How do entrepreneurs use microfinance?



© CARE/Emilie Bailey



I am always interested to learn more about how people use microfinance. During a visit last month to the Philippines I had several opportunities to speak directly with entrepreneurs. Lendwithcare works in partnership with SEEDFINANCE, a local wholesale microfinance institution (MFI) in the Philippines. This means that it lends to other smaller MFIs. Among these are the First Consolidated Co-operative Along the Tañon Seaboard (FCCT) and Lamac Multi-Purpose Co-operative (Lamac), both of whom have entrepreneurs featured on lendwithcare. FCCT and Lamac are from the island of Cebu, which is a one hour flight southeast from the capital Manila. The island’s commercial and administrative centre is Cebu City, the oldest city in the Philippines.

Small-scale retail and trade enterprises that generated a regular return applied for short-term loans lasting a few months. While there were instances of investment in equipment and machinery, generally these loans were used as working capital, often to buy stock.  Entrepreneurs, such as Josephine Saldua who sells second hand clothes in Tuburan, told me that the loans enabled them to buy in bulk and pay suppliers immediately and in cash, thereby ensuring that they received a discount. In the past, they were often forced to take (often poor quality) items on credit at a higher price from wholesalers and suppliers. The ability to access loans had in effect increased their bargaining power. Entrepreneurs who bought perishable items, such as fruits and vegetables, added that when they paid in cash, they were able to select the best quality and freshest produce available - enabling them to attract more customers with better quality merchandise. Entrepreneurs involved in agricultural and livestock ventures typically used loans to purchase inputs such as fertiliser, seeds or animals and associated feed.

During our discussions three important aspects stood out.  Firstly, entrepreneurs admitted that they did not always access loans, even when readily available. Rather, they only sought loans when they did not have enough money in their savings accounts. This emphasises the importance of MFIs offering a range of financial services, including readily accessible savings accounts, not just loans. This was particularly important for farmers and others involved with economic activities that did not generate an immediate return, as savings were used to meet ongoing household expenses.

Secondly, entrepreneurs confessed that single one-off loans would not have made a significant impact on their businesses. Rather, it was the ability to continually access loans when required over a period of many years that had helped them to manage and develop their businesses. Emmanuel Climaco was case in point. He had a stall in Balamban Public Market, selling a variety of electrical items, vehicle spares and motor oils. Emmanuel told me he had received, and promptly repaid, 22 loans over a five-year period from FCCT!

Finally, women entrepreneurs in particular, favoured businesses that allowed them to work from home, even when these offered lower returns. They needed to combine earning an income with attending to other household duties, such as caring for young children. Indeed, this might explain the preponderance of women owned small retail stores or workshops operating from the home among the portfolio of both FCCT and Lamac.

This highlights the struggle many women face in balancing work and household commitments and raises a number of important questions. Are women entrepreneurs restricted from undertaking certain activities that generate greater economic returns, by their inability to manage businesses with household responsibilities? If women’s businesses do increase and occupy more of their time, what are the implications for elder children, particularly girls, who might then have to care for younger siblings and assume responsibility for other household chores? Will their education and therefore longer-term prospects suffer?  Would women’s opportunities increase if male partners assumed a greater responsibility for household duties? Unless, these questions are addressed I am not certain that the potential of women microentrepreneurs, nor of microfinance for that matter, is being fully realised.

By Ajaz Ahmed Khan, microfinance advisor at lendwithcare.org