Philippines: Microfinance borrowings total P7.3B

By Lee C. Chipongian, Manilla Bulletin

Microfinance loans have increased to P7.3 billion from end-December’s total of P6.5 billion with 202 microfinance institutions operating in the Philippines.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said they continue to enhance policies to promote, grow and increase microfinance business in the country, which was one of the most important pro-poor mandates of the General Banking Law of 2000.

“Beyond the wholesale and high-end retail markets, the growth of microfinance and non-traditional delivery channels is something we are most proud of,” said Tetangco.

He added that the banking system is much more inclusive today with almost 979,353 microfinance borrowers with loans amounting to R7.53 billion. This was higher than end-2010’s 932,622 borrowers.

Under the General Banking Law, the BSP was mandated to recognize microfinance as a legitimate banking activity and to set the rules and regulations for its practice within the banking sector. It has set up microfinance as its banner program for poverty alleviation.

BSP said 2010 was a banner year for financial inclusion or a system providing access to financial services.

Last year, because of several new measures to enhance financial inclusion, services were extended to the traditionally unserved or underserved market.

“The BSP recognizes that financial inclusion is a worthy policy objective and is something that can be pursued alongside the promotion of stability and efficiency in the financial system,” said the BSP. At the end of 2010, about 37 percent of local municipalities were still unbanked and lack financial services.

The new BSP issuances have focused on a wide range of areas including expanding products and services that can be offered by banks to service the varying needs of the market, widening access points where financial services can be delivered, developing the market infrastructure to increase transparency and competition in the industry, promoting innovation to encourage growth in scale and increases in efficiency, and addressing existing barriers that hinder the access to finance by the unserved and underserved market.

“All in all, the issuances build the framework for an inclusive financial system that can service the needs of all markets in an effective, efficient and sustainable manner,” said the BSP.

Philippines: Microfinance changed their lives

BY Jimmy C. Calapati, Malaya Business Insight

CEBU CITY—Ten years ago, Marcosa Igot and Carina Gonato were just plain housewives of factory workers. Now, together with their husbands and families, they are running their own business, earning hundred of thousands of pesos a month.

Both are recipients of microfinance loans.

From a small industry a decade ago, there are now about 202 local banks who have granted over P7.3 billion in microfinance loans to more than 1 million microentrepreneurs, latest data from the Bangko Sentral ng Pilipinas (BSP) said.

These microentrepreneurs, in turn, have generated employment in their local communities and saved about P3.6 billion in bank deposits.

Pia Roman-Tayag, head for Financial Inclusion Department of the BSP, said the central bank recognizes that microinsurance is a worthy policy objective, something that can be pursued alongside the promotion of stability and efficiency in the financial system.

An inclusive financial system is one where there is greater access to much-needed financial services by more people, especially those that are traditionally unserved or underserved.

“This makes sense especially in an archipelagic country where 37 percent of our municipalities are still unbanked and many are left wanting for much-needed financial services,” BSP deputy governor Nestor Espenilla said.

IGOT’S HANDICRAFTS

The boom of the export business during the 80s and the 90s created many jobs in Mactan Island in Cebu as the Mactan Export Processing Zone (MEPZ) was opened. MEPZ not only employ people but also have job-outs to small sub-contractors.

Marcosa Igot, a native of Lapulapu City, was one of those who availed of the job-out contracts with MEPZ.

“We started in 1991 without any capital. As they say in Cebuano, laway ray puhunan,” Igot said.

Marcosa and husband Celso have five children and all went to school with this kind of business. She experienced handling as much as fifty workers in the 1990s when work was plenty.

But the handicrafts industry also suffered a beating in the late 1990s.

But Marcosa was able to maintain good relationship with her partners at MEPZ and until now, even with the slowdown of the export business, she continues to have contracts.

In 20016, she decided that she needs extra capital for her business to grow. This was when she started her relationship with Fairbank, a rural bank in Cebu.

She was able to get the contract of making and supplying box frames during this time and all proceeds of her loan was used for this.

MEPZ gives them design for jewelry boxes and baskets for export. She then makes and supplies the box frames. These boxes are the woven with a kind of nylon. When all the trimmings and accessories are done, the finished products are beautifully made boxes and baskets for export.

