Gender and Microfinance Business Choice:

Evidence from The Philippines

Rebecca N. Coke
College of Business
Belmont University
coker@mail.belmont.edu

Abstract

This paper examines the factors influencing rural microfinance business choice in the Philippines.
A borrower survey shows that there is a strong relationship between the borrower’s household
bargaining power and business choice. In addition, the microfinance borrower is limited by what is
deemed an acceptable female activity and by her need to participate in
household production.

Keywords

Philippines, microfinance, gender, business choice

1. Introduction

Microfinance lending, or the provision of small loans to very poor borrowers, is currently one of the
most important trends in development finance. Microfinance institutions (MFIs) are designed to
provide credit to the previously under-serviced population of low-income borrowers through the use of
a joint-liability contract. In the Philippines, these programs are promoted as a tool for transforming the
lives of poor women by providing them with alternatives to informal financial lenders, sometimes
called ‘five-six’ lenders. A key assumption in microfinance programs is that poor women have ideas
for entrepreneurial projects that are not undertaken because credit is either not available or too
expensive. The policy goal inherent in microfinance is the creation of viable entrepreneurs who will in
turn contribute to a grassroots growth movement, transforming the lives and well being of poor families
as well as contributing to national economic development. As Carvajal eloquently states, “the goal of
turning these microenterprises into efficient units and enabling them to expand in terms of their size,
organization and ambitions can produce highly positive economic, social and political results by
helping to reduce unemployment, increase household income and strengthen democratic institutions”
(1989, p.202).

The author would like to thank the faculty and staff of the University of the Philippines School of Economics for their
comments and support, particularly Dr. Emmanuel Esguerra. She is grateful for comments from Dr. Maria Floro, Dr. Amos
Golan and Dr. Robin Hahnel. Most importantly, this research would not have been completed without the assistance of Mrs.
Gemma Arguelles, Research Assistant, and Dr. Griselda Quintana. The author would also like to acknowledge support from
a Fulbright Research Grant.
However, the argument that poor women can be transformed into strong businesswomen solely through
the use of credit is not intuitively obvious and should be examined empirically. The amount of
development funding allocated to microfinance projects is increasing exponentially, and the literature
on Philippine microfinance is beginning to address the role these loans play in transforming both
borrowers and communities. Most Philippine studies focus on the macro structure and performance of
microfinance institutions (Agabin and Lim, 1999; Esguerra et al. 1999) or on the group sanctions
associated with the joint-liability contract (Besley and Coate, 1995; Ghatak and Guinnane, 1999). Of
course, the relationship between microfinance and economic development is complex and multi-
faceted; this paper examines some factors influencing the choice of microfinance projects in particular
and the implications for both loan repayment and community development.

Group lending programs have historically targeted females. In Philippine MFIs in general, women
comprise an overwhelming majority of the total borrower population. It is therefore important to study
business choice within the context of norms that prescribe proper behavior as a wife, as a mother and as
a female. Microfinance borrowers are choosing projects from a limited set of alternatives and are
making decisions within the context of their other roles within the community.

The microfinance business itself is a key component of borrower success and community development.
To promote economic growth, microfinance loans need to promote entrepreneurs: people who are
either doing new things or doing old things innovatively (Schumpeter, 1947). This research shows that
while microfinance projects do offer borrowers additional streams of income that contribute to
household consumption, they are not true entrepreneurial projects with the ability to transform
communities and borrowers’ lives. Why, then, are borrowers choosing projects with lower returns?

The empirical findings indicate that most borrowers choose from a limited set of business
opportunities. Borrowers with low bargaining power and with childcare responsibilities tend to choose
projects that can be easily incorporated into their family life. Yet some borrowers do exhibit
entrepreneurial characteristics, specifically those with high household bargaining power and fewer
domestic responsibilities. The microfinance program could be improved by combining credit with
training to develop innovation in those borrowers. The provision of credit alone, however, is not
sufficient to encourage economic growth.

2. Borrower Survey

In order to examine the factors influencing business choice, a survey of microfinance borrowers was
conducted in the Visayas Region of the Philippines. Respondents are all participants in a Cooperative
Rural Bank's Grameen Replication Program (GRP). This particular MFI was chosen because the
program structure and lending procedures are representative of most microfinance operations in the
Philippines. The microfinance division of the study bank has been in operation for more than eight
years and has one of the largest microfinance programs in the country. However, the identity and
location of the bank are concealed to maintain confidentiality.

