The Poor in the City after Typhoon Ketsana

The Poor in the City after Typhoon Ondoy



The major typhoons that hit the Philippines towards the last quarter brought the worst flooding in the greater metropolitan Manila area in four decades. Wide, densely populated areas were inundated, damaging billions worth of infrastructure and affecting more than four million people. Many of those who were chased out of their homes by floodwaters have returned and started rebuilding or have relocated to new communities. But thousands remain in evacuation centers. They are the families of informal settlers living along major waterways that could no longer return to their homes even if floodwaters spawned by the typhoons have completely subsided.

In times of catastrophes, humans naturally look around for something to blame. The lack of disaster preparedness was readily blamed. Being typhoon-prone, the country would naturally be expected to put substantial resources on this. Deforestation is also one of the usual suspects and with reason, since only 30 to 40 percent of the precipitation hitting the ground goes directly to streams. Most of it, surprisingly, is taken up and used internally by plants. Some water penetrates soils and moves below as groundwater, feeding forests and replenishing aquifers. Heavy city build up, therefore, is also to blame, since water run off from wide concreted areas will need some time to find their way to the ground that will partly absorb it. In line with this, urban planners and architects began appearing on TV after Typhoon Ondoy to remind us that the subdivisions on natural catch basins are one major cause of the flooding. But the one usual suspect that will probably meet more consequence for the blame put on it are the informal settlers, also known as squatters, the homeless, who are accused of clogging waterways with their shanties.

But Manila, which lies in the Pasig River catchment basin and fed by waters from the Marikina river basin, has always been flood-prone, even when there were more forests and swamps, and less concrete, less subdivisions in natural basins, and less urban poor living along waterways. As Ondoy (international codename Ketsana) raged, Facebook users uploaded pictures showing old Manila (1910s, 1920s) submerged in floodwaters.

The Pasig River has always been vulnerable to flooding in times of very heavy rainfall and the Marikina River tributary is the main source of the floodwater. The Manggahan Floodway was constructed to divert excess floodwater from the Marikina River into the Laguna de Bay, which then serves as a temporary reservoir. But the only outlet of excess water in the Laguna Lake into Manila Bay is the Pasig River itself. In times of heavy rains, the rise of water in the Pasig River basin and in Laguna Lake, which is but a shallow lake with a mean depth of 2.8 meters, means that communities in these areas do not have much to hope for but endure the floods. Experts have revised old proposals for the construction of a water spillway from Laguna Lake to Manila Bay to cut through Parañaque instead, which is the narrowest strip of land at 8 kilometers between the two bodies of water. The spillway is supposed to have been implemented together with the Manggahan floodway but was shelved by post-Marcos administrations.

The geologic scale of the required solution to the flooding problem in Metro Manila makes the ‘squatter problem’ look like a puny diversion, and if implemented will actually make Metro Manila even more attractive to migrant workers who will then have to settle in the cities, informally.

Stop blaming the urban poor for the flood as they were blamed before for crime and blight.

According to the Laguna Lake Development Authority (LLDA), at least 400,000 squatters blocking key drainage channels of Laguna de Bay need to be uprooted in order to fix Metro Manila’s flooding crisis. These squatters are among the estimated one million people living on the shoreline of Laguna de Bay, which will stay flooded for up to five months unless drastic action is taken, according to LLDA chief Ed Manda. [1] DPWH Secretary Hermogenes Ebdane is proposing a review of zoning ordinances to stop squatters from clogging and rendering ineffective the flood-mitigation projects in Metro Manila and other flood-prone areas. [2]

That squatters clogged the waterways to cause the massive Metro Manila flooding was belied in some instances by the fact that their shanties were washed away by the floods. At the height of Ondoy, everyone with TV and Facebook watched in horror how the shanties, instead of damming up the water, were swept away by the water.

That they continue to clog the waterways, thus preventing the draining of excess water of Laguna Lake into Manila Bay, may be true and should provide an opportunity to push for housing relocations for the informal settlers. But should it be more of the same formula of relocating the informal settlers to far-away areas? But if it will be more of the same formula of relocating the informal settlers to far-away areas. It will be like moving them from a natural disaster area to economic wastelands, away from livelihoods and public services. And government efforts to keep the city free of squatters would be futile given the much larger and powerful forces that are driving urban migration and concentration of population in cities. The point is to make exits and entries to our cities accessible, rather than inaccessible, to everybody.

Why do poor people risk living in danger zones within and in the peripheries of Metro Manila? Because there is simply no other place for them in the city from where they derive a living, because the city is built up to suit the needs of the well-to-do and not of everybody contributing to its growth. The city is where people go to ‘make it’ in life, but most people have been eased out of the city even before they could get there. And so they are condemned to settle in danger zones – along the rivers, creeks, tidewater estuaries (esteros) and other waterways, and along railways, roadways or sidewalks and aqueducts, and under bridges. For the poor, these locations are better options than being far away from their occupations. Until the floods, the waterways were almost the safest place on earth; had they chosen to live on highway easements, death from trucks could have been a daily occurrence for them.

In the aftermath of Ondoy, the impression is that pollution and accumulation of solid waste on waterways are caused by the illegal settlers living along the waterways and riverbanks. It is true that the informal settlers are one source of pollution, but so is everyone else. Only 5% of households in Metro Manila have access to sewers, which means that the pollution and settled garbage in waterways and rivers are literally everyone’s sh*t. And if indeed the urban poor are singularly most responsible for the piling up of garbage in waterways, then what this means is that these communities lack access to the basic services of garbage collection and solid waste management. Without these services, garbage would pile up in the streets even in the most decent neighborhoods.

That the urban poor’s dwelling structures are not just erected along waterways but encroaching right on waterways to impede water flow might be true. But this is also an indication that, whereas there is some modicum of regulation to guide formal housing developments, nothing of the sort is provided to informal settlers. The result is the total lack of coordination, leading some squatters with no choice but to construct dwelling at the farthest edges of habitability. But if there is a government to guide them in their current plight as homeless citizens, even their temporary informal settlements can be much more orderly and safer. Of course, this might be unthinkable, since the overriding concern is that squatters are not supposed to be present on any land that is not their own. It would be like giving them some sort of tenure. Giving them some advice on how to squat and be safe would be like teaching a thief to steal and not get caught. But then squatters are not thieves, just people with no place to go, and temporary tenures can be justified as a means to encourage order, cooperation and safety in the construction of informal dwelling sites pending the resolution of the urban housing problem.

