Good governance in microcredit strategy for poverty reduction: focus on western Mindanao, Philippines

The study argues for the integration of good governance principles in developing financially viable, effective and social equity-laden microcredit strategy for the impoverished agrarian reform beneficiaries in Western Mindanao. It particularly examines the program design and implementation strategies of the Enterprise Development Credit (EDC) sub-component of the Western Mindanao Community Initiatives Project (WMCIP). The study aims to provide lessons and insights for the planning and implementation of comprehensive and integrated Official Development Assistance (ODA)-funded government programs for poverty reduction and rural development. The data and information were generated from combined descriptive and field studies covering a sample survey, group discussions, interviews, field visits and observations, official documents and other secondary sources. The respondents were officials and field personnel of WMCIP, line agencies, local government units (LGUs), and non-government organizations (NGOs); officers and members of cooperatives and people’s organizations (POs); religious leaders and informal moneylenders; and WMCIP beneficiaries. Overall, microcredit is applicable only to the enterprising poor. The application of microcredit to other poverty groups who actually need subsidies and social safety nets would be a mistake. Thus, the EDC sub-component should be reformulated and revitalized following the program design of the Bangladesh Rural Advancement Committee (BRAC). Its graduated strategy for helping the poor should be applied to the poverty pyramid by categorizing the WMCIP beneficiaries into four poverty groups: (1) micro-enterprise operators or the less poor, (2) enterprising or moderately poor, (3) laboring or very poor, and (4) poorest of the poor and most vulnerable or the ultra-poor. The results further reveal that based on the poverty pyramid, the credit program designs of the Credit Assistance Program for Program Beneficiaries Development (CAP-PBD) and Quedan Rural Credit and Finance Corporation (QUEDANCOR) are readily applicable to the credit needs and financial capabilities of the enterprising poor. Beyond QUEDANCOR’s microcredit facility, the non- enterprising poor may actually opt for financial assistance from cooperatives or CAP- PBD to help finance their agriculture-and fishery-related production activities. On the other hand, the beneficiaries and their “not-so-strong” organizations that could not readily comply with the minimum credit standards should be provided with farm production subsidies, capability-building services and social safety nets under a special poverty alleviation project. This will enable them to pass minimum credit standards within a transition period of six months to one year. In view of WMCIP’s EDC sub-component, the study further identifies the factors that enable or limit successful design and implementation of microcredit program and the provision of public support services. The enabling factors are vital to planning and decision-making that will eventually make the program effective and appropriate. The limiting factors, on the other hand, facilitate the identification of strategies to manage and control credit risks and other circumstances that may hinder participation and adversely affect the attainment of objectives and desired outcomes. On the whole, the application of good governance will improve program design and will make the implementation strategies acceptable to all organized stakeholders and individual end-beneficiaries. This will also improve the administrative capabilities of partner organizations and enable them to be effective and responsive to the differentiated poverty conditions, credit needs, preferences and financial capabilities of the impoverished target beneficiaries. These are consequently geared towards the attainment of the long-term vision of sustainable human development for the impoverished WMCIP beneficiaries. The integration of good governance into microcredit intends to improve its program design, implementation strategies and processes. However, support services are actually necessary so as to simultaneously attain the desired social equity and financial viability objectives. The program should be orchestrated within a comprehensive and integrated approach to poverty reduction and rural development. The good governance of microcredit requires multiple organizational partnerships among the different government agencies, business sector and the civil society. Most importantly, the financial and technical support programs of the international donor community are absolutely necessary in the light of Philippine economic and fiscal challenges.