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Economic recovery and going back to the basics

December 20, 2021

The sun always comes out after a storm. The adage is true, as slowly, the country is moving from a pandemic to an endemic mindset. All regions are now classified as minimal to low-risk from COVID-19, and over 40 million Filipinos (almost 40% of the population) have been fully vaccinated. Herd immunity is becoming a reality, as the Government eyes a second mass vaccination drive to raise the number of fully inoculated to 54 million before the year ends.

Truly, we have a lot of things to be grateful for as the Christmas season approaches. Public transport capacity has expanded, the economy is reopening, and quarantine requirements had been relaxed. Already, economists and multilateral agencies have raised the Philippine growth forecast for this year and 2022.

COVID is still around, yes, but we are learning to live with it. As a social development practitioner and financial inclusion advocate, I propose going back to the basics to sustain these gains. Finally, we are on our way to rebounding from the deep economic contraction in 2020. The challenge for us is to push the momentum towards full economic recovery and social renewal.

Microfinance and Financial Inclusion

Going back to the basics means revisiting our roots. Nowadays, the term “microfinance” is almost passé, having been swallowed by the broader phrase “financial inclusion.” But microfinance practitioners should rally behind the fact that microfinance is the heart and soul of financial inclusion, since the industry pioneered the transformative vision of making financial services accessible to poor people. Much remains to be done to reach the unserved and underserved. The COVID-19 pandemic has aggravated the situation, with more people becoming poor, and the poor becoming even poorer. While digital transformation among microfinance providers -- as well as the rise of fintechs -- have improved access to financial services, the digital divide remains a challenge among the poor population.

Why is there a need to focus on microfinance? From a developmental perspective, any improvement in capital markets reaching the margins is a good thing. A lot of research has examined the positive impact of microfinance on peoples’ lives and its positive benefits to the country’s economy. At first glance, microfinance seems counter-intuitive given its goal of facilitating poor people’s access to much-needed financial services and integrating them in the formal financial system. In a manner of speaking, the goal is to ‘graduate’ them from microfinance, and therein lies the rub.

Microfinance has a long way to go. Because the problem of the poor is more than just access to financial services. Poverty eradication advocates and microfinance advocates understand this. Giving financial aid is crucial, but beyond that, the poor needs financial literacy, capacity-building, marketing support, and a gamut of services that will allow them to be productive members and change-agents in their communities.

And how does microfinance relate to financial inclusion? Microfinance -- the extension of financial and other support services to low income groups -- is a very important economic conduit designed to facilitate their inclusion in the formal financial system and assist the poor to work their way out of poverty. Financial inclusion aims to give everyone access to banking and other useful financial tools, while microfinance seeks to ensure that the use of those tools leads to positive benefits for the poor. Simply put, microfinance aims to address more than the problem of access; its ultimate goal is to give impoverished people an opportunity to become self-sufficient. And that is why microfinance is more important than ever.

Rural Development and Agricultural Financing

We also need to revisit the crucial role of microfinance in the rural development process. Agriculture remains the backbone of the Philippine economy, and 75% of poor Filipinos live in rural and agricultural areas. The way is clear, as we should go where we are needed – that is, towards providing financial support to help farmers, agricultural workers and agri-preneurs. Agricultural financing will help us make a dent in the country’s poverty situation while also contributing to our food security. The latter is especially important, as the COVID pandemic has disrupted the food supply chain, which is everybody’s concern.

The Philippine Statistics Authority has reported that the Philippines’ value of production in agriculture fell by 2.6% in the third quarter of 2021. The drop was attributed to the decline in production of crops, livestock and fisheries during the quarter. The provision by the government of agricultural credit, the opening of the economy and the relaxation of rules on travel and community quarantine have given breathing space to farmers and fishers, but a lot remains to be done to help them recoup their losses from this year’s typhoons and the pandemic.

To respond to this need and also given its background, the Center for Agriculture and Rural Development Mutually-Reinforcing Institutions (CARD MRI) has always prioritized support for agricultural and agribusiness endeavors. Its approach is holistic. CARD MRI provides microcredit, microinsurance, capacity-building, and market support to farming families, giving priority to poor women in rural areas. Its agri-loan program finances agricultural production and related activities, e.g., acquisition of farm equipment, poultry and livestock, fishery products, crops, fruits and vegetables production, seedlings and ornamental plants production. In addition, the CARD Crop Assistance Program (CCAP) assists clients whose agricultural business has been damaged by natural calamities. It also implements a credit-with-education program as part of its agri-loan product, and links clients to individual and institutional buyers. Its business development services include trade fairs for agri-preneurs and facilitation of their clients’ partnership with industrial buyers. CARD MRI has a long-standing partnership with the LBP, IFC, BPI, BDO, PNB, and other commercial banks for the provision of microcredit to poor people in rural areas.

Why Advocacy is Crucial

Be that as it may, and despite its outreach of 7.8 million clients nationwide, CARD MRI is just one industry player in an ever-growing sea of low-income agricultural families needing support.

Thus, we need to intensify our advocacy and place microfinance, financial inclusion, and yes, agriculture, at the forefront of policy debates as the country braces for the 2022 election. A vibrant agricultural sector is the key to faster economic recovery, and our next batch of leaders should be made cognizant of this, as well as the crucial role that the microfinance industry plays in the country’s development and in combating poverty.

Microfinance is important because we need more than just institutions providing financial aid to the needy; we need a transformative relationship that goes beyond access to banks or credit provision. The government must ensure that those who are marginalized even by the digital revolution are served. And we need to stay the course, because when there are a lot of challenges, the only way to go is forward.

We are now on the right track to economic recovery. Even with the threat of new COVID variants emerging, the Philippines -- like the rest of the world -- can move forward. We can do this if we will just go back to the basics, and not lose sight of our poor brethren.