The borrower interviews were conducted from March to May 2000. Both qualitative and quantitative
data were collected from each borrower; interviews were conducted with the help of an interpreter. The
survey includes 160 respondents from five municipalities served by the GRP. In the study sample, 95
percent of respondents are female, which is representative of the total borrower population.
Respondents were randomly sampled from the borrower list of the GRP's main branch office. All
respondents received their latest loan between 1997 and January 2000. Loans are granted for a one-
year period.

In the GRP, borrowers who successfully meet all weekly amortization payments are given a larger loan
in the next year. Loans typically start at 5,000 pesos, and can reach a maximum of 25,000 pesos. The
practice of granting loan increases based on past loan payment performance is common in Philippine
MFIs. Again, the policy goal is to provide incentives for business expansion and community
development. Ideally, borrowers will start with a small operation and use the incrementally expanding
debt capital to finance business growth. Implicit in this structure is the assumption that borrowers who
are good payers in the current loan period will be good payers in the future. However, this proves to be
a problematic assumption; the survey results indicate that borrowers are choosing businesses with
diminishing returns to capital, and therefore have limited prospects for expansion.

3. Business Choice

It is important to note that microfinance lending in the Philippines is supply driven, not demand driven.
Supply-led finance follows from the assumption that there is a large market failure for credit in rural
communities; poor women are assumed to have a large unmet demand for credit, so the government is
hastily rushing to supply it (Meyer, 1989). Screening of borrowers and microfinance projects is
minimal when the bank expands into new barangays, or village communities. In this MFI in particular,
new borrowers are recruited when the GRP receives additional funds from the main government
wholesaler of microfinance, the People’s Credit and Financing Corporation, or from the Asian
Development Bank. Loan officers seek low-income barangays, and offer initial loans to borrowers
meeting three main criteria. The borrower’s family income is not supposed to be greater than 8,000
pesos a month. Prospective borrowers must attend a pre-loan seminar and successfully complete an
exam on program policies. Finally, all borrowers must independently form groups of five, and agree to
be jointly responsible for each member’s loan payment.

As a result, the microfinance borrowers are not necessarily entrepreneurs. To begin with, they are not
actively seeking financing for business proposals. Borrowers usually choose business projects after the
financing offer is extended, not before. The sequencing of business choice has a strong impact on the
types of microfinance projects undertaken in each barangay. With loans that are supply driven,
projects tend to emulate current community businesses as new borrowers hastily seek ideas. The
borrowers are less likely to be entrepreneurs seeking ways to bring new business ideas to fruition, and
more likely to be managers of traditional projects.

3.1 Microfinance Business Characteristics

Table 1 lists the distributions of business projects undertaken by two samples of borrowers: the main,
small sample of 160 respondents and a larger sample that includes both respondents and their group
mates. The total number of projects is slightly larger than the total number of borrowers in each sample
because some borrowers used their loan funds for multiple projects. As indicated, the microfinance
projects are highly concentrated in a few income-earning activities: sari-sari stores (or small, home-
based grocery stores), vending, piggery and fiber production. More than eighty-five percent of the
businesses were classified into one of these four categories. In general, projects have very low profit
margins, are labor-intensive, and are dependent on local demand, usually neighborhood demand.

Business Category Large Sample Small Sample

Number Percent Number Percent
Vending fish/ rice/ palay/ fruit/ clothes 216 29.39 38 22.49
Sari-sari store 215 29.25 59 34.91
Piggery 117 15.92 32 18.93
Weaving/ making fibers 81 11.02 16 9.47
Other 106 14.42 24 14.20

Total 735 100.00 169 100.00

Table 1: Microfinance Businesses: Large and Small Sample Distributions

Most of the business projects, particularly vending and sari-sari stores, appear to have a low absorptive
capacity for additional capital; businesses exhibit sharply diminishing returns to capital after the first
loan. Twenty-five percent of borrowers with loans greater than 5,000 pesos diversify into a second
business. Three percent put a portion of their loan amount into a savings account for emergency use,
reinforcing the theory that microfinance businesses have a limited capacity for capital absorption. This
ultimately means a decreased return on higher loan amounts. Therefore, we would expect the
probability of default to increase with subsequent loans as the present discounted value of expected
future loan benefits decreases.

