Microcredit worsens the plight of Haiyan victims - Survivors resort to borrowing due to lack of government assistance
Typhoon Haiyan victims are desperately resorting to borrowing from microcredit institutions as the national government continues to dilly-dally on its rehabilitation program, eight months after the typhoon. But many for-profit microcredit institutions are making the lives of the borrowers harder because they are often keener on collecting repayments rather than helping the victims rise from their impoverished condition.
For Perla, this is yet the toughest time of her life.
Her house made of bamboo poles and galvanized iron sheets is on the brink of collapse. Eight months after Haiyan, she and her husband have yet to find ways to get the materials needed to rebuild their house. Government assistance does not reach them.
But it is the least of her worries today.
What she is most worried about now is how to get the money she needs to repay her loan to a microcredit institution. She could not let her group pay her due again.
In the absence of government assistance, microcredit institutions have proliferated in Haiyan-stricken areas purportedly offering loans to survivors to help them recover from the disaster.
Like most of her neighbors in barangay Culajao, Roxas City (Roxas City is located at the northeastern tip of Panay Island of the Western Visayas Region), Perla has resorted to microcredit as a way to ease their daily impoverished condition. They depend on oyster and mussel farming as the primary source of livelihood. When Haiyan struck their village, it completely destroyed their farming facilities. Due to the absence of any government help, most of the residents here have turned to microcredit to sustain their daily needs.
In Perla's case, it is very clear that she is not in a position to repay her loan, but the microcredit institution continues to collect her dues.
"I do not know where to get the money. My husband's earning from selling dirty ice cream is not even enough to sustain our food consumption," said Perla.
"I could not sleep at night anymore because I am thinking of what to feed to my children the next day. Oftentimes, we eat without any dish and my children go to school without any food or money. I bought all their school supplies through loan."
Most of the women in this village suffer the same condition, though. "We are all living in debt. The biggest part of the money that we earn in a day goes to the microcredit as repayment," said Mary Krisia, Perla's friend.
It is not an overstatement to say that these people are now working just to repay their loans. Debt payment has replaced the provision of the most basic necessities of the family as the daily concern of parents like Perla. Health problems have worsened because they cannot even buy medicines, let alone have a medical check up when they are sick.
"I can still recall the time when we did not have any loans to pay and that I could still buy my children extra foods and new clothes. Now, I cannot even imagine providing them a decent meal," lamented Perla.
As its name suggests, microcredit offers small loans to people who do not normally qualify for traditional banking credit, to encourage entrepreneurship. Most of the beneficiaries of microcredit are women comprising more than 95% of the total lenders. It is considered as an innovative financial intermediation scheme aimed to reduce incidence of poverty especially in rural areas.
Many microcredit organizations follow the principle of Grameen Bank, a Nobel Peace Prize-winning microfinance organization which provides small loans to the impoverished without requiring collateral. Most of these microcredit institutions use group-based credit approach to use peer pressure within a group to ensure the borrowers follow through and conduct their financial affairs with discipline, ensuring repayment and allowing the borrowers to develop good credit standing.  However, many people are now beginning to question the effectiveness of microcredit in lifting the poor out of poverty.
This is how microcredit works in the village of Culajao:
An agent goes to the village and talks (mostly to women) about microcredit, its purpose and the results it aims to achieve. Those who decide to take up loans are then asked to form groups of 5-10 members. In Culajao, the regular loan is P5,000 per individual borrower with an interest rate of 20% for a six month period. The normal duration of loan is six months wherein the individual borrower pays P250 (interest plus loan payment) per week plus P50 for the compulsory saving scheme (money used by the company to lend to other borrowers). Before the loan is released, each borrower needs to pay P250 as the starting amount for the compulsory saving scheme plus some miscellaneous fees. The money from the compulsory saving scheme will be returned after the debt is repaid in whole.
In the duration of the loan, the institution organizes various trainings such as in food processing, animal husbandry, soap making, etc. Evidently, these trainings are not based on local needs or marketing opportunities. A borrower who is not able to attend a training is required to pay P200 as penalty.
When a borrower fails to pay her due, her group is required to shoulder the repayment. In many cases, members who have no money to repay resort to taking up loans from another microcredit company. It is not unusual then for one borrower to have multiple loans from different microcredit companies sinking them into what critics of microcredit call as "debt trap".
Over the years, the proliferation of microcredit institutions has changed the orientation of microcredit from non-profit endeavor aimed at helping the poor lift themselves out of poverty to for-profit venture that has resulted in unregulated charging of exorbitant interest rates.
As a result, many microcredit institutions are often keener on collecting repayments than supporting the borrowers in sustaining their small enterprises.
It is clear in Perla's case that microcredit has aggravated her family's condition after Haiyan.
