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One criticism of microfinance is its inability to produce meaningful poverty movement on a macro level. The belief is that providing credit for micro-entrepreneurs produces some incremental change on an individual basis, but doesn’t produce the substantive change needed to lift a community out of poverty. By substantive change, I mean employment, infrastructure, commerce, and improvements in healthcare and education. In this post I want to focus specifically on the idea of microfinance’s inability to produce businesses of adequate scale.

In theory, microcredit aids people starting or maintaining small businesses to generate extra income for the family. (In reality, recipients of microfinance loans spend the money on expenses unrelated to the business altogether, but this is a different topic). Where microfinance is deficient is in shepherding these small businesses to become something bigger than just a micro-enterprise. For any business to grow, it needs to do two things: reduce the amount it spends and increase the amount it brings in. But micro-entrepreneurs can get stuck in a trap created by a lack of resources. For many of the poor communities served by microfinance, the cards are stacked against them. Let me explain with an example.

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This is a campaign poster found plastered on a wall on the side of the road somewhere in Bacolod.  It shows Benigno “Noynoy” Aquino, the current frontrunner for president in the Philippines election, with Andal Ampatuan Jr., perpetrator of the worst election massacre in the history of the Philippines.  Above their pictures is the phrase “Patay Tayo Dyan!” – “We’re dead meat!”  Of course, they are not actually running together, but it is a good campaign trick for his opponents.  This is a recent addition to the campaign posters that line every inch of visible space in Bacolod and the rest of the Philippines.

The national election is a great time to be in the Philippines.  It happens once every six years, and the country fires up.  Tonight is the night before the official election, which means the candidates have their people in the streets handing out money – 500 pesos at a time, or $10 – in exchange for votes.  When the candidate cannot buy the voters, he rents a bus, fills it with beer and pork, and sends the people to the beach for a day of drinking, partying, and non-voting.   In America, we pay lobbying firms to bribe the politicians for us and use Karl Rove to divide up the electorate.  In the Philippines, they cut through the fat and shoot from the hip, if you’re pickin’ up what I’m puttin’ down.

Imelda Marcos, wife of the Ferdinand Marcos and owner of a lot of stolen Filipino money. Now Congresswoman Marcos.

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On Monday, the Philippines will hold a national election.  It is the first time the country will be using an automatic voting system, and nobody knows what is going to happen.  It seems appropriate to include this post before the election is over.  For more on the candidates, check out this BBC News primer.

Over the last four decades, the economic landscape in Southeast and East Asia has shifted.  After World War II, the Philippines had the second largest economy in Asia (behind Japan).  Years of mismanagement, corruption, and poor government policies dragged the economy down during the 70’s and 80’s.  The policies of Ferdinand Marcos, a strongman who imposed martial law on the country until 1981, depressed economic growth during his years in power.  Isolated incidents, including a severe recession in 1984 and the Asian financial crisis in 1997, put further downward pressure on the economy, hampering progress after reforms in the 1990’s.  Even now, the period of optimistic economic growth which President Gloria Arroyo has attributed to herself is, in reality, a result of remittances from abroad, which account for 11% of GDP.  All of this has led to a national poverty incidence of 40%.

Compare this with China.  In the 1981 the poverty incidence in East Asia was 85%.  Over the last 30 years, China has enacted economic reforms designed to drive the poverty level of the country down.  As of 2005, the poverty incidence in East Asia had fallen to 16%.  This decline of 600 million people is attributable almost exclusively to China.   The chart to the right shows something amazing: when you remove China from the picture, the percentage of people living on $1 and $2 per day has remained essentially flat over the last 20 years.  Since 1990, China has accounted for almost all of all of the poverty alleviation in the world.  Why has China done such a good job of pulling its people out of poverty, while the number of poor seems to stay relatively consistent in the Philippines?  The system of governance espoused by the two countries over the last 30 years is at least part of the answer. (more…)

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Tomorrow is a big day in the Philippines.  For two hours during the day, the country grinds a halt.  The crime rate falls to zero, because the would-be criminals are shoulder-to-shoulder in front of the TV, watching a national superstar represent the Philippines on the world stage.  I’m talking about the pay-per-view fight between Manny Pacquiao and Joshua Clottey.  To say Pacquiao is anything less than a revered treasure here in country would be an understatement.  He is fighting for the welterweight title.   This fight took the place of the controversial bout against Floyd Mayweather, when the two fighters couldn’t come to an agreement about drug testing policies.  After much trash-talking from Mayweather and his father, Pacquiao talks about showing respect:

The Filipino champ insists he is not taking Clottey lightly. “Clottey is a good fighter,” said Pacquiao, who has won 11 consecutive fights. “He is so strong and he is bigger and taller than me.