This hypothesis is consistent with the survey results. Table 2 shows the incidence of default in both
small, usually first loans and larger, subsequent loans. In this study, a borrower is classified in default if
her loan passes its maturity date without full payment. For small loans, the sample default rate was
forty percent. For the larger loans, the default rate jumps to sixty-three percent. Using a non-parametric
test of population differences, we see that the relevant chi-squared statistic is 8.21 with one degree of
freedom. The test rejects the hypothesis that loan size does not impact the incidence of default at a 0.5
percent confidence level (α = 0.005). High default rates threaten microfinance program success and
sustainability, especially when default rates increase with loan size.

Default Repaid
Loan size ≤ 5,000 pesos 34 50
Loan size > 5,000 pesos 48 28
Table 2: Incidence of Default by Loan Size
This result is troubling because it shows the microfinance projects are not compatible with the
program’s loan structure. Good performance in the first loan is not necessarily a predictor of repayment
in the second, larger loan period. True entrepreneurs with positive returns to additional capital would
be able to move into a long-term lending relationship with the bank. However, these businesses do not
appear to need access to increasing lines of credit for expansion. Most would be best served with a one-
time start up loan. This may also be a causal factor in the increase in drop out rates seen in many
microfinance programs throughout Asia (Karim and Osada, 1998).
3.2 Social Norms and Business Choice

To restate, the low business diversity in the sample can be partially explained by the nature of the
bank’s recruitment of new borrowers. However, borrower business choice is also a function of the
social norms surrounding her daily activities and gendered constructs of her identity within the
community. Specifically, the borrower's choice of business activity is limited by what is deemed an
acceptable female activity, by her need to participate in household production, and by her relative
household standing.

Seventy-nine percent of the borrower respondents are married and living with their spouses. The
Filipino household, however, contains more than just the nuclear family. Jocano notes that the Tagalog
word for household, magkakasambahay, is “somewhat bigger than the family” and can incorporate
both related and unrelated individuals living in one house (1998, p.71). So even the borrower
respondents that are separated, widowed or single are part of a larger kinship unit.

In general, the microfinance businesses are flexible activities that match easily with domestic duties.
Females are traditionally responsible for household production activities; household labor is almost
universally viewed as women’s work (Berk, 1985). It is clear that the assumption of a microfinance
loan does not release the borrower from her household duties, even though the business income
contributes to overall household welfare. Consequently, the borrower must choose a business that is
easily incorporated into her existing responsibilities. Sen notes that this is a common feature of the
sexual division of labor within households: “Women do the cooking and are able to take on outside
work only insofar as that can be combined with persisting as the cook” (1990, p.130). Most of the
microfinance projects listed in Table 1 do not require the borrower leave her home or children for
extended periods. The business activities are subsumed within norms that prescribe proper behavior as
a wife and as a mother.

For the Filipino wife, family needs are often placed before her obligations to the larger community.
Thanks to the Spanish colonial ideal of a virtuous woman, the female is often expected to sacrifice
herself for her children and her husband. Aguilar attributes the self-sacrificial behavior of Filipina
housewives to “conformity to a highly-prized behavioral model” (1991, p.161); women derive self-
worth through their domestic responsibilities. Even if the borrower had plans of business expansion,
her goals depend on the timing of her children's and husband's needs.

With the exception of piggery, the microfinance projects are chosen to produce a quick return on the
capital investment. One causal factor is the structure of the loan amortization payments; the borrower is
expected to make weekly loan payments immediately after the loan the disbursed. However, the choice
of projects offering a quick return is also a function of the borrower’s responsibility for daily food
provision for the household. Borrowers were not only made decisions on daily food expenses (see
Table 3) but they are often also responsible to the actual purchase of the day’s food. Constant streams
of income are a necessary part of the borrower’s household contribution. She may forgo a project with
larger return if there is a long lag between the time of the investment (both labor and capital) and the
date of the first profitable income stream. For the same reason, borrowers are reluctant to invest in
unfamiliar or new projects in fear of risking the daily income stream. In this sense, the borrower’s
household responsibilities make her risk averse in the project choice.
Also, gender norms prescribe appropriate female businesses. The idea that labor tasks are divided
according to gender is transcultural, and an important part of both formal labor organization and
household organization (Kabeer, 1984). In the survey sample, one of the more stable, relatively higher
income producing activities in the survey area is in transportation, specifically driving passengers in
tricycle cabs or jeepneys. Females are implicitly barred from these male-dominated activities.
Weaving and small vending operations are activities that are more consistent with social norms for
female behavior.

