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ADB Approves $20-M Loan to the Philippines for Rural Microenterprise Finance Project

About 300,000 poor families in the Philippines are expected to benefit from a Rural Microenterprise Finance Project designed to create employment opportunities and enhance rural incomes. The project is supported by a $20 million concessional loan, approved today by the Asian Development Bank.

The project will support organizations that employ the Grameen Bank Approach (GBA) of providing credit to the poor through the People's Credit and Finance Corporation (PFCF). Credit lines will be provided to "GBA Replicators" to help meet incremental financial requirements for a nationwide GBA expansion program.

A $600,000 technical assistance grant was also approved for the institutional strengthening of GBA Replicators in financial management; management information systems; and, along with PCFC, benefit monitoring and evaluation.

Specifically, the project seeks to increase the availability of credit assistance through GBA Replicators to the target group for investment in income and employment generating microenterprises; expand the formation, growth, and strengthening of self-help groups comprised primarily of rural poor women; and promote and achieve a rapid growth of savings and savings mobilization schemes among the target group.

In addition, it will strengthen the institutional capacity of GBA Replicators to provide simple and accessible financial intermediation services (credit and savings) to the target group; assist in the development of a self-sustaining financial system for the rural poor by establishing a nationwide network of GBA Replicators; and improve the policy environment for microcredit finance programs.

The loan has a maturity of 35 years, including a 10-year grace period, and a one percent per annum service charge on disbursed amounts. In addition, the International Fund for Agricultural Development (IFAD) will provide a loan of $14.7 million equivalent in Special Drawing Rights, with a maturity period of 40 years, a 10-year grace period, and a service charge of 0.75 percent per annum on disbursed amounts.

The Government will relend the proceeds of both loans to the Land Bank of the Philippines (LBP) which will onlend the proceeds of both loans to the PCFC. As the executing agency, the PCFC will onlend funds for the incremental investment credit requirements of Self- Help Group members to qualifying GBA Replicators.

Under the Project, one credit line of about $7.4 million equivalent will specifically support a portion of (i) the start-up costs for about 270 new GBA Replicator branches and ongoing development costs for about 35 existing branches; (ii) the training of about 2,500 GBA branch managers and field and office staff; and (iii) the costs associated with the formation and institutional preparation of self-help groups.

The second credit line of about $34.1 million equivalent will solely be used to support the incremental investment credit requirements of GBA Replicators to relending to about 300,000 target Self-Help Group members for income and employment generation microenterprises. The credit line will be provided to a wide range of microenterprises in the agroprocessing, livelihood, handicraft, trade, transport and service sectors.

The GBA is a long-term successful and sustainable system for bringing effective financial services to the ultra poor, and has produced significant income, employment and other social benefits in a number of countries, particularly Bangladesh, Malaysia, and the Philippines.

The Bank has approved three projects in the microenterprise credit subsector totaling $108 million, through LBP and the Department of Trade and Industry. The first microcredit project, approved in 1988, was a pilot project using non-governmental organizations (NGOs) from six regions as credit conduits. The second microcredit project, approved in 1991, has over 1,000 participating NGOs. The Small Farmer Credit Project was approved on 22 December 1992 and is the Bank's first project to target the operating and investment capital needs of small farmers for agricultural production activities.

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