An original savings and loans initiative for the urban poor
12 / 2007
Tatalon is one of the 39 barangays (local communities) of the 4th District of Quezon City. Altogether, Quezon City has four districts and has a total population of 2.4 million, and it is the largest of the 17 municipalities of the Manila metropolitan region (total population over 11 million).
Most of the Tatalon population (about 30,000) is either poor or extremely poor. In fact, Tatalon is one on the poorest communities in the Manila region. Most people live in slum-like dwellings and are not owners of the land. Many live in areas that are regularly flooded.
In 1989, a group of tricycle drivers decided to organize themselves. Realizing the need to break away from the endless cycle of hand to mouth existence, a savings and loan fund was introduced among the members and it became official in 1996. The members were encouraged to practice the values of thrift, resourcefulness, discipline and self-reliance using the cooperative way of life. This led to a change in attitudes of the members, which gave them hope, dignity, and self-respect. Gradually, they were able to improve their living conditions.
They gradually realised that they needed to extend this approach to other members of the community. Inspired by microfinance technology in Bangladesh, the savings and loan fund changed into the INNER CITY DEVELOPMENT COOPERATIVE (ICDC) on August 25, 2005. It seeks to replicate the success achieved by the savings and loan fund by helping the small entrepreneurs increase their income capabilities, enabling families improve their quality of life and helping them deal with their own problems by becoming a productive and caring community.
In just over two years, the Cooperative has progressed much. Today, about 2,600 individuals (mostly women) benefit from the microfinance activities. Each individual has a savings account. This is an obligation before obtaining a loan. Some people only have a savings account since they don’t need loans, and they know that the money will be lent to other people in the community.
The Philippines cooperative law has provisions that allow coops to be multi-purpose coops. For example, ICDC operates mainly in savings and loans, but it could also get involved for example in housing, or funeral services. Another provision of the law allows ICDC to have savings accounts. This distinguishes ICDC from many microfinance institutions in other countries since most legislation prohibits savings accounts in non-financial institutions.
ICDC pays a 7% annual interest rate on savings (based on lowest monthly balance at the end of the year). This provision encourages participants to keep their savings as stable as possible.
The cooperative has four (4) types of loans. The first three are microfinance loans (no collateral needed):
HOPE Product 1,000 - 10,000 PhP: payable in 41 days with interest rate of 2.5%
LOVE Product 2,000 - 120,000 PhP: payable in 85 days with interest rate of 6.5%
FAITH Product 4,000 - 50,000 PhP: payable in 23 weeks with 15% interest rate
Note: The Philippine Peso (PhP) exchange rate is 1 Euro = 62 Peso (December 2007)
A fourth type of loan, with collateral is called Quick loans for needs such as house repair, emergencies (like a funeral), education, etc. This type of loan is not a microfinance operation. It is like a regular banking loan.
Usually the members start with the HOPE product and they graduate to other loan cycles. Some members are already in their sixth loan cycle. As of October 2007, ICDC had a total loan portfolio of 8.5 M PhP and the repayment rate is about 97%.
Total savings of members amounts to 4 M PhP. To encourage savings, a member must have savings that amount to 40% of the loan. This limits the amount of the microfinance loan, and at the same time acts as a safety net for the cooperative. Many members have almost as much savings as they have in loans.
To become full members, with all voting rights in meetings, they need to own a common share of 1,000 Pesos. All others are associate members. With each loan, they need to put aside a minimum of 50 Pesos to be able one day to own a common share.
Children are also encouraged to save. The Dream Savers, children over 6 years old, need to save 1 peso each day. Others, in schools can save different amounts. Since children get their weekly allowance on Sunday, the savings are collected on Mondays and Tuesdays!
The cooperative is much more than microfinance and loans. They have organized the members in 77 Centers. Each Center consists of minimum of 15 members and maximum of 30 with center coordinators and a center secretary elected by the group teams. These team leaders have monthly training in leadership and management.
In just over two years, ICDC has observed many positive impacts within the community. The lives of the people are being changed on such matters as: identity, behavioural change, increased Income, regular Sources of income, reduced vulnerability and acquisition of social capital.
And, at the same time, the community is being transformed in the following way:
Peace and Order
Improved Community Governance
The cooperative hopes to expand its operations in the future. Many other people in Tatalon barangay want to join ICDC since they need microfinance loans. Since total savings are not enough to finance all loans (about 50%), the cooperative has to borrow money. Since the cooperative needs to pay 13% interest rate per annum on money they borrow, this hinders greatly the development of activities. ICDC is trying to find a soft loan (a lower interest rate) in order to develop more Centers. For example, if they had a soft loan of 2 M PhP, they would be able to make loans to 500 new members (mostly mothers). They are hoping the organizations in the solidarity finance sector, either in the Philippines or in other countries will respond.
Inner City Development Cooperative is unique in the Philippines. Their activities clearly show how a cooperative, using microfinance as a tool, can help the people and the community empower themselves. The path to fight and overcome poverty will be long. However, the positive impacts already observed in the Tatalon community clearly show that the community and its members are more positive about their future and that through collective economic and social actions within the cooperative, hope is being transformed into improvement in daily lives.