People whose homes along waterways were washed away by the floods are now being prevented to reconstruct their shanties where floodwater has subsided, ostensibly to keep them away from danger, but also to take advantage of the perception in the disaster aftermath that the informal settlers are to blame for the floods, and this is in order to pursue the social apartheid policy of relocating the urban poor to the provinces.

Can we say that those with no property in the city or those who could not afford rental housing have no right to stay in the city? Can we just leave it at that?

The issue is how to make the city accessible not only to the rich that have formal, secure jobs and own homes and businesses, but also to the large population of informal workers with nothing else to their names but their own persons. The alternative to accommodating the urban poor as an important sector of the city economy is having more exclusive urban enclaves for the middle class, complete with serene, soulless waterways and breathtaking views of lakes from their windows. Only the middle class in OECD countries can live that way. In Metro Manila, that will be a disaster even to the middle class who will then see that many of the amenities they take for granted is due to the willingness of urban poor workers to carry a low paying job or two to make the city economy run.

The idea that we should in fact ‘give back to nature’ what belonged to it (like urban waterways and swamps) sounds like an eco-fascist idea that is dangerous even to the middle class. The earth always has a use for any geologic feature on its face. We should instead engineer our waterways so that they become actually functional and better both in containing floods and in accommodating living spaces, parks, and a variety of other uses. As for the swamps converted by real estate developers, how about consolidating lands for medium-rise buildings so that the freed up lands can become forests and waters once again in the middle of the city? How about affecting also the way the middle class lives?

The flooding is natural and unavoidable, but the loss of life and damage to property is a result of our infrastructure gaps.

Academics have brought attention to the view that real estate developments impeded the flow of rain waters to waterways, and the extraordinary large amount of rains that poured over Metro Manila on September 26 simply underscored this. The Marikina River and other waterways that swelled when Ondoy battered Metro Manila are clogged not only by illegal settlers, but also by subdivisions, aggravating the heavy flooding that drowned many communities. The flood could have been lower and could have risen slowly if there were no constrictions in the waterways, according to University of the Philippines (UP) Marine Science Institute Professor Fernando Siringan. The badly hit Provident Village and the SM Mall in Marikina City are actually sitting on flood plains or flat spaces occupied by water when rivers swell, UP engineering professor Guillermo Tabios III said.[3]

Experts also believe water spillways to connect Laguna de Bay to Manila Bay should have been constructed long time ago to mitigate the capacity of the lake to absorb floodwaters.

Laguna Lake (or Laguna de Bay), is basically a large but shallow freshwater body, with an area of 949 square kilometers and an average depth of only 2.8 meters. It drains to Manila Bay via the Pasig River via the Napindan Channel. The lake is fed by 45,000 square kilometers of catchment areas and its 21 major tributaries from the river basins surrounding it. [4] [5] The Manggahan Floodway is an artificially constructed waterway that was built in order to allow water flows from Marikina River to be diverted to or from Laguna de Bay, apart from the 20 other rivers that empty into it.

The Pasig River has always been vulnerable to flooding in times of very heavy rainfall and the Marikina River tributary is the main source of the floodwater. The Manggahan Floodway was constructed to divert excess floodwater from the Marikina River into the Laguna de Bay, which then serves as a temporary reservoir. By design, the Manggahan Floodway is capable of handling 2,400 cubic meters per second of water flow, although the actual flow is about 2,000 cubic meters per second. To complement the floodway, the Napindan Hydraulic Control System (NHCS) was built in 1983 at the confluence of the Marikina River and the Napindan Channel to regulate the flow of water between Pasig River and the lake.

Pasig River winds generally north-westward for some 25 kilometers (15.5 mi) from the Laguna de Bay to Manila Bay. The Pasig River is technically a tidal estuary in that the flow direction depends upon the water level difference between Manila Bay and Laguna de Bay. During the dry season, the water level in Laguna de Bay is low and the flow direction of the Pasig River depends on the tides. During the wet season, when the water level of Laguna de Bay is high, flow is normally from Laguna de Bay towards Manila Bay. From the lake, the river runs between Taguig City and Taytay, Rizal, before entering Pasig City. This portion of Pasig River to the confluence with the Marikina River tributary is known as the Napindan River or Napindan Channel. [6]

The Napindan Hydraulic Control Structure or NHCS was also meant to prevent the increase of salinity from Manila Bay and pollution from the Pasig River from entering Laguna de Bay during these times of reverse flow. By closing the NHCS during times of rain, the water is effectively dammed in Laguna de Bay, preventing it from flooding the downstream portions of Pasig River and the tens of thousands of families living along the river.

According to one observer, the Napindan Channel is actually a waste of money. “It did not serve the purpose for which it was constructed as shown when Marikina River overflows, flooding the City and its neighboring towns unprecedented in its history. The theory that Napindan Channel will block the increasing salinity of the lake due to the intrusion of salt water from Manila Bay will not hold as it is a nature’s way of cleansing the turbidity of the lake and it has been always ever since.”[7]

It may then be too much to expect Laguna de Bay to catch waters coming from Metro Manila, even with the existence of the Napindan Channel and Manggahan Floodway. During heavy downpour, coastal communities of the lake are flooded for weeks and months until the water level subsides. The water level at Laguna de Bay is at 11.5 meters during the dry season and rises to 14.0 meters during the wet season. The Manggahan Floodway did not serve it purpose of diverting water from Marikina River as water level at Laguna de Bay rose to the level as that of the Marikina River as it was during the Ondoy flooding. Blames were put on dams for releasing water and on Napindan Channel for remaining closed. But dams not releasing water and opening Napindan could have spelled greater disaster.