Igot is paid per box including labor. From this she was able to put up and maintain a shop for her box frames with 12 workers including their families.

She started this contract at a capital of P50,000.00 and now is running at P200,000.00.

In addition to the twelve workers at the shop, she has eight workers at the handicraft area doing the weaving and finishing touches of the baskets.

Her workers earn from P300.00 to P600.00 a day.

From a makeshift area in late 1990s, Marcosa now owns a shop with several equipments for wooden box frames, made improvements of their handicraft area and provided a place for her workers and their families.

Marcosa is also in the process of slowly expanding her small house and bought a pick up for their business needs.

Celso, Marcosa’s husband, also maintained a sub-contracting business of stone craft in a separate place in Mactan.

NATECK’S CHICKEN LUMPIA

“Natecks” used to be just a nickname but now is a growing food business in Cebu.

Carina Gonato, and her husband Renato, are young entrepreneurs from Consolacion, Cebu who founded the Natecks Chicken Lumpia in 2009. Natecks is the nickname of Carina’s husband.

After her husband retired as an ordinary San Miguel worker, Carina experienced hard times.

“I have to earn something. (I must) have an income to be able to survive,” Carina said.

She tried selling chicken lumpia which she got on consignments basis from Mandau around her neighborhood.

Some neighbors told her why not make her own, a challenge she soon accepted.

Since she didn’t have any knowledge of how to do chicken lumpia, she started asking and observing.

For three months she made and sold chicken lumpia in the neighborhood and asked them about the taste, each time listing down feedbacks and adjusting how she made the lumpia.

Then when her “tasters” said she had it, she made the lumpia accordingly.

Next problem is the chicken source. It was easy at first with 3-5 kilos but as her orders grew, it was time to get a bigger source.

From January 2009 with a start of 5 kilos, Natecks now makes chicken lumpia with 500-700 kilos of chicken meat per day.

Carina and Renato said that it was also in 2009 when they started with Pamilya loan, also from FAIRBANK.

In 2009, they started with 50,000.00 loan and at present they are in the 4th cycle with P80,000.00 loan at 100 percent on time payment.

In 2010, Carina opened her doors with Department of Science and Technology (DOST). With DOST she was able to improve her work area, trained her workers on the basics of food processing.

In 2009, Carina’s chicken lumpia was sold not only in the neighborhood. Now there are orders from neighboring provinces including Manila, Masbate, Negros, Samar, Surigao, Zamboanga and Dipolog.

From a P1,000.00 to P2,000.00 capital of 5 kilos chicken, Carina now runs her business on a P150,000.00 capitalization per day on a 95 percent cash on delivery (COD) basis.

And from just a couple tandem in 2009, they now employ 33 regular workers.

WIDE RANGE OF ISSUANCES

Carina and Marcosa are not the only ones benefitting from microfinance.

Roman-Tayag said that there are now 1 million Filipinos enjoying thebenefits of microfinance, and they hope to increase this number by 20 percent every year.

As a tool for an inclusive financial system, BSP governor Amando Tetangco said that microfinance has liberated millions of Filipinos from poverty.

In 2000, the BSP was mandated by the General Banking Law to recognize microfinance as a legitimate banking activity and to set the rules and regulations for its practice within the banking sector.

In the same year, the BSP declared microfinance as an advocacy and flagship program for poverty alleviation.

“Ten years hence, microfinance has become a mainstream activity in the banking sector, and microfinance supervision has been institutionalized within the BSP,” Tetangco said.

Because of these regulations, the country’s microfinance industry was cited as the world’s best in terms of regulatory framework and second best performing in terms of overall business environment recently by the Economist Intelligence Unit (EIU) through its “Global Microscope on the Microfinance Business Environment”.

This is an upward ranking compared to the 2009 survey wherein the Philippines landed number three in overall business environment while retaining its number one position in the regulatory framework category.

“This recognition affirms the good work that all microfinance industry players are doing. It indicates that each stakeholder ably and ardently performs its roles and responsibilities in order to make the Philippine microfinance market what it is today: viable, sustainable, sound, safe and strong,” Espenilla said.

Tetangco said many banks have demonstrated success in serving microfinance clients.

“Already the world’s leading microfinance rating agencies have set up offices in the Philippines and have demonstrated their interest in being recognized by the BSP,” Tetangco said.

