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Village banking model: Solution to ARBO financial inclusion

While traditional microfinance methodologies have worked and tremendously scaled up in the past 20 years, there are still marginalized groups that are financially excluded. These marginalized sectors are typically agriculture-based farmers or microenterprises located in remote rural areas.

Three factors hinder these groups from accessing microfinance services location with low population density; the small size of financing amount demand; and high administrative costs to deliver microfinance services.

Remote rural areas with low population density is not a priority among traditional microfinance institutions because they need numbers to make their operations sustainable. Administrative costs such as transportation, staff time and communications are high. Those in these areas who are already few also need small amounts to finance their livelihood. The volume of credit demand will also not be enough to sustain operations.

Village banking is a microfinance methodology whereby financial services are administered locally rather than centralized in a formal bank. Village banking has its roots in ancient cultures and was most recently adopted for use by micro-finance institutions (MFIs) as a way to control costs.[1]

These grassroots-led organizations are highly democratic, self-managed, grassroots organizations. They elect their own leaders, select their own members, create their own bylaws, do their own bookkeeping, manage all funds, disburse and deposit all funds, resolve loan delinquency problems, and levy their own fines on members who come late, miss meetings, or fall behind in their payments. [2]

Market interest rates apply to village bank loans. It typically provides mark up to the interest it pays to the microfinance institution. On average, effective interest rate passed on to village banking members is 36% per annum. While the rate seems high, they are low compared to informal money lending which may charge from 120% to 5,200% per annum.

Enacted in 1988, the Philippines’ National Agrarian Reform Program – Comprehensive Agrarian Reform Program (CARP) – which was later termed as Comprehensive Agrarian Reform Extension with Reforms (CARPER), aimed to distribute all agricultural lands beyond five hectares to landless farmers and farm workers.[3] Those who receive land are called agrarian reform beneficiaries (ARBs).

A key feature of the CARP is the incorporation of a program of support services for beneficiary development. DAR adopted the Agrarian Reform Community (ARC) concept as the strategy in the provision of interventions in agrarian reform areas and to ARBs. ARCs are formed through clustering of contiguous agrarian reform barangays. Since ARCs are area-based both ARBs and non-ARBs in the barangay are benefited from support services.[4]

DAR also institutionalized farmers organizations or agrarian reform beneficiary organizations (ARBOs) in both ARC and non-ARC areas. Support services are also channeled to these organizations. As of end 2016, there are 5,216 ARBOs created wherein 4,402 (84%) are in ARCs. The members include both ARBs and non-ARBs. [5]

Most ARBOs are grassroots-led organizations that are microenterprises unable to gainfully participate in the value chain and have limited access to traditional microfinance services.



[1] “A Brief Primer on FINCA”, a lecture by John Hatch at the University of Berkeley’s Haas School of Business, July 21, 2004″. Retrieved 2007-04-24.

[2] Ibid

[3] https://www.fian.org/get-involved/take-action/campaigns/agrarianreformphilippines/

[4] Ballesteros, Ancheta and Ramos. The Comprehensive Agrarian Reform Program After 30 Years: Accomplishments and Forward Options. Philippine Institute of Development Studies. Quezon City. December 2017.

[5] Ballesteros, Ancheta and Ramos. The Comprehensive Agrarian Reform Program After 30 Years: Accomplishments and Forward Options. Philippine Institute of Development Studies. Quezon City. December 2017.


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