The construction of Napindan Channel sparked conflicts over the uses of the lake as fishing grounds and as catch basin for flood water. Saltwater is said to have a disinfecting and rejuvenating effect on Laguna Lake, enhancing the growth of fish and aquatic resources. Napindan Channel is often closed at the onset of rainy season as a flood prevention measure. But this causes the rapid growth of algae, causing bangus and tilapia grown in the area to have a muddy taste (gilik). Although Department of Agriculture (DA) Secretary Cito Lorenzo said there is still opportunity in this, citing the demand of Chinese tuna catchers for this kind of bangus as bait, he said that LLDA should coordinate with the Metro Manila Development Authority (MMDA) on the proper scheduling of the opening and closing of the Napindan Channel in Taguig to allow the entry of seawater from Manila Bay to flow into Laguna de Bay through Pasig River. According to Lorenzo, “proper scheduling of the opening and closing of the channel will accrue to a win-win solution for both Laguna lake fishers and Metro Manila residents during the rainy months.” [8]

Experts are now reviving proposals for the construction of the Parañaque Spillway to unburden Laguna Lake of floodwaters. According to an urban planner, Architect Felino “Jun” Palafox, the flood map of September 1970 is eerily the same as the flooding that happened September 2009. He said constructing the Parañaque Spillway, which will allow the Laguna de Bay to directly flow to Manila Bay instead of having to pass by the already clogged Pasig River, could have prevented the flooding. Parañaque would be a logical choice, he said, as it is the “narrowest band of land” between Laguna Lake and Manila Bay at only eight kilometers. [9] [10]

In a TV interview, Palafox said the proposal was to build a two-level tunnel that will drain off excess water from Laguna de Bay into Manila Bay, to prevent the flooding of lakeshore towns. The upper level would serve as road tunnel for motor traffic westward towards Manila Bay and for eastward traffic towards Laguna de Bay. From zero elevation in Manila Bay, the topography goes up 30 meters within a 15-20 kilometer distance in the Quezon City area then goes down to 1.0 elevation within a 5-20 kilometer distance in Marikina and Laguna de Bay then goes up 300 meters again to Sierra Madre Mountains up to the shores of Pacific Ocean. Palafox said the topography will really allow water to be trapped in low-lying areas near Laguna de Bay such as Marikina, Taguig and Pasig, the hardest hit areas during Typhoon Ondoy, hence the need for another waterway. He said this analysis and study only constitutes the effective flow of water and maintenance of water levels in the different bodies of water. Inputs on global warming, which will produce six to seven meters increase in tides, are yet to be considered. [11]

In other interviews, Palafox said the construction of the spillway was covered by two presidential decrees in 1972 and 1974. It was part of the 327 recommendations that Palafox forwarded to the government when he headed the World Bank-funded Metro Manila Transport Land Use Development Project, which covered 40 towns and cities, during the ‘70s when flood also ravaged the Marikina area. According to the original plan, the Parañaque Spillway should have been constructed along with the Manggahan Floodway, which was the only one built. The floodway aims to maintain the level of water in Pasig River. But, according to Palafox, the Manggahan Floodway is not enough because it should have been a tandem project with the Parañaque Spillway.

President Arroyo said “we should already ask the DPWH to work on the spillway” after Palafox presented his proposal, while Congress leaders expressed readiness to fund the massive flood control project in next year’s national budget at an initial P5 billion to P10 billion to jumpstart it.[12]

Parañaque, however, is a heavily built-up area, and resolving the right-of-way issues would be astronomical. A critic of the proposal said “the project aims to build its tunnel under Sucat Road, which will presumably start near the Meralco Sucat Plant and presumably connect with the Parañaque River near the Parañaque Church in Barrio La Huerta, the diverted flood waters emptying into Manila Bay near the Chinese temple on the Coastal Road. This point is about 50 meters lower than the surface of Sucat Road. It is neither safe nor feasible to dig a trench or gorge this deep in such a heavily built-up and heavily populated area. The disruption to traffic flow and commerce would be catastrophic. The residents of nearby Posadas Village would certainly object to a tunnel being bored underneath or close to their subdivision. So would business and building owners along the length of Sucat Road.”

Unconvinced with the proposed Parañaque Spillway, others are proposing the construction of spillway and tunnel between Pangil and Paete, Laguna down to Lamon Bay. Accordingly, costly right-of-way problems can be avoided economic progress can be stimulated on the eastern section of Laguna de Bay. The tunnel or passageway, with an estimated 25 kilometers distance, may be put to another use, according to the proponents, as an access road during summer and be closed to travelers during wet season.

The geologic scale of the required solution to the flooding problem in Metro Manila makes the ‘squatter’ problem look like a puny diversion, and if implemented will actually make Metro Manila even more attractive to migrant workers who will then have to settle in the cities, informally.

The informal settlers are not the problem, they are the solutions.

There are more than 650,000 informal settler families in Metro Manila alone, according to a report of the Urban Asset Reform Program. Some of these and others outside Metro Manila that are blocking water flow out of Laguna Lake is 400,000, per LLDA figures. This is the actual number of families that will be affected by a policy of clearing the metropolis of squatters to make waterways work in preventing floods.

Using survey data of local government units and the National Housing Authority (NHA) in September 2007, the Metro Manila Inter-Agency Committee on Informal Settlers (MMIAC) puts the number of informal settler households at 544,609. The number of squatter families represents 21 percent of the estimated 2.6 million households in Metro Manila. One of every five households of informal settlers lives in danger areas such as riverbanks, floodways, roads, aqueducts, and under bridges.

President Arroyo has ordered the immediate relocation of families near waterways following the massive flooding. The MMIAC said half of the informal settlers, or more than 270,000 families, had qualified for the government’s 10-year socialized housing program worth more than P32 billion. The first available housing option is the development of off-site/off-city resettlement areas. An example of this would be the house and lot provision of the NHA costing P200, 000 per family in resettlement sites like Calauan, Laguna, in which case the government shoulders the initial costs and recovers these through affordable monthly amortization of P300 to P500. MMIAC said the government would need P3.225 billion yearly to come up with the 22,689 socialized housing units needed every year over a 10-year period. Specifically, the government needs to produce approximately 14,922 [housing units] per year over the current production of 7,767 units, according to the MMIAC report. It said this socialized housing backlog of almost 15,000 units was earlier projected and submitted to the NHA for relocation starting in 2007. [13] [14]

What is wrong with the government plan?

