Impact of Microfinance on Rural Households in the Philippines

Background

This evaluation study looks at the impact of the Rural Microenterprise Finance Project aimed at reducing poverty, creating employment opportunities, and enhancing the income of the poorest of the rural poor in the Philippines. The project supports the effort of the government to strengthen microfinance institutions that employ the Grameen Bank approach to provide credit to the poor. Rural banks, cooperative rural banks, cooperatives, thrift banks, and nongovernment organizations participated in the nationwide implementation of the project.

Summary of findings

• Majority of the existing clients, new clients and non-participating households which are deemed qualified for the program are not really poor by official definition. This is in sharp contrast to other studies which indicated that majority of the microfinance program clients are poor.
• Microfinance has a positive and significant effect on income and expenditure. However, the effect is regressive which implies that poorer households do not feel as much the effects of the intervention as compared to the richer households. This further indicates that among poorer borrowers, the cost of and availability of the loans appears to be insufficient to prod them to select more productive activities to pay for the cost of borrowing and to earn some revenues.
• The project has enabled participants to reduce dependence on presumably higher priced non-Grameen loans. It has increased the proportion of those having savings accounts in program and other microfinance insitutions. Increased savings in those accounts implies better consumption potential.
• The project has made beneficiaries engaged with their enterprises. This likewise results in employment in these enterprises.
• The project has no significant impact on household assets as well as on human capital investments such as health and education. It appears that the mild impacts on income and expenditures were insufficient to change either accumulation of household assets or human capital investments.

Recommendations

Microfinance is an effective poverty alleviation tool. To further realize its benefits, the following recommendations are offered:

• There is a need to review targeting procedures to correctly identify intended beneficiaries.
• There is also a need to regularly assess the economic status of clients to avoid the drifting away from the focus on the poor and low income households.
• Considering the regressive impact on income, there is a need to assist the poor in improving the selection of projects so that these do not only ensure the repayment of loans but also generate sufficient earnings as well.