Foundations of financial independence

PORTFOLIO POINT: Eureka Report is taking its mission to the Philippines with a campaign to raise $60,000 for a pioneering financial literacy project that could have an enormous impact on poverty in that country. We need your help.

“When we saw food, of course our stomachs were aching so all of us would just eat. But you would vomit because of the dirty things you'd touch and smell."

For 20 years, Ana was a scavenger in one of Manila’s notorious rubbish dumps. The bustling capital of the Philippines may have witnessed Asia’s dramatic economic development over the past three decades, but for people like Ana, who make up 50% of the city’s population living in slums, life is a daily struggle for existence.

“My siblings and I were all scavengers and I thought I'd always remain in the dump as a scavenger, and if I stayed there I was worthless.”

Poverty of this scale and depth often seems insurmountable but today Ana is a successful small business owner, thanks to microfinance credit and skills education provided by local organisation Tulay sa Pag-unlad (TSPI), which provides small loans, training and assistance to enable people to live with dignity, sufficiency and responsibility.

TSPI, whose name translates in Tagalog to "Bridge of Growth", is different from other charities in that it operates like a bank. Instead of giving money, it issues loans. Instead of giving a “hand out”, it gives a “hand up”.

With an original loan of 4000 pesos ($A91), Ana was able to purchase biscuits, shampoo, candies and noodles to sell at a small street stall. Within six months, Ana was not only able to repay her loan in full, but build her enterprise into a small shop that now stocks 15,000 pesos’ worth of inventory.

Ana, who as one of four siblings scavenged from eight years of age, now has children of her own. Unlike Ana, however, they are able to go to school – thanks to a viable business, financial skills and the security of capital – and the poverty cycle has been broken.

A hand-up, not a hand-out
Source: Opportunity International Australia; TSPI

By focussing on sustainable, bottom-up solutions to poverty, organisations like TSPI have made a profound difference to people who otherwise exist at the margins of society and do not have access to formal labour or financial markets. Supported by microfinance charity Opportunity International Australia, TSPI currently serves almost 280,000 clients.

Opportunity International supports this work by providing equity and subordinated debt to microfinance institutions, which allows them to engage others in the capital markets to leverage donated money and help more people. The model is inherently sustainable in that loans, rather than disbursements, are issued, allowing funds to effectively be recycled (click here for more on how this process works).

How microfinance helps break the poverty cycle
Source: Opportunity International Australia

How Opportunity International works
Source: Opportunity International Australia

But in keeping with the focus of partner institutions to be more than just micro-banks, Opportunity is much more than a reserve lender or underwriter. In addition to funds, Opportunity provides technical expertise and strategic planning assistance to ensure sound operational sustainability, substantial social impact and a high degree of ethical integrity.

This year, in partnership with the Australian Government’s Overseas Aid Program (AusAID), Opportunity plans to launch more services, in particular an innovative financial education project piloted with three other Filipino microfinance institutions.

The project – a suite of innovative and integrated multimedia-based financial literacy resources and materials – is primarily a pilot to determine further expansion throughout the Philippines and beyond. But past experience suggests a significant impact will be made. A similar pilot project in Malawi, southern Africa, resulted in 53% of participants developing a budget to track their spending, compared to just 6% of the control group: a simple change, but an incredible difference to people’s lives.

Current development literature points to smarter financial decision-making as an increasingly encouraging tool of poverty eradication and this project is at the cutting edge of this trend. By covering nine modules – including financial management, savings and budgeting – built around a visual game-show format (many microfinance clients are illiterate), the pilot hopes to not only provide a proof of concept, but eventually improve the financial decision-making skills of over one million people in the Philippines.

One of Eureka Report's founding aims has been to give ordinary people the tools and the knowledge to support themselves and their families as independent investors. This year, Eureka Report staff members want to do something we’ve never done before and take our founding mission to a whole new level by supporting this very important initiative.

AusAID has already committed to provide $145,000 to this project, but Opportunity needs to raise an additional $60,000 by 30 June 2012. It’s an audacious goal, but we want you to help us plug the gap.

In a world of challenges in health, education and security, something as commonplace as financial literacy is easy to miss, but Eureka Report members, if anyone, understand the importance of financial education.

We are asking for your support and have set up a donation page – http://eurekareport.gofundraise.com.au – where you can enter your credit card details securely and immediately receive an emailed receipt. Opportunity International is registered with the Australian Taxation Office as a Public Benevolent Institution. Donations over $2 are tax deductible.

Both Eureka and Opportunity believe that by giving a man (or woman) a fish, you can feed them for a day, but by teaching them to fish, you feed them for a lifetime. We sincerely hope you join with us.