La Finance Autrement – Save up and dream of the future, peso by peso
Séverine Leboucher, 29 December 2013
To save up is to anticipate tragic events. Such events are already common enough in the Philippines that there’s no need for pessimism. Such is the thinking of the women of the slums of Manila targeted by a new micro-saving project from the microfinance NGO SEED, which is supported by Entrepreneurs du Monde. The challenge is to instil a saving culture into a population that values only immediate spending.
It’s difficult to think long term when you live in the Philippines; a country regularly devastated by hurricanes and earthquakes. The countless American style ‘malls’ found in every town are a reminder that immediate consumption is the norm here. “Saving is neglected. In the minds of Filipinos, to save is to prepare for an unfortunate event”, Hilda Aytin, director of SEED, a small microfinance institution (MFI) active in the slums of Manila supported by the French NGO Entrepreneurs du Monde. When a crisis erupts, people get into debt. “It’s a vicious circle”, asserts Hilda Aytin. That’s why her microfinance organisation launched a micro-saving project a year ago; targeting disadvantaged households in Manila called the ‘PPP’ programme (‘Peso by peso’ in the Filipino language). The idea was to install local collection points close to the female recipients of the support, who could then deposit some pesos as often as possible, if not every day. Generally the amount would be 10 or 20 pesos (about 15 to 30 pence).
Désirée lives at the edge of a dried up lake in the Zapote neighbourhood where rubbish is now piled up. For a month and a half, she has acted as one of the PPP collection points. The beneficiaries of the project go to her to open an account and deposit their savings, or to withdraw them in an emergency. She keeps a record and updates the saver book. She regularly visits the nearby agency to deposit the cash. For 16 year old Vanessa, who deposits the money given to her by her mother for her school expenses, this ‘savings account’ is ‘security’. The money is safe from thieves, and from Vanessa herself, who might otherwise be tempted to spend the money straight away.
The savings that young mother Agustina (pictured to the left) deposits with SEED are dedicated to the education of her son and nothing else. It’s her ‘dream’. The MFI not only collects the small savings of the more vulnerable women of the slums of Manila; it gives meaning to this type of saving through training, like ‘Dream Your Own Project’, firstly in groups and then individually. These sessions are led by social workers rather than a credit officer from the microfinance department of the MFI. The target market is also different. The micro-saving programme beneficiaries are unable to take out credit, even a ‘micro’ credit. However, they can find a few pesos daily to go towards brighter days.
This is what Marne, social worker for the Kabulusan district, explains to Laïla (pictured below). She goes to visit her in her small bamboo hut built on piling on the seaside, where the young woman lives with her husband and her one year old son. The recent weeks have been hard for Laïla, having lost her second child at birth. Her husband Raky, a fishmonger, has left work for a few days to support her. Today, they no longer have enough money to pay back the loan they received from a neighbour; a money-lender who loans money received from relatives abroad at an interest rate of 3% per day. Generally, Raky’s business model is viable. He borrows 3,500 pesos every day to buy the fish that he then sells for a profit. From the 500 pesos he makes in profit, he can afford to pay the interest of 105 pesos. The following day he repeats the process. However, in not going to work due to the death of his baby, the business model has been broken. Now, his debt has been raised to 1,000 pesos and the 3% daily interest rate has been accumulating for 20 days. He is planning to go to another money-lender, a ‘Mumbai’ as they are called in the slums; an Indian emigrant who loans sums without guarantee at an interest rate of 20% per month.
Marne cannot in all likelihood prevent Laïla and Raky’s household from incurring more debt in the short term, but she can do something for them in the long term. “Don’t forget to save. Remember, to know how much you can afford to spend, calculate how much of your income remains after having deducted the amount you’ve already planned to save. ‘Income – savings = spending money’, and not the other way round!”. The social worker goes over the household budget with them: Raky’s income, spending for food, water, clothes, milk for the baby etc. Everything is written down in black and white to calculate how much the couple can afford to save. “You can put 100 pesos aside every week. By next September, you could also have enough money to buy your fish every day without having to borrow from your neighbour.” Raky and Laïla agree and promise to note down their daily spending and to avoid unnecessary purchases. Would that be enough? In November, the couple reached 3600 pesos in their savings club (a system of saving where members pool money and take turns in taking home the total, called a ‘paluagan’ in Filipino). This they immediately used for their firstborn’s Christmas present. Old habits die hard.
That’s why the PPP programme monitors the behaviour of savers. In case of the absence of a deposit for a certain amount of time, or a large withdrawal, collectors like Désirée pay the beneficiary a visit to review the situation. It’s an opportunity to find out about an unfortunate event that might have affected them. The social worker can then take charge of the situation. That’s exactly what Marne did in Laïla’s case.
Of course, Marne wanted to hand Laïla the 1,000 pesos she needed, so that she wouldn’t fall further down the spiral of over-indebtedness, but the MFI does not have the funding for these kinds of loan that do not generate interest and are essentially high risk. “The PPP programme is not profitable in itself. It is the social responsibility of SEED and we put it into agencies that are already financially solid”, explains Hilda Aytin. In fact, in addition to the collection and monitoring fees, the MFI pays 4% of interest per year to its savers. Of course, if this were developed on a wide scale, this saving could create a supplementary source of funds which the MFI could then loan to its clients as a form of microcredit. Nevertheless, the programme has only collected a little over 100,000 pesos against a credit throughput of 7 million. Even if the plan were developed, regulatory obstacles would arise, due to the NGO theoretically not having the right to collect the ‘deposits’ as banks are able to.
If the situation is financially delicate, the support provided is encouraging. Some of the PPP beneficiaries are chosen to participate in the second step of the ‘Dream Your Own Project’ training. The support is individually based, the assessment is extensive and the basics of management bestowed. Those for whom the project has developed the most will tip over into the ‘microcredit’ clientele of the MFI. . They’ll receive a small loan at a rate of 2.5% per month to launch their small business. Will this mean the end of their saving reflex? No, because they are obliged by the MFI to save money every time they make their weekly repayments. “The objective of this ‘Capital Build-up’ is to make sure that eventually these women will have the ability to finance their business by themselves”, suggests Hilda Aytin. “We want them to be free from these loans”. Saving rather than claiming credit means a major cultural change for these Filipino women who require time and dedication.