Micro enterprise financing, or the provision of access to micro entrepreneurs of small-scale loans and other financing-related services has been widely credited as a sustainable tool for reducing poverty. The microfinance movement, which the Grameen Bank started and pioneered in Bangladesh during the 1980s, has been replicated in other parts of the world, including the Philippines.
However, while many studies indicate that the impact of micro enterprise financing has been positive as it allowed poor households access to financial services, there may still be not enough concrete evidence to prove the movement or graduation of the poor households out of poverty even after several loan cycles.
Brief History of Philippine Micro Enterprise Development
The Philippine government’s efforts to develop albeit the small industry sector including micro enterprises started to intensify in the 1960s with the creation of the Institute for Small Scale Industries within the University of the Philippines (UP-ISSI) in 1966. It was also during the same period when rural banks and cooperatives started the concept and practice of servicing small loans. However, this was not sustained due to low repayment rates and initial structural problems faced by the new concept of credit provision.
During the 1970s until early the 1980s, the government launched various directed credit programs (DCPs) which it hoped will bring down the cost of credit and help reduce poverty. However, similar to the earlier initiatives by the rural banks and cooperatives, the DCPs also failed due to, among others, corruption, repayment problems, huge fiscal costs to the government and inability to reach the targeted clientele/beneficiaries.
During the late 1980s, non-government organizations (NGOs) became an active government partner in the provision of small,...