First off, it is socially costly. The informal settlers in various areas in Metro Manila were told by the NHA long before Ondoy that the available relocations for them are in far-away Pangasinan and Cagayan. Places far-away from the economic opportunities of the cities are exactly the places migrant workers leave behind, and this remains a very powerful demographic movement that a government flood control plan may not reverse. The plan does not mention providing both housing relocations in tandem with social services and sources of income and livelihood. Indeed, providing both housing and industries in the far-away relocation sites would be infinitely costly for the government and the entire society.

There can be a better alternative to far-away off-site and off-city relocation. In-city relocation is much cheaper, both in terms of providing housing and in terms of providing access to livelihood and services. The city economy itself, as an agglomeration of industries that create jobs, will take care of the livelihood part. The cost of service provision per capita in concentrated cities is much lower than in the rural areas, whether in terms of education, health, water, sanitation, and drainage systems.

And should be possibilities for in-site housing development, too. Flood control infrastructure in some esteros and rivers to large spillways need not exclude human settlements. After all, humans are supposed to be the beneficiaries of flood control. And waterways, with their associated risks and benefits, have always been preferred for human settlements throughout world history. We should attain both city inclusiveness, one that accommodates the poor, and safety from floods. Geology will ensure that Metro Manila will still be flooded even after the last informal settler is relocated to a far-away place. But what infrastructure development needs to achieve is to make populations safe from floods. Instead of simply removing the shanty housing along waterways, we need to dredge the waterways and build real well-planned socialized housing along it with access to proper drainage and solid waste management system.

This can work only for certain waterways. And shanty dwellers from other waterways will definitely need to be relocated elsewhere safe within the city. This implies that we need to free up more idle lands for housing by encouraging land owners to give up their landholdings to socialized housing under the Community Mortgage Program (CMP) and other socialized financing programs. Taxation on idle lands and better compensation packages to landowners making their lands available to CMP can be one route towards this.

Public lands can be freed for productive uses without the socially costly relocation schemes. Aspects of the solution must include urban living spaces that economize on land through medium-rise structures with individual dwelling units and social service units for the poor. These can exist side by side with high-end commercial districts and city blocks under a policy of mixed land use and integration of commercial districts with the economy of the poor.

What would be the benefit to the rest of the city dwellers and to the rest of the city economy? Social peace and cohesion, social unity, and the enduring foundations for the economic competitiveness and growth of the city. The millions of ambitious souls who throng to the city believing they have rights to enter it and to stay carry with them the spirit of enterprise and hard work to achieve a better life.

Draining the city of its informal workers-settlers and blocking their entry will deprive the city of the diversity that comes from these populations. Under an inclusive mixed-use framework, which recognizes the importance of diverse human settlements near or within commercial or industrial districts, a city’s economy can become robust, vibrant, and competitive.

If we see them as solutions rather than as problems, what role might they take?

In shaping the policies and programs for flood mitigation and the rehabilitation of the affected families and communities, the urban poor may have to assert their role instead of this being defined for them. The aftermath of Typhoon Ondoy and the current debate over the flood crisis in the greater Manila metropolitan area should provide an opportunity for the urban poor movement to highlight its demands for the right to the city. They have to defend themselves from evictions and further marginalization from the city.

A few initial proposals are already being considered within the urban poor movements:

• Reject the government’s policy of social apartheid called ‘Balik Probinsya’ rehabilitation option for the urban poor who are supposed to be clogging the waterways.
• Emergency relocations in ‘semi-temporary’/’semi-permanent’ in-city resettlements prior to in-city housing development projects for the urban poor (‘semi-permanent’ being a term borrowed from the Quezon City government).
• Implementation of 20% allocation of housing developments for socialized housing, starting with the disaster victims displaced by the flood from waterways and danger zones.
• Adoption of medium rise buildings for socialized housing in the context of mixed uses of urban spaces, including the mixed use between flood control infrastructure and socialized housing (like waterways with embankments fortified by Medium Rise Buildings or MRBs).
• Implementation of local-labor-intensive public works to include the clearing of waterways, sites preparation and construction for temporary relocations and for permanent socialized housing projects, as well as for community infrastructures that mitigate disaster vulnerability.
• Implementation of flood control infrastructure gaps of the metropolis, also to create more jobs.

These will have to happen in all Philippine cities.



Notes:

[1] http://news.yahoo.com/s/afp/20091008/wl_asia_afp/philippinesfloodlake

[2] http://businessmirror.com.ph/home/nation/16891-squatters-render-megadikes-ineffectiveebdane.htm

[3] http://newsinfo.inquirer.net/inquirerheadlines/nation/view/20091003-228150/Geologist-blames-floods-on-squatters-subdivisions

[4] Among these are the Pagsanjan River which is the source of 35% of the lake's water, the Sta. Cruz River which is the source of 15% of the Lake's water, the Balanak River, the Marikina River, the Mangangate River, the Tunasan River, the San Pedro River, the Cabuyao River, the San Cristobal River, the San Juan River, the Bay, Calo and Maitem rivers in Bay, the Molawin, Dampalit river, Dampalit, and Pele river, Pele rivers in Los Baños, the Pangil River, the Tanay River, the Morong River, the Siniloan River, and the Sapang Baho River.

[5] http://en.wikipedia.org/wiki/Laguna_de_Bay

[6] http://en.wikipedia.org/wiki/Pasig_river

[7] http://pinoybarkinghall.blogspot.com/2009/10/another-spillway-for-laguna-de-bay.html

[8] http://daweb.da.gov.ph/news_archive/2003/oct_news.html

[9] http://www.sunstar.com.ph/manila/para%C3%B1aque-spillway-prevent-floods

[10] http://www.bworld.com.ph/BW102309/content.php?id=074

[11] http://www.sunstar.com.ph/manila/para%C3%B1aque-spillway-prevent-floods

[12] http://www.mb.com.ph/articles/226746/president-revives-para-aque-spillway-project

[13] The MMIAC report was one of the documents submitted by MMDA to the Supreme Court on Oct. 13, 2009 in compliance with the tribunal’s December 2008 decision ordering government agencies to clean up Manila Bay . The Supreme Court, in its landmark decision, specifically ordered the MMDA and the Department of Public Works and Highways to dismantle structures and other encroachments on all waterways leading to the bay and to report to the tribunal the progress of their compliance.

