Assessing Microfinance and the USAID MABS Program in the Philippines: Under the Microscope of the New Institutional Economics

This paper presents a report of USAID’s (US Agency for International Development) efforts in the Philippines in the area of microfinance. It suggests methods to make the program more effective and sustainable by incorporating insights from the New Institutional Economics approach.

This report analyzes the role microfinance plays in alleviating poverty and the role different lending methodologies play in achieving this goal. The report discusses the following issues:

• The macroeconomic environment of the Philippines;
• The New Institutional Economics approach to microfinance;
• Specific analysis of USAID’s current efforts Micro Access to Banking Services (MABS):
  • MABS has professionalized rural banks and has made them more profitable. It has helped them discover new clients who are lower on the socio-economic scale;
  • Program has built people’s confidence in formal financial institutions and the institutional capacity that is necessary for sustainable development;
  • Fee-for-service MABS program has improved existing lending technology;
  • There are governmental violations of simple principles that have made MABS successful’;
  • The methods that were used for measuring microfinance success need to be re-assessed.
• Recommendations of the report:
  • There is a need to move from personal to impersonal exchange methods for sustainable development;
  • It is not possible for donors to meet credit needs and eradicate poverty;
  • There is a need for change in the quality of basic institutions - even the poorest should be able to take advantage of market opportunities;
  • Microfinance has to be properly measured in order to realize its true benefits.