The main goal of microfinance is to improve the quality of life of marginalized sectors through the provision of access to financial services. It is therefore important to make the provision of financial services sustainable to ensure access to these services continues through market actors.
Microfinance principle 1: Offer savings and insurance as financial products
A pre-requisite to credit discipline is savings discipline. In fact, it has been consistently demonstrated that savings products, when appropriately designed for the marginalized sectors, have the same or even better results compared to credit products.
Clients need to save first before they can access loans. Savings mobilization or capital build-up is a requirement to access loans and is used as collateral.
Given the negative effects of climate change and perennial disasters the Philippines face, it is imperative that households have protection against these external forces. Insurance products should be designed to ease the financial burden of affected poor households should they become victims of disasters and the negative effect of climate change.
Microfinance principle 2: Streamline operations to reduce cost
Operations should be able to have local staff, maintain inexpensive offices and have the ability to implement standardized processes. Systems, policies, and procedures should have tight internal control to avoid expensive losses due to fraud.
Microfinance principle 3: Motivate clients to repay loans
The best motivation for microfinance clients to repay their loans is if they are given assurance that they can access the loan again and have the possibility of having their loans increased. Local staff should be able to demonstrate competence and creates a public image that signals seriousness in loan collection.
Microfinance principle 4: Charge full-cost interest rates and fees
To ensure the sustainability of operations, microfinance institutions should be able to cover all costs involved in the delivery of financial services to its members. This should be reflected in their financial product design.
Microfinance principle 5: Offer financial services that fit the preferences of the low-income entrepreneurs
Financial services extended to clients should be short term with the assurance of extending repeat loans in an efficient manner. Small loans should be extended and the microfinance institution is able to deliver customer-friendly services.
