AEC 401 - ECONOMIC DEVELOPMENT

MICROFINANCE AND FINANCIAL INCLUSION

December 3, 2024

"Empowering Communities: How

Microfinance Drives Financial
Inclusion and Economic Growth"

Microfinance and financial inclusion are crucial for addressing poverty and promoting
economic growth, especially in developing countries like the Philippines. While many people
in rural and marginalized areas remain financially excluded, microfinance provides small
loans and financial services to underserved communities, improving livelihoods and
promoting local economic development. This report explores how microfinance and financial
inclusion contribute to poverty alleviation and entrepreneurship in the Philippines,

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highlighting their impact on access to capital, self-sufficiency, and sustainable development
through real-life examples.

What is Microfinance?
- Microfinance refers to small-scale financial services such as loans, savings, and
insurance offered to low-income individuals or small businesses that cannot access
traditional banking services.
What is Financial Inclusion?
- Financial inclusion refers to the process of ensuring that individuals and businesses,
regardless of their income level or location, have access to affordable and essential
financial services. These services include savings accounts, credit, insurance, and digital
payment systems. The aim of financial inclusion is to create an equitable financial
system that benefits everyone, especially marginalized or low-income populations.
How Are Microfinance and Financial Inclusion Connected?
- Microfinance is a key tool in promoting financial inclusion. By providing financial services
to underserved populations, microfinance helps bridge the gap between traditional
banking systems and those who are excluded from them. It enables the poor and
unbanked to save money, access credit, and improve their financial literacy, fostering
long-term economic empowerment and inclusion.

Overview of Microfinance in the Philippines

● Provides financial services to underserved communities - Microfinance institutions

(MFIs) offer essential financial services such as credit, savings, insurance, and
remittances to individuals and communities that are typically excluded from traditional
banking systems. This inclusion helps bridge the gap between the formal financial sector
and the underserved populations, enhancing overall economic participation.
● Includes loans, savings, insurance, money transfers - MFIs provide a range of
financial products tailored to the needs of low-income clients. These include microloans
for small businesses, savings accounts to encourage thrift, micro-insurance to protect
against risks, and remittance services to facilitate the transfer of funds, especially for
overseas Filipino workers (OFWs).

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 ● Enhances economic stability, growth, inclusion - By providing financial access to the
poor, microfinance contributes to economic stability and growth. It enables individuals to
invest in income-generating activities, smooth consumption, and build financial
resilience, fostering a more inclusive economy.
● Supports small businesses and entrepreneurs - Microfinance plays a crucial role in
supporting micro and small enterprises by providing the necessary capital for startup and
expansion. Entrepreneurs can use these funds to invest in equipment, inventory, or other
business needs, thus driving local economic development.
● Empowers marginalized communities financially, economically - Access to financial
services empowers marginalized groups, such as women and rural communities, by
providing them with the tools to improve their economic standing. This empowerment
leads to greater self-sufficiency and contributes to the overall socio-economic
development of the community.

The Role of Microfinance in Poverty Alleviation and Entrepreneurship

● Reduces poverty through financial inclusion strategies - Financial inclusion is
pivotal for poverty reduction. Microfinance provides the poor with access to financial
resources that can help them manage risks, invest in productive activities, and improve
their quality of life, thereby breaking the cycle of poverty.
● Supports small business creation and growth - By providing microloans and other
financial services, microfinance enables individuals to start and expand small
businesses. This support is essential for job creation, income generation, and fostering
entrepreneurial spirit among low-income populations.
● Provides capital for entrepreneurial ventures - Many aspiring entrepreneurs lack the
capital to start their businesses. Microfinance fills this gap by offering small loans that
are often more accessible and flexible than traditional bank loans, thus nurturing
entrepreneurial ventures.
● Improves income levels and living standards - With access to financial services,
individuals can invest in income-generating activities, which can lead to increased
earnings and improved living standards. This improvement translates into better
education, health care, and overall well-being for families.

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 ● Encourages sustainable, inclusive economic development - Microfinance promotes
economic development that is both sustainable and inclusive by reaching out to the most
vulnerable segments of the population. This inclusive approach ensures that economic
growth benefits all, not just the affluent.

