Child labour and microfinance: a case study of two urban areas in the Philippines

Abstract

The poverty of the individual household is a leading cause of children engaging in work in order to contribute to household survival. The importance of children's financial contribution to the household means that in order to eliminate child labour, alternative sources of income have to be made available.

Microfinance is perceived to have the potential of addressing these issues by enabling households to save or borrow money to start up or expand enterprises thereby securing additional income and making children's financial contribution to a household less significant. However, while microfinance is considered a tool designed for the poor, it has been shown to have difficulties in reaching the poorest households, which is also the very group most at risk of having to rely on child labour for survival. Furthermore, the limited credit available through microfinance, and the lack of special skills frequently force entrepreneurs to engage in labour intensive activities with marginal profits. These types of activities are also where children are often found to be working.

Based on data collected from two urban areas in the Philippines using a combination of qualitative and quantitative methods, this thesis reviews microfinance as a tool in targeting child labour. Specifically it analyses the extent to which microfinance contributes to a decrease or increase in child labour and whether the impact varies according to the gender of the child. The thesis also reviews the ability of microfinance to affect all households with working children, and how the findings correspond with current economic theories on the household.

This research shows that in the selected areas the main reasons for children engaging in economic work arise from either: the need to generate an additional income from outside the household setting, in part to cover educational and other expenses brought on by the child him or herself; or the role of children as supplier of additional labour input into labour intensive household enterprises, in particular those which are the main source of income for the household. Children, in particular girls, also frequently act as labour substitutes for the mother in household work.

This thesis confirms that microfinance programs have difficulties in reaching all households with child labourers. The main reasons are risk aversion among the poorest households and the apparent direct or indirect exclusion of this group by other members of the programs. The main cause of the risk aversion arises from the fear of being excluded from essential informal credit networks on which the poorest households in particular depend.

Microfinance has the ability to impact on households where children work to generate an extra source of income. For households which depend on children's input into the household MSE, there appear to he limited impact of microfinance participation on the households' need for child labour. There are indications that the household's ability to benefit from microfinance participation depends on its existing income level. While the aim of the microfinance programmes is to support the creation or expansion of enterprises, the intense competition and low marginal returns means that closure rates are high. As a consequence the effects of microfinance loans are often short lived. Further, microfinance loans are unable to change the labour intensive nature of the production and the household dependence on children's labour. This research also finds that the impact differs between children as there is a strong division of children's work based on gender and age.