[14] http://www.inquirer.net/propertyguide/aroundtown/view.php?db=1&article=20091019-230820

Local Governments and Microfinancing

Overview of microfinancing

ADB defines microfinance as provision of a broad range of financial services such as deposits, loans, payment services, money transfers, insurance to poor and low-income households and their microenterprises. There are three types of sources of microfinance: formal institutions - i.e. rural banks and cooperatives, semiformal institutions - i.e. nongovernment organizations, and informal sources - i.e. money lenders and shopkeepers. Institutional microfinance includes microfinance services provided by both formal and semiformal institutions. Microfinance institutions are institutions whose major business is the provision of microfinance services.

About 90% of the 180 million poor households in the region still lack access to institutional financial services. Most formal financial institutions deny the poor financial services because of perceived high risks, high costs involved in small transactions, the poor's inability to provide marketable collateral for loans.

Microfinance provides financial services, primarily savings and credit, to poor and low-income households that normally do not have access to formal financial institutions. It is widely documented that the formal financial system rarely provides access to poor entrepreneurs in developing economies. It is estimated that in most developing countries, the formal financial system reaches at a maximum the top 25 per cent of the economically active population, leaving the bottom 75 per cent without access to financial services apart from moneylenders. This is because the techniques used by financial institutions do not enable them to lend to the poor in a cost-effective manner.

One critical constraint which may prevent regulated banks from lending directly to the poor relates to interest rates. Microfinance is an inherently costly activity. Effective microfinance programs require intensive inputs in motivating and training borrowers and in follow-up, with regular monitoring and frequent loan repayments. Programs must go to where the borrowers are, rather than being located in regional centres. All of these factors add to costs. And loan amounts are small, implying low interest income per loan. To be sustainable, microfinance programs must therefore charge higher rates of interest than those charged on other loans. This is true regardless of whether programs are undertaken by specialised MFIs or regulated banks. The Grameen Bank, the largest and one of the most efficient microfinance programs in the world, charges an effective interest rate of 20 per cent per annum, and most smaller programs need to charge considerably more than this to be sustainable. Even if regulated banks adopt the techniques of specialist MFIs, they need to charge higher interest rates on their microfinance loans than on their other loans if their microfinance programs are to be sustainable.

Today, it is generally accepted that populations traditionally excluded from the formal financial sector can, in fact, be a profitable market niche for innovative banking services, and that microfinance can be very important in reducing poverty. The success of microfinancing activities in many countries including the Philippines show that it is possible to serve loans to finance the economic enterprises of the very poor (1) as a commercial activity that pays for itself, (2) without subsidy from government, and (3) with a very high repayment rates or very low defaults on loans, even in the absence of collateral. These are based on the observations that the poor need sustained access to financial services more than lower interest rates and they have the capacity to repay their loans and to save. Given these, microfinancing can be operationally and financially self-sufficient.

Although the microfinancing industry has gained fame only over the past three decades following the success of the Grameen Bank (“Bank of the Villages”) in Bangladesh, cooperatives have actually been in the business of providing financial services to the poor over more than 100 years, beginning with the “village bank movement” (or credit unions) initiated by Friedrich Wilhelm Raiffeisen, who was mayor of several German municipalities over the course of his career.

A distinction can be made between cooperatives and “microfinancing institutions.” Cooperatives are owned and governed by their members who are the savers and borrowers themselves and often build their capital from members. Other microfinancing institutions are organized as non-profit corporations or foundations governed by trustees in behalf of patrons that contributed the funds. Because of their nature as user-owned services, credit co-ops are sometimes thought of as conveniently catering more to the needs of the capable non-poor who can pay for their equity share and for the loans that they take out. Microfinance NGOs came to be seen as the only institutions with a directed focus on the poor and the technology for reaching the poor, but only that they are dependent on external resources of funds as non-profit and non-stock organizations.

Some private commercial banks are beginning to target the microfinancing market and would have the most extensive mechanism to undertake financial delivery. But private banks are still seen generally as lacking the willingness, the technology, and the vision to lend to the poor. Government supply-led credit programs would have the advantage of funding from government budgetary allocations and donor agencies, but that they are inefficient and unsustainable.

Co-ops could not have simply accommodated the poor outside their membership. Even as organizations focused on the poor and just like the microfinance NGOs, co-ops face the same information problems, inadequate collateral, and high transaction costs associated with processing small loans to those outside their membership. In the 1980s, attempts to dramatically increase membership in co-ops created tremendous past due accounts as high as 60%. The bankruptcy of some co-ops that followed created a conservative and cautious attitude to rapid expansion of membership. Even today, co-ops normally seek out ways to address the credit needs of the poor beyond their existing membership but not at the risk of high delinquency. However, the same cautiousness has produced a valuable experience among co-ops that high delinquency has nothing to do with the clientele. Whether a person is poor or not, delinquency issues can be resolved by imparting the needed knowledge and skills to the board and management running a financial service co-op.

As they claim to be the original microfinancing institutions, co-ops lately have started to present programs directed at non-members using the more recent microfinancing innovations. It differs from other microfinance programs in that co-op microfinance involves a process of raising the poor to the level of regular members with shareholdings and voting rights.

Government role in micro-financing

In the Philippines, there used to be at least 111 government credit programs, many of which involved government agencies lending directly to final borrowers. These programs have been criticized for being inefficient, highly politicized, uncoordinated and unsustainable. “Philippine experience has shown the huge inefficiency and high costs of using government non-financial institutions to implement credit programs. Recent research has shown the un-sustainability of government supply-led credit programs, the great capacity for leakage of the benefits of government credit programs to the non-poor, the duplication and overlapping of a number of credit programs leading to gross inefficiencies, the distortion of the financial market and weakening of private sector incentive to innovate.”