3.3 Household Bargaining Power and Business Choice

In the Philippines, the female is viewed as the ‘treasurer’ of the family and is therefore assumed to be
responsible for much of the budgeting. However, other studies have shown that the job of household
manager does not necessarily translate into power (Aguilar, 1991). Borrowers with low bargaining
power have lower command of joint household resources. They will therefore have different
investment strategies than borrowers with high bargaining power. For example, low power borrowers
will avoid projects producing infrequent lump-sum cash payments because they are more vulnerable to
appropriation by other household members. Low bargaining power borrowers will also seek projects
that will supplement their tenuous access to joint household income, preferably low risk businesses
with predictable cash flows.

In the survey sample, the variance in relative household bargaining power can be seen in responses on
female involvement in household decisions. While most households claim the wife is in charge of the
budgeting (see ‘Overall Budget’ in Table 3), the reality of household decision-making is much more
complex. Decisions for particular household expenses are delegated by gender. In the survey sample,
males are more likely to leave daily maintenance decisions to the female, such as decisions for food
expenditures, but will get involved in larger decisions, such as purchasing appliances. For clarity, Table
3 excludes the eight male borrowers in the sample.

Category Borrower has input Borrower does not Not applicable

in decision have input in decision
Overall budget 93.4 percent 6.6 percent 0 percent
Food expenses 89.5 percent 10.5 percent 0 percent
Appliances 46.0 percent 38.2 percent 15.8 percent
Table 3: Household Decision Making Among Female Borrowers
Feminist economists have increasingly argued that power dynamics within households play an
important role in resource allocation and decision-making (Folbre, 1986; Beneria, 1995; Kabeer, 1994).
Sen argues that the household is characterized by two main forces: cooperation and conflict (1990).
Cooperation is the contribution of goods and services to the household; household members engage in
labor activities, both paid and unpaid, to contribute to overall welfare. Yet the allocation of household
income is conflictual, and will depend on the relative bargaining positions of household members. In
the context of the rural microfinance household, the business choice is key because it impacts both
household cooperation (adding to household income) and conflict (the allocation of existing and
additional income). Therefore, the business choice will necessarily be impacted by the borrower’s
initial position of relative bargaining power.
4. Empirical Tests of Business Choice

Section three outlined some of the theoretical relationships between a borrower’s characteristics and
her business choice. This section tests these hypotheses using survey data. Specifically, the impact of
borrower’s family responsibilities and household bargaining power on business choice is tested through
the use of four proxy variables: household size, number of children under age 7 living in the household,
the borrower’s education level and a food decision variable. Both household size and number of
children measure the degree to which the borrower has responsibilities within the home. For example,
as the number of young children in the household increases, the borrower should choose a business that
is compatible with childcare. The food decision variable is also used as an indicator of the borrower’s
household responsibilities. This dummy variable indicates if the borrower has input into the food
purchase decision, which can also be interpreted as the borrower’s involvement in daily food
purchases.

The education variable is a dummy variable used as a proxy for the relative household bargaining
power of the borrower. The education variable measures a 1 if the borrower has received at least some
education beyond high school and 0 otherwise. More borrower education is assumed to result in more
control over household resources and income.

These independent variables are used to predict two different business choice decisions: the sari-sari
store and piggery. These two business categories were chosen because they combine to be fifty-seven
percent of the main borrower sample. Most importantly, these two businesses represent two starkly
different types of projects. The sari-sari store is a low risk investment that generates low but stable,
daily cash flows. A piggery, however, is a higher-risk project that produces large cash flows once every
four to six months. This is especially unusual because the microfinance loan structure requires
amortization payments to begin immediately, so pig investors must begin payments long before the
project returns a profit.

Each business choice decision can be explicitly modeled as a function of the four borrower specific
characteristics. Both the sari-sari and piggery business decisions are seen as discrete choice models.
The decision to engage in a particular business is a binomial choice variable, Yi. For example, the sari-
sari business choice variable measures 1 if the borrower chooses to invest in a sari-sari store and a 0
otherwise. Similarly, the piggery model uses a dependent variable measuring 1 if the borrower uses her
loan funds for a pig and 0 if she does not buy a pig.