Moving forward, Tetangco said that the central bank will continue to work on creating a sound and stable banking system that can cater to the needs of all markets, including the underserved and unserved leading to a truly inclusive financial system.

Philippines: Microfinance loans reach P7.3B in 1Q

By Jimmy C. Calapati, Malaya Business Insight

CEBU CITY—The microfinance loan portfolio of banks remains on the rise, totalling P7.3 billion as of the first quarter or P400 million higher than end-December 2010 figures.

In a briefing, Pia Roman-Tayag, head for Financial Inclusion Department of the Bangko Sentral ng Pilipinas, said the increase took place banks started to shift focus to providing financial services to the unbanked in remote areas of the country.

There are 202 banks engaged in microfinance servicing 1 million clients.

She added that there is now a total of 21 banks offering housing microfinance while 24 banks are providing micro-agri loans.

These 1 million microentrepreneurs generated employment in their local communities and placed about P3.6 billion in bank deposits, higher by P400 million than the previous quarter’s level.

She said BSP hopes to increase the number of microfinance borrowers by 20 percent at the end of the year.

Roman-Tayag said that the central bank recognizes that financial inclusion is a worthy policy objective, something that can be pursued alongside the promotion of stability and efficiency in the financial system.

An inclusive financial system is one where there is greater access to much-needed financial services by more people,

especially those that are traditionally unserved or underserved.

“This makes sense especially in an archipelagic country where 37 percent of our municipalities are still unbanked and many are left wanting for much-needed financial services,” BSP deputy governor Nestor Espenilla said.

Espenilla added that the 2010 policy directives of the BSP focus on a wide range of areas, including expanding products and services that can be offered by banks; widening access points where financial services can be delivered; developing the market infrastructure to increase transparency and competition in the industry; promoting innovation to encourage growth in scale and increases in efficiency; and addressing existing barriers that hinder the access to finance by the unserved and underserved market.

All in all, the issuances build the framework for an inclusive financial system that can service the needs of all markets in an effective, efficient and sustainable manner, the central bank said.

The BSP earlier said many banks have demonstrated success in serving microfinance clients.

“In recognizing the unique features of these new products, banks can be more responsive and effective in serving the needs of this growing market,” BSP said.

Efforts to develop a truly inclusive financial system have started to show gainful results with the recent citation from the Economist Intelligence Unit (EIU) ranking the Philippines (together with Cambodia and Pakistan) as the best in the world in terms of providing regulatory framework for microfinance.

This is an upward ranking compared with the 2009 survey where the Philippines landed No.3 in overall business environment while retaining its No.1 position in the regulatory framework category.

“This recognition affirms the good work that all microfinance industry players are doing. It indicates that each stakeholder ably and ardently performs its roles and responsibilities in order to make the Philippine microfinance market what it is today: viable, sustainable, sound, safe and strong,” the BSP said.

Philippines: BSP bans multiple positions in banks’ microfinance NGOs, foundations

By Lawrence Agcaoili, The Philippine Star

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) has prohibited bank executives from holding multiple positions in related microfinance non-government organizations (NGOs) or foundations to prevent abuses resulting in higher operational risks.

BSP Governor Amando M. Tetangco Jr. has issued Circular 725 laying down a new set of guidelines to address risks on relationships between banks and their related microfinance NGOs or foundations.

Under the new guidelines that cover NGOs or foundations that are engaged in retail microfinance operations, Tetangco said bank officers are prohibited from holding officership or otherwise that may cause them to be involved in the daily microfinance operations.

He pointed out that bank officers who concurrently hold officership in NGOs or foundations engaged in retail microfinance operations have until September 30 to give up their positions.

Failure to do so, he warned, would result in their disqualification from their present positions in the bank.

Tetangco explained that there have been an increasing number of banks that have tried to create synergy in having affiliated NGOs or foundations as their partners in providing complementary microfinance operations to prepare low income customers for formal banking relationships.

NGOs or foundations serve as a “laboratory” of several microfinance-oriented banks experimenting with new loan products, screening potential borrowers, and training new loan officers.

However, the banks eventually acquire the seasoned loan receivables of NGOs or foundations.

The BSP said there are at least 18 banks with such special relationships.

