Gov’t to roll out revised lending plan

BY JOSEFA L. CAGOCO, Reporter/BusinessWorld A little over half a year after heavy criticism of a move to expand direct state lending led Malacañang to reconsider, a revamped microfinance program will finally be implemented this month in just two provinces and under one government department. Industry players and experts, however, remained critical, saying the move to limit direct government lending to one agency and to areas where small financial institutions have not set up shop are not enough safeguards to reduce the state’s potential exposure to defaults. The government, they said, should stay out of the business of lending completely. The government’s microfinance intervention will be piloted this month by the Department of Social Welfare and Development (DSWD), which will be the conduit for P100 million from the National Livelihood Support Fund (NLSF). President Gloria Macapagal Arroyo had wanted the government to embark on an active microfinance campaign to stimulate livelihood. So she repealed Executive Order (EO) 138 in August last year, reallowing state agencies and corporations to provide directed credit services previously limited to government financial institutions through EO 558. After microfinance firms, multilateral institutions and even the Finance department criticized the move, Malacañang was forced to refine the directive via EO 558-A, issued in November, which charged only the DSWD to act as a conduit in areas where no microfinance services exist, with the People’s Credit Finance Corp. (PCFC) overseeing implementation of the project. As early as September, during its 25th anniversary, Mrs. Arroyo had identified the NLSF as the main funding source. In November, the DSWD and the NLSF agreed to partner for a microfinance program called Kapakanan (Kakayahan, Pagtitiwala, Aksyon at Puhunan). The program will pave the way for improvement of fund access, preferably to non-farm enterprising poor in areas not served by microfinance institutions (MFIs), implementing rules signed last month by the both agencies state. "[The government] understands the problem but is taking the wrong course of action," Philippine Institute of Development Studies (PIDS) senior research fellow Gilbert Llanto said. "No government has ever succeeded in retail lending. That’s proven by history," National Confederation of Cooperatives president and chief executive officer Cresente C. Paez said. But because the President herself had insisted on this, her subordinates were left to follow her orders and do their best at damage control, observers said. "It was really just a response eh kasi hinahanapan sila ng Presidente (because the President wanted it)," remarked a Finance official who requested anonymity. Mr. Llanto pictured a room in which microfinance institutions (MFIs) are on one side while potential borrowers are on another. Also in the room is a "very big elephant" representing the state, "crowding out MFI initiative to go to hard to reach areas." But for PCFC President and CEO Edgar V. Generoso, the perceived intrusion is necessary. "It is the government’s job to help [and microfinance] is one of the social services it provides," he said. Social Welfare Secretary Esperanza Cabral said "It is something that the government has to do because nobody else wants to do it." Mr. Generoso gave assurances that the DSWD will only provide an "enabling environment" in which MFIs can eventually thrive. "DSWD is for capacity building. When the MFIs come in, DSWD will have to exit," he said. The DSWD will begin the program in Cataingan, Masbate, where the assessment of potential clients is almost finished, and in six towns in Abra, where borrowers are being identified. The DSWD will then move to Siruma, Camarines Sur; General Nakkar, Quezon; Kalayaan, Palawan; Maslog, Eastern Samar; Mapanas, Northern Samar; and Almagro, Western Samar. The PCFC identified these as areas unserved by MFIs, among 47 of 1,500 municipalities. Other areas such as Misamis Occidental, Lanao del Sur, Lanao del Norte, Maguindanao, Sultan Kudarat, Sulu and Tawi-tawi may be assisted later depending on the success in the pilot areas, Ms. Cabral said. But industry players contend the DSWD is not suited for the job. The PIDS’ Mr. Llanto said it was inconsistent with the agency’s social welfare orientation. "Borrowers will see this as welfare," he said. Ms. Cabral qualified that DSWD is a competent conduit as the agency holds over a decade of experience through its Self-Employment Kaunlaran Program. "We have experience in lending money and getting them back. This is not new to us," she said. Mr. Llanto also said he believes politics might influence the program since a borrower is required to secure a barangay clearance. "When you borrow from a bank you don’t need barangay clearance." Barangay leaders, he said, might use this authority to select who receives credit. The implementing rules also state that DSWD will lend at prevailing market interest rates but should not exceed the retail interest charged by Quedan Rural Credit and Guarantee Corp., which is 24% per annum. MFIs, in comparison, charge anywhere from 34% to 40% a year. Of the 24% interest, 9% goes to NLSF while the balance goes to DSWD as "management fee". "We’re just after cost recovery. We’re not after profit," Ms. Cabral said. The Finance official, however, said the P100 million fund would have limited coverage. And in common microfinance practice, several cycles of borrowing are needed to make an impact. "This is such a small amount. It doesn’t help. If you are looking only at DSWD, the impact is so small or even negligible," the official said. The NLSF has released a first tranche of P25 million while the rest will be released once the DSWD submits requirements such as status reports on fund utilization, borrowers profile and portfolio quality.