Press Release
October 27, 2006

Cayetano warns against Palace plan to
turn DSWD into a micro-credit agency

Senator Pia S. Cayetano has expressed grave reservations about the Palace's plan to mandate the Department of Social Work and Development (DSWD) to engage in micro lending for the poor, saying that the scheme would not achieve the desired purpose of empowering the peasant sector but further reinforce the political dole-out system that will only result in huge loan payment receivables for the government.

Under the planned Executive Order (EO) 558-A, which supersedes EO 558, the DSWD will be designated as the sole non-financial government agency (NFGA) to provide direct lending in select poor provinces and municipalities.

EO 558 simply mandated all non-government finance agencies, regardless of their mandate, to engage in direct micro credit activities, but Malaca?ang withdrew it amid warnings from the business sector that the scheme could lead to huge losses from unpaid loans.

In this regard, Cayetano believes the revised EO will not fare any better because of inherent problems in the scheme itself, beginning with the choice of DSWD as implementing agency.

She said the designation of DSWD as a credit agency contradicts its primary mandate of providing assistance to the poor and overseeing relief and rehabilitation efforts in times of calamities.

"I have serious reservations on whether DSWD is the proper agency to handle such a scheme because of the people's perception of it as the social services arm of government, and not as the latter's counterpart to known community micro-lenders who thrive on the '5-6' lending scheme," she pointed out.

"I, too, am an advocate of micro credit as a way of helping people help themselves to overcome poverty. For it to succeed, however, people should be made to distinguish a loan from a financial institution and a dole-out from a social service arm of the government," she added.

She said various studies have shown that the success of micro financing schemes largely depends on the understanding by borrowers of the nature of the funds being made available to them and the importance of their commitment to repay.

"I am concerned that with the proposed scheme, there would be confusion whether this is a loan or charity. As such we may create a situation where the people do not take the loans seriously."

She also warned that since the functions of the DSWD have been devolved, it will be DSWD field personnel under the control of local executives who will be tasked to determine loan beneficiaries and distribute the loans at the community level.

"The scheme will likely be perceived as a scheme for 'political dole-outs' instead of making responsible borrowers out of the beneficiaries."

"The credit scheme is in danger of being politicized, especially with the coming elections in 2007, because priority will likely be given to close allies and followers of local politicians who wield power over the field personnel of DSWD."

Cayetano also expressed concern that the government's economic managers appear to be clueless on the implications of the planned micro credit program involving the DSWD.

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