“Such close relationship may be subject to abuse that could increase operational, governance, and reputational risks, brought about by common based membership, shared resources, and loan transfers, among others,” Tetangco warned.

According to Tetangco, the new regulations and governance standards aim to mitigate risks resulting from the unique relationship and increased volume of transactions entered into by banks and their related NGOs or foundations.

As early as December 2007, the BSP through Circular 592 has prohibited interlocking officership as a concurrent officership in different financial institutions may present more serious problems of self dealing and conflict of interest.

According to the BSP, multiple positions could result in poor governance or unfair competitive advantage.

“As a general rule, there shall be no concurrent officerships, including secondments, between banks or between a bank and a quasi bank or a non bank financial institutions,” the BSP said.

The BSP chief added that the new guidelines cover those NGOs or foundations that are incorporated by any stockholders or directors or officers of related banks and are engaged in retail microfinance operations,

The new regulations also require formal written agreements or contracts covering transactions between banks and their related microfinance NGOs or foundations.

The BSP’s Monetary Board also issued MB Resolution No. 790 dated May 26 containing general governance principles and standards covering the business relationships of banks and their related NGOs or foundations when both are engaging in retail microfinance operations.

The principles include requirements to follow certain standards pertaining to the manner the banks manage their microfinance operations as well as the transactions entered into with their related NGOs or foundations.

An important feature of the new regulation is the liberal interpretation of DOSRI rules to encourage clients of NGOs or foundations to open formal micro-deposit accounts with the related banks in lieu of alternative savings mobilization mechanisms such as “capital build-up” schemes.

“The BSP believes this will result in better protection of customer savings,” Tetangco said.

Loans extended by banks engaged in microfinance breached the P7 billion level as financial institutions involved in microfinance continue to move out of urban areas in Luzon to far flung areas in the Visayas and Mindanao.

About 202 banks all over the country that are providing microfinance services extended P7.1 billion worth of loans to 942,072 clients.

Philippines: Debt repayment still high

By A. S. O. Alegado, Business World Online

MICROFINANCE has continued to enjoy a high repayment rate — proof that the poor make good debtors — but industry players stressed a need for vigilance given the practice of “multiple borrowings.”

“We still registered a high repayment rate. The combined industry repayment rate was 90% in 2010,” Mila Mercado-Bunker, Microfinance Council of the Philippines (MCP) president, told reporters at the sidelines of the launch of the 2011 Microentrepreneur of the Year Awards at the central bank last Friday.

Nongovernment organizations (NGOs) boasted a repayment rate of 95%, while rural banks reported 85%.

“NGOs have always reported a higher repayment rate because of their touch-based or relationship-based nature,” Ms. Bunker explained.

“They have become business advisers to their clients, helping them develop services and businesses plans.”

The MCP represents the NGOs, cooperatives and rural banks engaged in microfinance. These banks are also members of the Rural Bankers Association of th Philippines.

NGOs have around 2 million clients, while the rural banks have about 5 million.

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. also told reporters at the sidelines of the same event last Friday that rural banks had P3.5 billion in micro-deposits and approximately P7.1 billion worth of outstanding microfinance loans benefitting around 940,000 individuals at the end of 2010.

Over-indebtedness among clients, however, could hit an industry that has been rated among the world’s best by the Economist Intelligence Unit.

“In terms of expansion… it’s not just looking at hard-to-reach areas, but a careful review of whether an area already has a number of mature microfinance institutions,” Ms. Mercado-Bunker said. “This is the key to prevent clients’ over-indebtedness. We need to consider the impact and social goals in expansion.”

Multiple borrowings — a practice that gave rise to a repayment crisis in India — have been noted in the Philippines. The multiplicity of lenders allows borrowers to tap different microfinance institutions at the same time, giving rise to the risk they might take on too much debt and default on their borrowings.

Ms. Bunker also noted the need for microfinance institutions to be more “holistic” in their approach to clients. “We need to look at the holistic approach, where firms need to commit to educating their clients on latest financial products and business processes, in order to help clients and the society move forward,” she said.

Mr. Tetangco, for his part, said the central bank has come up with the necessary regulations to support the microfinance sector.

“New regulations on various products have opened a window for microfinance institutions to grow. There is a great need for products like microinsurance, micro-agri credit and micro-housing loans,” Mr. Tetangco said in his speech at the event.