Microfinance Products and Services

● Micro-deposits
- Savings account that caters the needs of the basic sectors and low-income
individuals
- Has minimum maintaining balance not exceeding Php 100
- No dormancy charges
- Average daily savings account balance does not exceed Php 40,000
● Micro-insurance
- Insurance, insurance-like and other similar products and services for risk
protection and relief against distress, misfortune and other contingent events of
the low income sector
- Premium computed on a daily basis and does not exceed 5% of the current daily
minimum wage for non-agricultural workers in Metro Manila
- Coverage is not more than 500 times the daily minimum wage for non-agricultural
workers in Metro Manila
● Microenterprise Loan Plus
- Loans granted to the basic sectors on the basis of the borrower’s cash flow for
their growing microenterprises and small businesses
- Loans from Php 150,001 to Php 300,000
● Housing Microfinance Loan
- Loans granted for the purpose of home improvement and house construction,
house and/or lot acquisition
- Loans up to Php 150,000 for home improvement
- Loans up to Php 300,000 for house construction and house and lot acquisition

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 ● Micro-Agri Loan
- Loans granted for the purpose of farm activities, agribusiness and other
farm-related fixed assets
- Loans up to Php 150,000

Case Studies of Successful Microfinance Initiatives

● ASA PH: Empowering Women to Rebuild Lives After Crisis

Mrs. Noraisa Decampong, one of thousands of people displaced from Marawi

City, Southern Philippines, in 2017. Five years on and with access to microfinance
services, Noraisa is ready to rebuild her life. Microfinance institutions (MFIs) bridge
financing gaps for those, like Noraisa, who have limited or no access to traditional
financial services. In 2018, ADB partnered with ASA Philippines Foundation, one of the
largest MFIs in the Philippines, to launch a $30 million loan facility. The partnership
helped ASA expand its operation and provide wider access to finance for women
borrowers from poor communities in lagging and conflict-impacted provinces in the
Philippines, including Marawi. With payment arrangements tailored for borrowers during
a crisis, the project demonstrates how microfinance can be an avenue for disaster relief,
and for empowering women to rebuild their lives after a crisis. ASA's business model
also shows the commercial sustainability of microfinance and attracts private capital to
this sector.

● AKSI: A Woman with disability stand firm against inability

Leonida "Nida" Bautista of Brgy. Tibagan, Bustos, Bulacan, contracted polio as a

child, which left her disabled. Blessed with a beautiful singing voice, Nida won amateur
singing contests and later worked as a housemaid in Metro Manila, where she also
pursued a singing career, performing locally and abroad. Nida left her singing career to
care for her sick mother and used her earnings to build a house in Bulacan. At 50, she
now manages a sari-sari store to support herself and her family, having received a loan
and training from Alalay Sa Kaunlaran, Inc. (ASKI). Nida participated in the Sari-sari
Store Training and Access to Resources (STAR) Program by ASKI in partnership with

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 Coca-Cola and TESDA to improve their business management. Nida expresses deep
gratitude towards ASKI, considering them family. Nida's life purpose revolves around
helping others, and she aspires to support her siblings and grandchildren. She
encourages other people with disabilities to have faith in God, work hard, and dream big.

● ECLOF PH: Empowering Farmers to Thrive

Victor Adviento, a 38-year-old farmer from Palawan, serves as a role model for
future farmers. Initially trained as a mechanical engineer, he turned to farming after his
father's death in 2014, working on the family’s 1.7 hectares of land. With support and
training from ECLOF Philippines, he expanded his farm to 7 hectares, diversifying from
rice to a mixed farm with livestock, fruit, and vegetables. His success led him to establish
a TESDA-accredited training center, recognized in 2022 for its capacity-building efforts.
Now owning 15 hectares, Victor is also the Chairman of the Karasonan Farmer’s
Association, promoting agriculture with his motto, “May pera sa pagsasaka”. Through his
journey, Victor has demonstrated the potential of agriculture as a profitable and
sustainable livelihood, inspiring the next generation of farmers in the Philippines. His
story exemplifies the impact of support and training in transforming livelihoods and
empowering communities.