Each discrete choice model estimates the probability the ith borrower will choose the business based on
her vector of individual characteristics. Pi is defined as the probability the borrower will choose the
business, which is assumed to be impacted by some vector of borrower characteristics, Xi. The choice
decision can therefore be written as:
Yi = Pi + ei = F ( β ' X i ) + ei

where β is a vector of coefficients and ei is the error term associated with each borrower. Because the
sample size is relatively small (160), a generalized maximum entropy (GME) technique is used to
estimate the probability of business choice (Golan, Judge, and Miller, 1996). This technique is
appropriate for small samples because it does not require an assumption on the distribution of the error
terms, unlike traditional probit and logit approaches.
4.1 Sari-sari store

The first discrete choice model tests the impact of the four independent variables on the decision to
invest in a sari-sari store. In the borrower sample, fifty-eight borrowers used microfinance loan funds
as capital for a sari-sari store while one hundred and two chose other business endeavors. The GME
estimation results for the sari-sari business choice model are detailed in Table 4.

Variable Coefficient Standard T-statistic

Error
Household Size -0.29 0.11 -2.62
Education -0.84 0.36 -2.36
Number of Children under 7 0.35 0.20 1.78
Food Decision -0.07 0.53 -0.13
Constant 0.88 0.69 1.28

Likelihood Ratio statistic 12.25

GME information measure .10
Table 4: Sari-sari Store Choice Model, GME regression output
The GME information measure, or the reduction in uncertainty information index, is a relative measure
of the amount of information contained in the data. This number is similar to a pesudo-R2 measure in
that the index will approach 1 as the amount of information in the model increases. This model has an
information measure of 0.10, which shows that the four independent variables do not explain much of
the variation in the sari-sari decision. However, the likelihood ratio statistic of 12.25 with four degrees
of freedom is significant at a 0.025 level. We can therefore reject the hypothesis that all of the
independent variable coefficients are zero, and can conclude that the model does impart some
important information about the sari-sari business choice.

In order to evaluate the relationship between the independent variables and the business choice, it is
important to know if each variable is statistically significant and, if so, the marginal effect of a change
of the independent variable on the probability of choice. Three of the four variables are significant:
household size is significant at a 0.005 level of confidence, education is significant at a 0.025
confidence level, and the children variable has a 0.05 level of significance. The food decision, however,
is not a significant predictor of the decision to invest in a sari-sari store.

As in all discrete choice models, these coefficients cannot be interpreted in the same way as normal
regression coefficients. To see how a unit change in each independent variable impacts the probability
of choosing a sari-sari business, the coefficients must be transformed and evaluated at a certain level of
the independent variable. For household size and number of children, dPi /dXi,k can be calculated at the
mean of the kth independent variable. For the dummy variables, this measure is calculated for a discrete
change from 0 to 1.
 Variable dP/dXk
Household Size -0.07
Education -0.19
N. of Children 0.08
Food Decision 0.02
Table 5: Marginal Effects, Sari-sari Choice Model

Interestingly, an increase in the number of household members causes a decrease in the probability that
a microfinance borrower chooses a sari-sari business. A larger household contains more people to share
in household responsibilities, thus freeing the female borrower to engage in businesses away from
home. For example, if a household includes grandparents, then they may participate in childcare and
allow the borrower to engage in neighborhood vending.

As expected, borrowers with large numbers of children under the age of seven are more likely to
choose a sari-sari store. A sari-sari store is a business that operates out of the home, and allows for
multi-tasking. It is relatively easy to watch, feed or play with children while waiting for customers to
approach the store. Sari-sari stores do allow for some flexibility, but they do also require large amounts
of time. Most of the sample sari-sari stores were open continuously from early in the morning to late in
the evening.

One other feature of the sari-sari store is that is produces small, but relatively constant streams of
income. Seventy-five percent of the sari-sari stores in the sample reported net daily earnings of 100
pesos or less. Businesses producing small but predictable streams of income should be preferred by
borrowers with low household bargaining power. Steady cash flows allow for better smoothing of
consumption for borrowers who are less able to command use of joint household resources. The
marginal effect of the education variable shows that sari-sari stores are indeed chosen by borrowers
with low bargaining power, or by borrowers without post-secondary training. Household bargaining
power is a significant component of the sari-sari business choice.

This empirical model is valuable if it can be used to successfully predict which borrowers will choose
sari-sari stores given their individual characteristics. The predicted choice is compared to the actual
business choice to gauge success. To do so, the predicted probability output must be transformed into a
binomial variable measuring a 1 if a sari-sari choice is predicted and 0 otherwise. All predicted
probabilities that fall below a specified threshold are reclassified as 0, and those above the threshold
become 1. For this sample, the threshold was set at 0.36, which is the proportion of actual sari-sari
stores in the sample.

