ABSTRACT
This chapter traces the evolution of credit sources of poor households in the Philippines over the past few decades – from family (pamilya), network, and other informal sources, to government credit, to microfinance, including the home-grown, cross-breed of lending called grasya (“grace”). Microfinance is key in local economic development in the country in that it fills in the gap in the unbanked, low-income financial market, left underserved by the other sources. While it has proven to be both sustainable and scalable, the sector as a whole still faces two main challenges: 1) the prevalence of informal credit sources in the market; and 2) delinquency management. The result of the study demystifies what accounts for an effective delinquency management in microfinance: balance of social capital and elements of management systems, building one to compensate for the weakness of the other; this, regardless of the institution’s growth strategy, lending methodology employed, and product variety and design. Since the Philippine economy heavily relies on the micro enterprises, keeping the microfinance sector robust remains critical not only in the country’s economic development but also in its thrust to alleviate poverty.