“I don’t want to underestimate this opponent. I am going to do my best and give it a shot,” he added.

Clottey, for his part, said he is ready for whatever strategy the pound-for-pound king has set on him.

“I never crack before so I want to see if he can do that. But no matter what happens, I will still respect him,” said Clottey, a former International Boxing Federation (IBF) welterweight champion.

Pacquiao is also grateful for the Ghanaian’s respectful manner of addressing him. Just like the Filipino champ, Clottey’s refused to trade trash talk.

“I like this match very much because there’s no trash talk and we can be a good example to everyone,” said the Filipino boxing superstar.

Treat people with respect – the Filipino way.  Everyone should watch the fight tomorrow, ideally with some Filipinos.  It’s going to be great.

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Last week I tried to pay my credit card bill online.  Using a different computer, the site wanted to verify my identity with a security question – “what is the name of your elementary school?”  After three failed attempts, the system locked my account, forcing me to call to re-activate.  When I called Capital One, the girl on the other end of the line spoke perfect English, though she had a slight, almost unnoticeable accent that has become very familiar to me over the last three months.  I asked where she was located, and she said Manila.

In order to get into the Philippines, you need a flight out of the country.  Back in November I booked a refundable ticket from Manila to San Francisco on United Airlines.  The other day I called up to cancel the flight and collect my cash.  The girl picked up the line and same song, second verse.  I asked if she was calling from Manila, and she confirmed – Makati, to be more specific.  “I was just in Makati for a conference,” I said.  “Yes, this is the business center of Manila, sir,” she responded.  I felt better knowing that I was dealing with a Filipino on the other end of the line. (more…)

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This is a journal about the practice and theory of microfinance, and, more broadly, international economic development and poverty alleviation globally.  If you’d like to get new posts sent to your inbox, please sign up, or subscribe to to my RSS feed.  Thanks.


In an earlier post, I talked about green products and the concept of the triple bottom line.  Environmental cookstoves save money, save lives, and produce less carbon emissions.  Believe it or not, black carbon, or soot from cookstoves in developing countries, is the number-two contributor to global warming.  These more efficient stoves pay dividends.  But this is not the only green product serving the developing world.  Solar products – lanterns, cell-phone charging stations, DVD players, and even micro-utilities – offer a cheap, alternative means of energy delivery in the third world.

Much of the Philippines - the areas in red - is less than 75% electrified.

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On Wednesday morning, I woke up at 7:00 to get ready for call I had with some head honchos at Kiva about how we can put solar energy loans up on the Kiva website.  After that, I had to talk to the Kiva microfinance partnerships manager for Asian MFIs about an Excel model he built that automatically generates profiles to be uploaded onto the Kiva website.  I am modifying it to fit the specific needs of NWTF, but the process of following his logic is complicated and tedious.  I needed to go straight to the source.  By 9:30, I was ready to officially start the day.

Awaiting the drill.

The military dentists helped with the mission.

Last Saturday, a group of 26 Canadians came to Bacolod as part of a dental mission organized by the Rotary Club of Vancouver.  There are five dentists, a handful of hygienists, and others that are distributing eyeglasses or acting as gophers.  The mission is being held in a gymnasium in the city of Talisay, about 20 minutes north of Bacolod.  The group sees between 200 and 300 clients per day, performing mostly extractions with some fillings.  Clients hail from mostly the surrounding branches, which also happen to be first branches to post Kiva clients.  I had heard that the clients from Hinigaran branch would be at the mission on Wednesday.  I’d been meaning to get down to Hinigaran for a round of client interviews, but hadn’t had the chance.  Also, collecting information for Kiva journals usually means a loan officer or branch manager has to take you around to each client – a nuisance, to be sure.  So, armed with a list of Kiva clients in Hinigaran, I caught a ride in one of the vans heading that way. (more…)

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