Actual Sari-sari Actual Other Business

Predicted Sari-sari 37 40
Predicted Other Business 22 61
Table 6: In-sample Prediction, Sari-sari Choice Model
Overall, the empirical model correctly calls sixty-one percent of the borrowers’ business decisions. The
model correctly identified sixty-three percent of the sari-sari business owners, and sixty percent of the
other business owners. While this is not a perfect outcome, the model does outperform a random guess.
4.2 Piggery

The second discrete choice model tests the decision to invest the microfinance loan funds in one or
more pigs. Thirty-two of the sample borrowers used microfinance loan funds as capital for a sari-sari
store while one hundred and twenty-eight chose other businesses. Table 7 outlines the GME estimation
results for the piggery choice model. While the GME information measure is a larger 0.3, the
likelihood ratio statistic of 8.26 is only significant at a 0.10 confidence level. Overall, this model does
show that the independent variables are related to the piggery business decision, but at a lower degree
of confidence.

Variable Coefficient Standard T-statistic

Error
Household Size 0.06 0.12 0.49
Education 0.67 0.41 1.62
Number of Children under 7 -0.05 0.23 -0.20
Food Decision -1.15 0.52 -2.19
Constant -0.96 0.75 -1.28

Likelihood Ratio statistic 8.26

GME information measure 0.30
Table 7: Piggery Choice Model, GME regression output

Only two of the four independent variables are statistically significant: education and food decision.
The education variable is significant at better than a 0.10 confidence level. As shown in table 8, the
impact of post-secondary education on the choice to buy a pig is positive. Higher education, or higher
household bargaining power, makes borrowers more likely to invest in a piggery. Unlike sari-sari
stores, a pig yields large, irregular cash flows. A borrower would engage in this activity only if she can
appropriate other household income for her daily expenses. She must also be able to protect the pig
income from appropriation at the time of slaughter. A lump-sum pig payment is difficult to hide from a
spouse, so borrowers must have a relatively high degree of power to risk this type of business
investment.

Similarly, borrowers who are responsible for daily food purchases are less likely to invest in pigs. The
food decision variable is significant at a 0.25 level, and the marginal effect is negative. Daily food
purchases require daily income streams, which do not come from pigs.

Variable dP/dXk
Household Size 0.09
Education 0.16
N. of Children -0.01
Food Decision -0.19
Table 8: Marginal Effects, Piggery Choice Model
Using a threshold level of 0.2 (the percent of pigs in the borrower sample), the piggery choice model
correctly calls only fifty-six percent of the total business choices. The model correctly predicts sixty-
eight of the borrowers engaged in piggery, but only successfully predicts fifty-two percent of the other
businesses. This model is obviously weaker than the sari-sari choice model. Yet the model does show a
significant relationship between the choice to invest in pigs and both bargaining power and household
responsibility.

Actual Piggery Actual Other Business

Predicted Piggery 22 61
Predicted Other Business 10 67
Table 9: In-sample Prediction, Piggery Choice Model

Overall, the tests confirm both the pig choice and the sari-sari choice are functions of the household
duties of the borrower and her relative household status. Interestingly, the empirical models show that
the sari-sari borrowers are fundamentally different from the pig borrowers. Sari-sari store owners have
more household responsibilities, and are especially influenced by needs of young children. Pig
borrowers, however, are less risk averse because they have more bargaining power within the family.

These findings are important because they indicate that a portion of the borrower population does
exhibit entrepreneurial tendencies. Pig borrowers are engaging in investments with irregular cash flows
despite the constraint of weekly loan payments. They choose a higher risk activity as a result of their
role within the household. Yet these borrowers are not quite Schumpeterian entrepreneurs because they
are not engaging in new, innovative projects. In other words, high bargaining power and lower
engagement in household production are necessary but not sufficient conditions for creating
entrepreneurial projects. These borrowers need to develop the ability to recognize and develop new
business ideas. To achieve the microfinance policy goal of building entrepreneurs and therefore
developing communities, microfinance programs should also target and train borrowers exhibiting
entrepreneurial tendencies.