In 1995, the government established the People’s Credit and Finance Corporation (PCFC) as a government finance company for lending to the poor. The National Credit Council envisages that the corporation should gradually replace many of the other lending programs operated by line agencies of government.

PCFC lent funds to NGOs, rural banks, cooperatives and other intermediaries as ‘conduits’ for on-lending to the poor and aimed to ensure that such intermediaries are replicable, self-sustaining and operationally viable. PCFC also availed of funds from ADB and the International Fund for Agricultural Development exclusively to support microfinancing institutions replicating the Grameen Bank approach. PCFC also lent funds to conduits for capacity building.

Local government role in micro-financing

A local initiative that aims to use microfinancing as a tool for employment generation would then have to consider the emergence of viable microfinancing institutions, the phase out of credit programs directly provided by government agencies and their rationalization through PCFC, and the use of the microfinancing institutions as conduits of PCFC funds.

Although local governments may not access government funding to provide loans to end-users, they can perform other activities to facilitate micro-financing activities. In the survey of Asian countries undertaken by Banking with the Poor (BWTP), local governments seemed to play a role more in terms of identifying the targets of government-led credit programs. But rather than just being a tool in supply-driven credit programs, local governments can play the role of a genuine facilitator between the poor who seek out micro-financing and micro-financing institutions who seek out clients who are poor.

Microfinancing NGOs and co-ops are a response to the inability of private commercial banks to serve the credit needs of the poor. However, micro-financing institutions including cooperatives would, like private banks, also face costly information gathering needed to enable them to begin extending their services to new areas. At their end, the poor face the problem of searching for the financing package at the least cost and most suited to their needs.

Given a policy goal of helping the poor in accessing financing, local governments can use its machinery to identify and attract the poor for the benefit of microfinancing institutions, and to identify and attract the microfinancing institutions for the benefit of the poor. If these information services are operated on a regular basis, as what the Quezon City government is doing, the cost faced by the two parties can be drastically reduced and market transactions facilitated. More micro-financing supply would be forthcoming if the local government proved to be effective in identifying the clients sought by the microfinancing institutions. Information problems can be mitigated by local governments without incurring the same moral hazard problems present when they are used merely to identify the recipients of a government lending at a pre-set supply amount (example: Lingap para sa Mahihirap).

Quezon City experience

Quezon City provides a concrete example of local government facilitation of the micro-financing market.

In 2001, Quezon City started the Task Force Sikap Buhay to implement an assistance program for the city’s small entrepreneurs. In 2005, the program was transformed into the Sikap Buhay Entrepreneurship and Cooperatives Development Center (SBCC). There is a pending move to transform SBCC into a regular city department. SBCC is the equivalent of the cooperative development office (CDO). The appointment of provincial, municipal, and city cooperative development officers are authorized under the Local Government Code.

SBCC aims to promote entrepreneurship and self-reliance among its clientele, to expand the number of entrepreneurs and expand their businesses, develop community and institution-based training for entrepreneurial skills and values, and coordinate city-based co-ops, concerned government agencies, and local bodies.

Its three major programs are the following:

1. Facilitating access to capital loans and continually finding ways to increase the sources of capital loans. SBCC has assisted more than 20,000 micro-entrepreneurs in the last five years to access capital loans from its conduit or partner microfinancing organizations, which are cooperatives.
2. Expanding entrepreneurship training services by organizing entrepreneurship skills and leadership seminars through in-house trainors and institutional partners
3. Promoting cooperativism by proactively advocating the concept of cooperatives for economic endeavors, closely networking and coordinating with cooperative federations and alliances, promoting small entrepreneurs’ co-ops, and coordinating with the implementing the objectives of the Cooperative Development Authority. SBCC has published a Cooperatives Directory of Quezon City.

Quezon City is undertaking a micro-financing facilitation program that matches poor entrepreneurs with microfinancing institutions. Under this program, the city government entered into memo of agreements with Cooperative Rural Bank of Bulacan (CRBB), Novaliches Development Cooperative (NOVADECI), Eurocredit Cooperative to provide loans to the poor identified by the city for microfinancing assistance. These institutions have different pre-existing financing packages and policies and offer different lending rates. The agreements do not impose an obligation on the part of the partner institutions to revise their programs and policies.

CRBB is based in Bulacan but has pre-existing operations in District 2 in northern part of the city. NOVADECI was originally confined to the Novaliches District until it expanded to other parts of the city. Eurocredit is also based in Quezon City.

As a cooperative bank, CRBB has cooperatives as members/owners and can offer financial services to members and non-members, institutions or individuals. It operates a microfinancing program patterned after the world-renowned Grameen model, under which the borrowers, who are individuals, are organized into groups composed of five members who monitor each others compliance with the lending terms.

As primary cooperatives of the savings-and-credit type, NOVADECI and EuroCredit are owned by individuals and offer services only to members. The Grameen-style microfinancing for group borrowers that the two co-ops also offer is therefore contingent on a program of initially enlisting the microfinancing clients as associate members without voting rights and eventually graduating them to full membership. However, prospective borrowers may also opt to at once apply for membership, meet the regular membership requirements, and file the normal procedures for member’s loan applications.

Prospective borrowers among the poor are sought by barangay political leaders and mobilized to hear the orientation seminars, usually for groups of 25 participants, on the different microfinancing programs. The beneficiaries must be poor or with income below the poverty threshold, female, 18 to 60 years old, and must have an existing business, which can be of any type ranging from vending gulaman (sugared drink) to sari-sari store. Most of the beneficiaries in fact are engaged in direct selling business. In addition to these criteria, beneficiaries must be living in the barangay for not less than one year. Residents living in rented houses are secondary priorities. Only 15 out of 25 attendees in the orientation seminars usually qualify under these criteria.

The programs and policies of the microfinancing partners are presented by SBCC staff in orientation seminars. The staff presents first the programs of the microfinancing partner that operates in the areas where the seminar participants came from. As questions from the participants begin to unravel their particular preferences and qualifications, the staff ends up presenting the programs of all the other microfinancing partners. Thus, the needs, preferences and qualifications of the prospective borrowers are matched by information on the microfinancing institution with a program that suits them best.

