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Improving access to financial services in forest communities

by Portal Web Editor last modified Jan 10, 2013 09:10 AM
Contributors: David A. Lucock

This report identifies the enterprise credit needs of forest community people's organizations (POs) in the Philippines and provides recommendations for their development and improved access to rural financial services. The author observed that many of the POs were formed into multi-purpose cooperatives (MPCs) and comments that there is potential for conflict between having an organization responsible for the long term oversight of a community's resources and the same organization involved in business undertakings. He suggests restricting the business activities of MPCs by transferring financial risks to individual and grouped entrepreneurs rather than to expose the MPC to potential financial losses. The bookkeeping system employed by many POs and MPCs is reported as unsatisfactory. As a result, the financial performance of POs is non-transparent, does not facilitate rational investment decisions, and as such, is of little value in an application for bank financing. Many PO households lack regular access to financial services because of: 1) their distance from established financial institutions; 2) the small scale of their financial needs which is unattractive to banks; and 3) the lack of household financial information available to financial institutions. The report recommends the formation of a credit union (CU) within communities, with a focus on micro-enterprise lending between 5000 to 10,000 pesos. It is also recommended that lending of the CU to any single borrower be limited to not more than 10 percent of the net worth of the CU and that, for the first year of operations, no loan be for a term of more than six months. The POs and their cooperatives are also encouraged to develop linkages with cooperative federations, and that those federations be contracted in the start-up and training of community CUs.

Author(s): David A. Lucock

Publication Date: 1997

Location: Philippines

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