the future, the sole focus on Grameen
banking. There are two suggestions for the next phase: to respect the
autonomy of strong and healthy MFIs in selecting and modifying the approach;
and to leave it to the MFIs whether they start with the ultra poor and
work their way up to the enterprising poor; or whether they start with
the poor and work their way down to the ultra poor, who are IFAD’s
target group.
Effectiveness and efficiency. Grameen banking has proven to be cost-effective;
and the project has proven to effectively reach its objectives. Reporting
requirements are a relic of targeted subsidised credit programs and are
unnecessarily onerous and costly. Reporting should be adjusted to, and
integrated into, the banks regular reporting to BSP.
The partners
IFAD. IFAD's identification reports (1993) had suggested to start
with the enterprising poor; and to be more open-ended with regard to the
choice of methodology; but this was not incorporated in the final project
documents. IFAD’s involvement in the project after approval was
weak, as no representative participated in review missions and related
briefings until 2002.
ADB. ADB duly emphasised policy reforms in rural and microfinance
and the role of PCFC in policy dialogue. ADB carried out project reviews
in 1998, 2000, 2001 and 2002 and funded an impact survey in 2002. It also
provided a technical assistance grant (USD 600,000) for the development
of a MIS system and other support activities to MFIs. Reportedly, the
RMG-MIS system found little sympathy among GBARs, while other activities
such as “best practices” workshop were instrumental to exposing
MFIs to successful business cases. Interagency coordination between ADB
and IFAD could be substantially improved through greater and constant
communication, undertaking joint work programmes, missions and issuing
common project documents.
PCFC. PCFC, an apex financial institution for microfinance, has been
effective, after a slow start, in selecting and preparing MFI conduits,
establishing a viable program, and participating in microfinance policy
dialogue. Its own experimental GBA retail lending sites are being turned
over to MFIs. Under political pressure, PCFC needs to be strict in the
selection of MFIs as autonomous replicators and not just conduits for
government funds. Documentation requirements need to be greatly reduced.
Institutional loans need to be used more constructively for the expansion
of the microfinance infrastructure.
NGOs and community-based organisations. The 15 largest MFIs account
for 51% of GBA clients; PCFC should focus on the selection of strong MFIs
and phase out weak and unsustainable ones. Some NGOs have been seminal
in GBA training and exposure; in the future, this role will be increasingly
shared with banks. Under new legislation under preparation, deposit-taking
NGOs have to establish banks. PCFC should directly support the existing
trend among participating NGOs to establish banks.
Co-financiers. DoF represents the government in the project, on-lending
the ADB and IFAD funds through LBP to PCFC. With LBP, it co-chairs the
National Credit Council as credit policymaker, with the intention of bringing
non-financial institution under effective regulation and supervision.
LBP, the government’s agricultural development bank, has expressed
an interest in a stronger role in microfinance.
Overall assessment
and conclusions
Issues. In spite of the success of the project, there are also open
areas of improvement for the future. These include an increased coverage
of the ultra-poor, without compromising the economic viability and sustainability
of the MFIs and the project, effective regulation and supervision of MFIs;
support for institutional development and branching out through equity
vs. credit-only; participation in the policy dialogue on regulation and
supervision of MFIs; avoiding onerous and distorting reporting requirements
which differ from those of the central bank; reducing the length of the
chain of intermediaries; and multiple approaches vs. a single one to microfinance
for the poor.
Insights:
- The project has achieved success and momentum in social capital
formation, empowerment and poverty alleviation during the five years of
implementation;
- The GBA methodology has been effective in replication and up-scaling,
but requires flexibility of in the hands of autonomous MFIs to adapt to
local and organisational culture;
- The exclusive focus on GBA has enabled PCFC to market a product
that is simple to identify and install. Nonetheless there is demand from
PCFC for pilot-testing alternative and complementary methodologies (for
example testing of ASA and non-Grameen savings-based Self Help Groups);
- Pathways of graduation to individual credit and loan terms are
crucial to impact sustainability; they need to be further explored; and
the role of GBA centres in loan assessment redefined; and
- Access to micro-enterprise skill training requires a stronger
emphasis on linkages with competent support agencies.
Recommendations:
- Supporting expansion with different technologies to poorest areas
and people; through strong rural financial institutions, branching out
and microfinance franchising/BOT (Build-Operate-Transfer); with institutional
loans, equity investments and technical assistance;
- Supporting capacity building and training services to new entering
MFIs by rural banks and other GBARs, linkages with microenterprise support
organisations, and microbanking training for PCFC staff;
- Strengthening impact on borrowers through capacity building,
comprising leadership and microenterprise training of center chiefs;
- Improving operations by abolishing onerous and distorting reporting
requirements and adjusting PCFC interest rates to market rates;
- Improving co-operation between ADB and IFAD through joint missions,
product documents and working schedules and by speeding up the flow of
IFAD funds;
- Supporting microfinance sector and policy reform in accordance
with the reform covenant sections; strengthening the capacity of PCFC
to participate in policy dialogue; emphasising effective regulation and
supervision for all MFIs through a delegated system of supervision; and
reviewing the feasibility of the microcredit rating system proposed by
NCC;
- Support the local, national and international dissemination by
sharing experience at quarterly PCFC meetings; packaging and distributing
the adapted Grameen technology through the Rural Bankers Association of
the Philippines; and participating in the Micro Credit Summit in New York
, presenting the experience of rural banks as Grameen replicators; and
- Support systematic studies in cooperation with research institutes,
among them a study of sustainability and outreach to the poor among rural
banks and NGOs as Grameen replicators.