Recently, one microcredit institution has offered its current borrowers who are typhoon victims a 10,000 worth of loan. But instead of money, the company has offered as loan housing materials composed of several pieces of plywoods, iron sheets, nails and others. Repayment will take five years after which the borrower is expected to fully repay the loan's principal and interest totaling to 15,000 (10% interest per year). Some borrowers observed that the materials might have been overpriced; but they were forced to take up the loan anyway due to desperation.
"We are not given the choice how and where to spend the money, but what can we do? We really don't have a choice," one borrower said.
Several studies have shown that microcredit does not reduce poverty and has instead created problems that have brought some communities into a debt trap. Repayment problems lead to extreme humiliations and ultimately suicide as in the case of one province in India where some 200 cases of suicide were linked to non-payment of microcredit loans.  Critics have argued that microcredit will not solve the prevalence of poverty especially in rural areas because it fails to address the root causes of poverty.
In an article entitled, A Critique of Microcredit: Microfinance and Women's Poverty, Susan Feiner and Drucila Barker showed how microcredit affirms neoliberalism:
"Neoliberals champion the Grameen Bank and similar efforts precisely because microcredit programs do not change the structural conditions of globalization -- such as loss of land rights, privatization of essential public services, or cutbacks in health and education spending--that reproduces poverty among women in developing nations... Why then do national governments and international organizations promote microcredit, thereby encouraging women's work in informal sector? As an anti-poverty program, microcredit fits nicely with the prevailing ideology that defines poverty as a individual problem and that shifts responsibility for addressing it away from government policy-makers and multilateral bank managers onto the backs of poor women...
Microcredit programs do nothing to change the structural conditions that create poverty."
They argue that microcredit cannot replace cooperatives formed by the people themselves since these cooperatives are based on a common idea that the people know what is best for them and can work together to achieve their goals. These cooperatives aim at empowering the people thereby creating stronger communities.
One good example of which is the cooperative set up by a fisherfolk organization in the small coastal village of Talang-an in the town of Panay (adjacent town of Roxas City) in the wake of typhoon Haiyan. The organization is currently fighting against land grabbing by a local landowner who has claimed ownership of the coast and has become aggressive in evicting them. The landowner is reportedly interested in developing the coast into a resort and commercial area. They decided to form the cooperative as a way of strengthening their organization while they are in the thick of struggle against the land grabbing. Through the help of various organizations such as Gabriela and Pamalakaya (a national fisherfolk organization), they were able to acquire six pump boats and several storage boxes for their fish catch as means to start.
Through the cooperative, members of the organization can directly sell their fish catch to the market instead of going through middlemen who usually buy their fish catch at very low prices. A substantial part of its earning will be allocated primarily to support their struggle against the land grabbing attempt. One of their planned actions is putting up a barricade should the landowner decide to send bulldozers to demolish their houses.
"While we are manning the barricade, some of us will go fishing and selling our catch to sustain our livelihood while we are fighting," Jona Begalan, a Gabriela member and one of the organization's leaders, confidently said.
A portion of the fund will also be used in the reconstruction of houses which were completely destroyed by typhoon Yolanda. "We want to show to the land grabber that we are not ready to leave this place," she added.
As such, the cooperative gives the people the means to organize themselves and rely on their strength to attain economic independence and initiate political actions to forward their cause and fight for their rights.
Since the cooperative's main concern is the betterment of the community, not just its individual members, the sustainability of the program is more guaranteed than the program implemented through microcredit that focuses mainly on the capacity of the individual debtor to repay his/her debt.
People's cooperatives conduct training not just to capacitate their members to increase their earnings but also and most importantly to make them aware of their social responsibility like making judicious use of natural resources and addressing environmental problems. The cooperatives have given their members a voice in decision-making and empowered them to take actions on certain issues affecting their rights and livelihood. Hence, it is not uncommon to see these people opposing developmental aggressions like large-scale mining and logging, farm land conversion into agribusiness plantation and land grabbing for commercial use.
Cooperatives such as the one in Talang-an, thus create not only sustainable economic growth but also social transformation. Unlike microcredit, the projects of cooperatives empower people to take charge of their own development. It makes the members think not just of their own welfare but also of others. Therefore, it is a powerful tool for challenging inequalities .These are the inherent characteristics of people's cooperatives which the microcredit institutions cannot have.
As of this writing, Gabriela is set to start its livelihood assistance program among its members in Perla's village through such projects as restoration of destroyed oyster and mussel farming facilities and provision of financial assistance to help them start again. As in the cooperative in Talang-an, the organization will manage the program and will rely on mutual help and cooperation to ensure successful implementation of the program. Through the program, Perla and her neighbors can now hope to get the means to rescue themselves from the debt trap of microcredit.