The choice of microfinancing package by prospective participants is influenced by interest rates and other exigencies. The interest rate in CRBB’s microfinancing program is only 1.5% per month for 6 months and 2.5% in NOVADECI. These are way below what is normally made available to the poor by informal lenders as the most available alternative. Minimum loan is P5,000 per cycle of 6 months. Some participants, undergoing successive cycles, have already qualified to take out up to P40,000 in loans.

However, participants in group borrowing must undergo intensive seminars on group values and solidarity, and must actually search for group mates that they can trust. To form a group of borrowers, beneficiaries choose their own group mates who live close together in the same community. Applicants who are otherwise qualified but could not find qualified group mates living near them may not be accommodated by the program.

At least 3 groups composed of 5 borrowers each comprise a center, or at least 15 borrowers per center. Clustering the borrowers’ groups into centers is meant to facilitate monitoring, advisory, and enforcement by SBCC and the microfinancing partner concerned.

On the other hand, individual borrowing does not involve transactional relationship with another borrower or group of borrowers. However, this requires that one becomes a member of the cooperative and hence must put up a share capital and undergo cooperative membership education. This option is available under NOVADECI, which requires a minimum paid up capital of P830, and EuroCredit Co-op, which requires P5,000.

Of the qualified participants that underwent SBCC orientations, 60% opted to become clients of CRBB’s program, 20% of NOVADECI, and 10% of EuroCredit. The remaining 10% opted not to take a financing program. Most participants were generated in 2006, totaling 12,000 to 15,000. Since 2002 when the program started, the total is 20,000 participating poor.

SBCC workers observed that the criteria disqualify the entrepreneurial poor who are otherwise qualified except that they are male and above 60 years old (senior citizens). Persons with disabilities (PWD) and the out-of-school youth (OSY) are not covered by the program. Thus, a 73-year old fruit vendor at Philcoa who approached the program could not be accommodated.

Beneficiaries between 18 to 35 years old comprise 30% of the participants. SBCC staff said 18-year old applicants are accommodated only if she is the breadwinner of the family. Thus, young adults enrolled in the program are either working mothers or siblings supporting their families. However, an 18-year old can be accommodated into a group if one of the five group mates resigns or is disqualified.

The program apparently does not particularly target young people (18 to 25 years old) who may or may not be breadwinners or heads of families. However, the program does promote itself to young people. And yet, young people do tend to select themselves out of the program. SBCC participates as booth exhibitor in the job fair organized by the city government. In one of the job fairs it put up a streamer that read: “Pagod ka na bang maghanap ng trabaho? Bakit di ka magnegosyo?” (Tired of job hunting? Why not start your own business?) Very few young people took interest in the SBCC booth while booths put up by companies were queued by long lines of jobseekers.

SBCC staff further observed that the partners must attempt to accommodate all types of needs. SBCC Microfinance Development Officer Junnie P. Natad observes that CRBB project officers tend to be conservative and inflexible in the application of the qualification criteria. They also tend to rotate frequently post between their main operation in Bulacan and Quezon City, which seemed to him to be just as a training ground for new project officers of the co-op bank. The solution is to expand the set of microfinancing partners, and Natad said SBCC in fact is continuously seeking out more partners so that more beneficiaries and those with different characteristics can be accommodated. These include the senior citizens, PWDs, and OSYs. SBCC Entrepreneurship Division Chief Gloria Alcoran observes that microfinancing programs of the partners do not seem to include the “very, very poor.”

SBCC has 28 staff. There are two line divisions (Entrepreneurship Division and Cooperatives Division) and two staff units (Special Projects and Administration). The Entrepreneurship Division is divided into the Promotion and Networking Unit and the Monitoring Unit. The former is responsible for recruiting and orienting prospective microfinancing beneficiaries and linking with possible microfinancing partners. The latter, which is responsible for monitoring the centers composed of group beneficiaries, is further divided into District 2 Section and the District 1, 3 and 4 Section. There is a pending move to transform SBCC into a regular department of the city government.

Assessment

Quezon City’s facilitation of microfinancing has benefited a total of 20,000 poor from 2002-2005. Of the total, 15,000 were generated last year alone. If these numbers could have been generated even without the city’s intervention, then the program represents a deadweight loss to the city.

There are indications that the program represents an added value to society. Microfinancing, as an activity that delivers financial services to those who would otherwise be left un-served by financial institutions, is a relatively young industry. Even the cooperatives that traditionally included the poor in its membership are just beginning to target the poorer in their service coverage. The newly organized networks or federations of microfinancing co-ops and NGOs have yet to fully standardize their operations and pool enough resources to provide for common services to make the activities of their members more efficient. Such services may include common promotional activities and common credit investigation bureaus. Local governments can fill these gaps under a program of providing immediate relief to the financing needs of their constituencies.

Cultivating the micro-financing market serves the public interest. Economic information and imparting the values of entrepreneurship, savings, and credit-worthiness as contained in SBCC orientations and field work can be seen as public goods that, just like school education, are at least in principle available also to all types of financial institutions.

From a different take off point, such activities also represent an improvement in the content of the political constituency work of politicians and political parties. In terms of local administration, attracting and mobilizing private microfinancing institutions to meet local goals tend to keep local governments in the business of leading and coordinating, rather than in actually staking out meager public resources when alternatives can be made available.

Replicating the SBCC

Replicating the SBCC initiative should not be particularly difficult, particularly where there are existing microfinancing operations by co-ops or NGOs or both, and where there is an existing city or municipal cooperative development office. The appointment of cooperative officers by local governments is provided under the Local Government Code, although this is optional for provinces and cities (Section 487, R.A. No. 7160). In any case, offices taking care of entrepreneurial promotion and cooperative concerns have been instituted in a number of cities and provinces, partly in response to CDA’s advocacy and to Executive Orders No. 96 that calls on local governments to assist co-ops and to complement the work of CDA.

