Basic premises: Microfinance and remittances

Microfinance refers to the provision of financial services to low-income clients, including the self-employed. Financial services generally include savings and credit, and some microfinance organizations also provide insurance and payment services.

Microfinance activities usually involve:

• Small loans, typically for working capital, usually without collateral.

• Informal appraisal of borrowers and investments;

• Access to repeat and larger loans based on debt capacity and repayment performance;

• Streamlined loan disbursement and monitoring;

• Secure savings products.

Microfinance clients are typically self-employed, low-income entrepreneurs in both urban and rural areas. Clients are often traders, street vendors, service providers (hairdressers, tricycle operators), small restaurant operators, artisans and small cottage industries. Usually their activities provide a stable source of cash flow and income (often from more than one activity).

Microfinance services are a perfect fit for overseas Filipinos and their families, for many reasons.

MFI services could give more access and services that could introduce migrant families to opening savings accounts, microcredit and other banking services and even mentoring on microenterprises. Microfinance might be tailor-made for Overseas Filipinos who send money to their relatives to fund a microenteprise but would want to be assured that money is used for the purpose it is intended.  Such services to poor families or small micro-enterprises are not normally available except with microfinance or other grassroots financial institutions, cooperatives or other self-help groups.

The fact that 2/3 of overseas Filipinos originate from the countryside presents an opportunity for this sector to act as a catalyst to improve growth in the countryside and in their own communities or hometowns (Asian Development bank, 2004). These activities could be in the areas of investing or opening time deposits in countryside or grassroots financial institutions engaged in lending to poor entrepreneurs, such as microfinance rural banks; encouraging their families to join cooperatives or introducing them to basic financial or banking  products and services with these institutions;  purchasing long term bonds issued by local government units that will fund rural infrastructure projects; or simply grouping together as hometown associations and raising funds to fund socio economic projects.