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Poverty-Complex, Strategic Microfinance, and Social Threefolding

N. Perlas, 2 April 2005

The Year 2005 is the International Year for Microcredit. From its small beginnings in Bangladesh in the 1970s, microcredit has become a global phenomenon. When Mohammed Yunus facilitated the first microcredit for economically poor women, he did not realize that he would trigger a global movement which, among others, would make microcredit one of the key strategies of the UN Millennium Development Goals.

But microcredit is not enough. Microcredit alone would not solve the problem of the poverty-complex. In addition to livelihood problems, persons struggling with poverty also have to face other challenges. Economic livelihood alone will not enable the poor to develop their full human potential and their communities.

Poverty has many dimensions, hence the concept, poverty-complex. The most obvious is the economic dimension: the lack of jobs, an asset base, low incomes and earnings, deficient market infrastructures and so on. These economic challenges are aggravated by a policy environment that is geared to empower the rich, instead of helping the poor. A country’s culture is often also loaded against the poor, including in the areas of education and patriarchal norms and behavior. Then there is also the human development challenge of malnutrition, disease, inadequate housing, and lack of security in one’s future. And often the poor, especially those in the cities, live in urban squalor and subject to the toxic effects of pollution aggravated by a lack of access to clean water and adequate energy. Often the combination of these challenges lead to a culture of silence and the defeat of the spirit of the poor.

So clearly, while microcredit is a good and important beginning, it is not enough. Microcredit alone does not address the ecological, political, cultural, social, human and spiritual challenges that harass the poor.

It is therefore a welcome development when, recently, on March 31, 2005, the Mindanao Microfinance Council (MMC) passed a resolution committing its members to pursue “social development”. This resolution encouraged the 65 institutional members of the Council to expand their service beyond microcredit to include delivery of health, education, shelter, infrastructure, insurance, and other forms of services for the poor.

In short, the Council has embraced the idea of strategic microfinance instead of simple microcredit. Strategic microfinance is a powerful creative response to the challenge of the poverty-complex oppressing the poor.

The MMC resolution is significant. Already the Council has mobilized several billion pesos in resources to serve over 300,000 entrepreneurial poor in more than 85% of all the towns of Mindanao, with millions of Filipinos living in this second largest island of the Philippines. One can already envision the profound impact this new resolution will have when, together with the poor, the new services become widespread and effective in the poorest areas of the Philippines.

There needs to be a word of caution, however. In pursuing strategic microfinance, banks and other financial institutions should learn to differentiate between an economic project and a cultural initiative. Serving the educational needs of the poor, for example, is a cultural activity. If a bank decides to set up schools, then it will lose its microcredit focus and enter into an area where it has no expertise. In addition, it will risk commodifying the educational process and subjecting it to purely financial ratios and profitability calculations. The ultimate result will be the reduction of the quality of education and, consequently, full human development. (See the related articles on social threefolding in TruthForce! (1) (2) , (3) )

To address this challenge, microfinance institutions (MFIs), including banks, need to develop strategic partnerships with civil society organizations which are the key institutions of culture. They can partner, for example, with existing schools and find ways to enter into joint initiatives that would be beneficial to both and that would ultimately redound to the benefit of the economically poor. MFIs can also establish similar arrangements in connection with malnutrition, health, and ecological regeneration, among others.

This encouraging resolution of the Mindanao Microfinance Council (MMC) will not be unique. Already, the People’s Credit and Finance Corporation (PCFC), the largest funder of MFIs in the Philippines, is encouraging its other partner councils in the four other microfinance mega-regions of the Philippines to pursue microcredit plus strategies including social development and ultimately, the even broader framework of integral sustainable development (ISD). The top leadership of PCFC and MMC requested the Editor-In-Chief of TruthForce! to introduce ISD as a framework for strategic microfinance in its recent meeting of partners in Davao City, Mindanao.

This development also shows the operational power of social threefolding. Those concerned can only solve the poverty-complex if they can mobilize the strategic involvement of the three key societal actors and powers in any society: business, government, and civil society. For the poverty-complex requires the mobilization of society as a whole. As decades of failed anti-poverty work has emphasized, piecemeal approaches will not succeed.

Business can mobilize financial resources, markets and talents. Government can harness political capital and assets and create an enabling policy environment that would stimulate the pursuit of strategic microfinance. Civil society can activate cultural power, social and ecological capital including its proven ability to mobilize communities to create a better future. When they come together in a strategic microfinance initiative, they can transform the poverty-complex into a wide-ranging opportunity to enable the poor to be the key agents of their own development.

PCFC is a government-owned corporation, subject to the goals and objectives of government policy. But PCFC has insulated itself from political maneuverings and has given over, on a professional basis, P2.8 billion of loans to its business partners, the 199 partner MFIs. Through these loans, PCFC has leveraged more than P5 billion worth of financial resources from its partner MFIs, not to mention the more than 5,000 dedicated staff found in its network. Together, the five regional microfinance council partners of PCFC make up the bulk of microfinance services in the Philippines, serving over 1.4 million enterprising poor and their families. And increasingly, a significant number of these MFIs are developing strategic partnerships with civil society to address the other aspects of the poverty-complex. This is power of social threefolding in action.

The resolution of the Mindanao Microfinance Council is a microcosm of global developments. MFIs in Asia, Africa, and Latin America are increasingly entering the area of strategic microfinance. From there it will be only a short time before MFIs ultimately pursue integral sustainable development and social threefolding. When this happens, then the poverty-complex will slowly but surely disappear. Then the billions of human beings who are trapped by the poverty-complex will be liberated, free to contribute constructively towards their own development and that of the planet.

N. Perlas

Editorials also appear on TruthForce!


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