New Study Reveals Critical Role of Microfinance in Households’ Coping With Shocks and Consumption-Smoothing
by Arkel Mendozan and JC Punongbayan PhD
On November 25, 2024, WeSolve Foundation, RestartME Inc., ASA Philippines Foundation, and CARD MRI came together to discuss the importance of Microfinance Institutions (MFIs) in allowing households to stabilize their consumption amid various shocks, including the COVID-19 pandemic, inflation, and natural disasters.
The seminar, held at Joy Nostalg Hotel and Suites in Ortigas, presented the findings of Dr. JC Punongbayan and his research team, consisting of Solomon Sarne, Reycel Hyacenth Nacario Bendaña, Jessica Marie Robredo, and Nicole Anne Cobarrubias.
Their study, “Microfinance and consumption-smoothing in the Philippines: Evidence from the Philippine Microfinance Survey,” reiterated the importance of MFIs in helping poor households manage consumption smoothing to avoid extreme poverty.
Furthermore, it provided evidence that various microfinance products and services have cushioned the impact of shocks and disruptions on the consumption-smoothing challenge of low-income Filipino households.
Consumption-smoothing—the ability to maintain stable spending despite disruptions—is critical for families living paycheck to paycheck. The study highlights that MFIs play a pivotal role in enabling families to cope with shocks without resorting to drastic measures like cutting back on food, delaying education, or deferring medical care.
Key Findings
Microfinance as a Financial Buffer: MFIs are among the top credit sources for low-income households, alongside borrowing from family and friends. Microfinance products such as loans, savings schemes, and insurance help families smooth consumption and avoid extreme poverty during crises.
Impact on Poor Households: Poorer households benefit the most from microfinance, particularly in managing disruptions caused by health emergencies, job losses, and natural calamities.
Persistent Gaps: Despite its importance, access to microfinance services remains uneven, with significant gaps in financial literacy and formal credit access in underserved communities.
The study found that most respondents were satisfied with microfinance services and planned to use them again. However, there remains a need to address challenges such as simplifying loan application processes and increasing financial literacy to maximize the impact of microfinance.
“MFIs provide a more manageable cushion to these poor households. They don’t necessarily eradicate poverty, but they provide an important aid that makes shocks, like the COVID-19 pandemic, more manageable,” said Dr. Punongbayan, lead researcher and economist in his presentation.
What This Means for Filipino Families
The study urges policymakers to prioritize financial inclusion initiatives and strengthen partnerships between MFIs and formal financial institutions. These steps can help scale up microfinance services and design innovative solutions that address the unique challenges of low-income households.
To strengthen the role of microfinance in consumption-smoothing, the research team outlined five key recommendations:
Expand Access: Simplify application processes and create financial products tailored to the needs of low-income households, especially in remote areas.
Develop Products for Specific Shocks: Introduce flexible financial tools to help families manage health emergencies, natural disasters, and economic downturns.
Promote Financial Literacy: Launch programs targeting women and low-income communities to improve budgeting, debt management, and awareness of formal financial services.
Leverage Community Networks: Engage local organizations and leaders to promote microfinance awareness and trust.
Enhance Data Collection: Conduct regular surveys and longitudinal studies to refine microfinance strategies and measure long-term impact.
“Insights from our study can guide policymakers in crafting policy that promotes MFI expansion, particularly in underserved areas. In return, MFIs could benefit from new products that cater specifically to households of our Nanays facing catastrophic shocks, enabling better consumption-smoothing,” added Dr. Punongbayan.
Mr. Rapa Lopa, the new President of ASA Philippines Foundation and the concurrent President of RestartME Inc. and Executive Director of Wesolve Foundation, opened the seminar held at Joy Nostalg Hotel and Suites in Ortigas.
He was joined by a panel of experts who gave their respective insights and reactions to the study. The panelists included Mr. Ferdinand Jikiri, Comptroller of ASA Philippines Foundation; Ms. Pia Roman-Tayag, Assistant Governor and Chief Sustainability Officer of Bangko Sentral ng Pilipinas (BSP); Dr. Dolores M. Torres, Senior Adviser for CARD MRI; Mr. Anshukant Taneja, the Program Lead, for the Micro Finance Program, Private Sector Financial Institutions Division of the Asian Development Bank (ADB); and Mr. Allan Robert Sicat, the Executive Director of the Microfinance Council of the Philippines.
About the Study
The Philippine Microfinance Survey was conducted between July and August 2024 using a nationally representative sample. It was spearheaded by a research team comprising economists and social scientists, with funding from development partners and local stakeholders. Ethics clearance for the study was secured from the Social Science Ethics Review Board.
To view the report, visit bit.ly/MFI-Report-Presentation for the presentation slides or tinyurl.com/MFI-Report-Exec-Summary for the executive summary of the research.
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About We Solve Foundation:
WeSolve Foundation, Inc. is a first-of-its-kind coalition incubator founded by young Filipinos (ages 35 and below), fueled by the belief that young people become leaders through practice not theory, and by having a seat at the table, not simply as a voice in a crowded agenda. WeSolve has partnered with multilaterals, foundations, and civil society to conduct action research in issues that matter to the future youth are inheriting today: the “scandal of invisibility” due to poor systems for birth registration, challenges to private sector investment in national development, and data for empowering civic engagement, to name a few.
Importantly, WeSolve’s work only begins with research: all studies are formulated to provide pointed recommendations for collaborative solutions that recognize the power of every actor in the system, from government officials and business leaders, to the very communities for whom change must be shaped. WeSolve then works with all willing stakeholders to co-design and mobilize movements for systemic change in the Philippines.
For more information, you may visit www.wesolve.ph.