EO No. 96 mandates that “all departments, branches, subdivisions, and instrumentalities of the Government shall promote the formation of cooperatives under their respective programs by providing them with appropriate and suitable incentives” and instructs local governments to assist CDA in the collection of cooperative annual reports, mediation and conciliation of cooperative disputes, monitoring of compliance of cooperatives with the CDA rules and regulations, and implementation of programs for cooperative promotion and development. These are reflected in the statement of objectives and functions of the local cooperative offices.

Bulacan has its Provincial Cooperative and Entrepreneurial Development Office (PCEDO) even before E.O. No. 96. PCEDO’s Kaunlaran sa Pagkakaisa Program (KPP) initiated during the incumbency of Governor Roberto Pagdanganan involved extending assistance, including financing, to cooperatives. It is one of the most considered local government initiatives in cooperative development and is supposed to have inspired E.O. No. 96.

Muntinlupa City adopted the mandate for local governments under EO No. 96 for the functions, duties and responsibilities of its City Cooperative Office. Aside from technical assistance, the city government allocated P2 million (later increased to P5 million by Mayor Jaime Fresnedi) for lending to cooperatives.

Cooperative offices elsewhere would mostly serve to fulfill the mandate to support the promotion of co-ops, and E.O. No. 96 (which was written by CDA as signed by President Ramos in 1993) seeks to make local governments function like deputized agents of the CDA in assisting and regulating cooperatives, with the expectation that the assisted co-ops will meet local objectives in economic development, creating employment, or making credit more available.

In contrast, the SBCC initiative in Quezon City started on a certain objective, to provide financing to the poor, and enrolled cooperatives that could measure up to the task. E.O. No. 96 does not rule out innovations like Quezon City’s SBCC, but it provides little guidance for local governments on how to drive cooperatives to become more competitive and capable of meeting local goals.

Most cooperatives operating savings-and-credit services to members (who are mostly poor) have yet to extend micro-financing services to non-members (the poorer). However, cooperative micro-financing is catching up, with community-based savings and credit co-ops (like NOVADECI) beginning position in the microfinance market. NATCCO is undertaking a micro-financing program to enable its members to deliver financial services to the enterprising poor on a massive scale. Local governments aiming to help their poor would have to tap into the growing capabilities of these co-ops.

Areas for reforms

SBCC’s weakness in spurring youth entrepreneurship through micro-financing suggests that the youth tend to be more biased to institutional employment and to avoiding taking risks. However, workers generally are risk averse and given a choice will opt for opportunities other than self-employment. This has been observed in the Betcherman et al. studies. However, a study showed that although the young have a relatively low probability of being self-employed, they are distinguished from older age groups in that they are particularly likely to say they would like to be self-employed if they had the choice.

The programs of the microfinancing institutions assisted by SBCC do not particularly target young people in the first place. Thus, SBCC’s record should not be seen as an argument against youth entrepreneurial promotion and youth micro-financing. There are sections of the youth for whom micro-financing is a relevant service, only that a different set of criteria should be expected to make youth micro-financing work. The up-starting entrepreneurial young with yet no track record can be helped by small loans. Local initiatives such as the SBCC can still help young entrepreneurs by linking with an entirely different set of financing partners.

Moreover, a similar link up between local governments and microfinancing co-ops can be devised in the case of employment facilitation and manpower services. Manpower service cooperatives can be tapped to absorb jobseekers referred by the local governments based on the criteria established or required by the agencies.

This falls under the mandate of the Public Employment Service Offices or PESO. PESOs are non-fee charging multi-employment service facility established under Republic Act No. 8759 (or the PESO Act of 1999) in capital towns of provinces, key cities and other strategic areas. Under the Act, a PESO shall ensure the prompt, timely and efficient delivery of employment service and provision of information on DOLE programs (Section 4) along the policy of promoting full employment and equality of employment opportunities for all (Section 2).

Among the functions of a PESO is to encourage employers to submit on a regular basis a list of job vacancies in their respective establishments in order to facilitate the exchange of labor market information between job seekers and employers by providing employment information services to job seekers, both for local and overseas employment, and recruitment assistance to employers (Section 5).

PESO’s job, and that of cooperative offices of local governments, can be facilitated or complemented by manpower service cooperatives, which are workers’ co-ops that operate like investor-owned manpower service agencies that supply on contract workers demanded by firms, except that the supplying firm itself is owned by the workers themselves. As owners, the workers subscribe to the needed capital stock, appropriate the income in the form of worker’s patronage refunds and interest on share capital, and elect the board and management. All things being equal, it is superior to investor-owned agencies that tend to exploit workers.

To remain competitive, manpower service co-ops must respond well to the demand for labor services by firms. This means they must attract into its fold enough number of workers in different skills categories, most of whom do not have the money to pay the subscription needed to become a regular member. However, manpower service co-ops can enroll workers as associate members, without voting rights but undergoing the same program of eventually paying the minimum capital subscription to become members.

Local governments, through the coordination of the PESO and the cooperative office, can provide information on workers in its jurisdiction to the manpower service co-ops and to provide information to workers on the qualification criteria and job requirements sought by the co-ops. This can help manpower service agencies save some costs associated with search and recruitment. It can help PESO and the local government on the costs associated with monitoring the job requirements of several firms and employers. With contractual jobs on the rise and available regular positions declining or not growing enough, monitoring job requirements can be a tedious undertaking.

By providing help to manpower service co-ops in informing and recruiting workers, local governments can encourage the right kind of manpower service co-ops: those that are competitive in supplying labor to firms, can provide the best benefits package to workers, and possibly can provide other services to member-workers such as savings-and-credit, insurance, and pre-needs.

Manpower service co-ops in general would have incentives to recruit younger workers who have less chances of landing in regular employment, unlike the older and more experienced ones. However, these co-ops would be in a better position to provide continuing employment as they can manage the placement schedules of its members from one job assignment to the next.

In the SBCC case, Quezon City did not have to allocate local funds as capital for micro-lending. In possible manpower service facilitation, local governments would not have to directly monitor the requirements of the employing firms. Link-up with manpower service co-ops can be most helpful in localities where people seek employment overseas of elsewhere in the country. Asiapro Cooperative, for example, supplies manpower services to firms based in Metro Manila and in Mindanao, and is studying to supply manpower services abroad.