5. Conclusion

In practice, it is evident that policy tools designed to alleviate extreme poverty must be fundamentally
different from those designed to build entrepreneurship (Ghate et al., 1996). In this study, borrowers
use their initial loan funds to invest in income generating projects, which is indeed positive and reduces
rural poverty. However, the microfinance loans are not funding growth projects; they are not creating
entrepreneurs. Given the social context in which borrowers make business decisions, the Philippine
microfinance programs are not properly designed to meet the overarching policy goal of economic
growth. The programs are alleviating poverty, but not encouraging long-term development. This can be
primarily attributed to an over-reliance on credit as the sole method for promoting entrepreneurship.

The standard Grameen Replication Program employed by many Philippine MFIs is essentially a
western model of capitalist development. Yet this model’s efficacy depends on the degree to which
participants make decisions in a western capitalist manner. In the borrower sample, individual
decisions are shaped by existing social norms, particularly those prescribing household duties.
Implementation of microfinance programs in general is impacted by the existing social context,
particularly the gendered constructs of female responsibilities.

As Aguilar notes, the Philippines is in a transitional phase of development, caught between tradition
and modernity (1991). It is unreasonable to expect female microfinance borrowers to treat their
business spheres separate from the home sphere of production. To be more effective, a development
strategy must address the female small business owner, or potential entrepreneur, within her context. If
the policy goal is poverty alleviation, then the loans need only provide women with start-up capital, not
an expanding line of credit. If, however, the intent is to promote entrepreneurship and strong business
growth, then microfinance should provide credit combined with training to help borrowers develop an
innovative approach to business. Microfinance programs should also launch initiatives to build
household bargaining power beyond the mere provision of credit, such as opportunities for higher
education. Credit alone cannot jump start development; it must be combined with larger, holistic
initiatives targeting individuals within communities.

6. References

Agabin, M. and Lim, J. (1999). “Rural Banks and Microfinancing,” University of the Philippines
School of Economics, Draft.

Aguilar, D. (1991). Filipino Housewives Speak. Raintree, Manila.

Beneria, L. (1995). Towards a Greater Integration of Gender in Economics, World Development,

Vol. 23, No. 11, Pergamon Press, Great Britain.

Berk, S.F. (1985). The Gender Factory: The Apportionment of Work in American Households, Plenum
Press, New York.

Besley, T. and Coate, S. (1995). Group Lending, Repayment Incentives and Social Collateral, Journal
of Development Economics, Vol. 46, Elsevier Science, Amsterdam.

Carvajal, J. (1989). Microenterprise as a Social Investment, Microenterprises in Developing Countries,

Intermediate Technology Publications, London.

Esguerra, E., Lapar, L., Morte-Banno, E. and Calina, S. (1999). “The Effectiveness and Efficiency of
Microfinance Institutions in the Philippines: A Comparative Analysis.” University of the Philippines
School of Economics, Draft.

Folbre, N. (1986). Hearts and Spades: Paradigms of Household Economics, World Development,
Vol. 14, No. 2, Pergamon Press, Great Britain.

Ghatak, M. and Guinnane, T. (1999). The Economics of Lending with Joint Liability: Theory and
Practice, Journal of Development Economics, Vol. 60, Elsevier Science, Amsterdam.

Ghate, P., Ballon, E. and Manalo, V. (1996). Poverty Alleviation and Enterprise Development: The
Need for a Differentiated Approach, Journal of International Development, Vol.8, No.2, Wiley
Interscience, Chichester, New York.

Golan, A., Judge, G. and Miller, D. (1996). Maximum Entropy Econometrics, Wiley & Sons,
Chichester, England.
Jocano, F. L. (1998). Filipino Kinship and Family, Punland Research House, Manila.

Kabeer, N. (1994). Reversed Realities: Gender Hierarchies in Development Thought, Verso, London.

Karim, M. R. and Osada M. (1998). Dropping Out: An Emerging Factor in the Success of Microcredit
Based Poverty Alleviation Programs, The Developing Economies, Vol. 36, Institute of Developing
Economies, Tokyo.

Meyer, R. (1989). Financial Services for Microenterprises: Programmes or Markets?, Microenterprises

in Developing Countries, Intermediate Technology Publications, London.

Schumpeter, J. (1947). The Creative Response in Economic History, Journal of Economic History,
Vol. 7, Issue 2, New York University, New York.

Sen, A. (1990). Gender and Cooperative Conflicts, Persistent Inequalities: Women and World
Development, Oxford University, New York.