“Regulatory regime has now been applied and can now be used by microfinance institutions in providing these arrays of products.”

Mr. Tetangco added that microfinance providers should utilize new technologies like mobile and internet banking in extending their different products and services.

Philippines: A toast to the Philippine Microfinance Industry: It has now grown to 210 banks and 900,000 microentrepreneurs

From Manilla Bulletin

MANILA, Philippines — Local rural banks and cooperatives started the concept of practicing of servicing loans as early as the 1960’s. Agricultural workers and fisherfolk benefited from the access to small credit. The banks, however, could not sustain the programs due to low payment ratio and some structural problems in the scheme.

In the mid-1970’s until the 1980’s, the government mobilized rural development banks and other governmental financial institutions to provide highly subsidized credit to the marginalized sectors. But the Directed Credit Programs (DCPs) of the government failed because of their inability to reach the target clientele and subsidized credit went instead to big borrowers.

The lessons learned from the implementation of this government program contributed to the development of a new approach in credit methods. By the mid 1980’s, non-government organizations (NGOs) became partners with government in the fight against poverty, using microfinance as a tool to provide small loans for small business activities. Microfinance has grown dramatically since the 1990’s and although certain regulatory and prudential issues hounded local microfinance initially, the needs of the poor entrepreneurs were ably met.

At a recent National Microfinance Stakeholders Summit, the country’s microfinance industry was cited as the world’s best in terms of regulatory framework and second best in terms of the overall business environment by the Economist Intelligence Unit in its report “Global Microscope on the Microfinance Business Environment.” From a small industry a decade ago, it has grown to 210 banks who have granted over R6 billion in loans to more than 900,000 microentrepreneurs. These microentrepreneurs, in turn, generated employment in their local communities and saved billions in bank deposits.

We congratulate the Philippine Microfinance Industry for touching the lives of the marginalized sectors of society, liberating millions of Filipinos from their deprivations, changing their way of life, and transforming their lives into a life of freedom and abundance.

Philippines: Poverty alleviation programs benefit thousands in Caraga

By Mike U. Crismundo, Manilla Bulletin

BUTUAN CITY, Philippines –- Village communities, especially farmers in far-flung areas bear the fruit of the poverty program of the national government as more infrastructure projects were already completed while there are also more new projects are being targeted.

The Department of Social Welfare and Development (DSWD) tasked to supervise the poverty alleviation program of the national government yesterday reported that at least 29 various infrastructure projects of Kapit-Bisig Laban sa Kahirapan-Comprehensive and Integrated Delivery of Social Services: Kapangyarihan at Kaunlaran sa Barangay (Kalahi-CIDSS-KKB) were already completed at various areas in the Caraga region.

Leah T. Quintana, region’s social and welfare information officer said these completed projects involved P261,746,900. grant.

She said the projects spread all over the region had already benefited thousands of poor people in the countryside, particularly those living in far-flung areas.

The KALAHI-CIDSS:KKB program is the contribution of the DSWD to the poverty alleviation program of the national government. It also revitalized strategy based on the strength or success of the existing CIDSS project.

These infrastructure projects started the implementation in 2003 and covered 16 municipalities in the Caraga region, said Region Xlll DSWD Regional Director Mercedita Jabagat.

These projects ranging from potable water systems, roads, school buildings, post-harvest facilities, environmental protection structures, day care and health centers and others.

Local Cash Counterpart (LCC) also downloaded by partner local government units (LGUs) totaled P80,187,132.84.The amount utilized from grant and LCC is over P322.16 million

Meanwhile, the “Pantawid Pamilyang” program, another poverty alleviation program of the national government is targeting anew at least 61,920 beneficiaries nationwide for 2011-2013.

This sustainable livelihood program of the DSWD this year is part of the department’s Convergence Program for Poverty Reduction, which provides entrepreneurship capacity building for all “Pantawid Pamilya” beneficiaries, said Social Welfare and Development Secretary Corazon Juliano-Soliman, in a press statement.

According to Secretary Soliman, the program also offers two tracks of assistance namely: Self-Employment Assistance-Kaunlaran (SEA-K) and Guaranteed Employment (GE).

SEA-K will enable the Pantawid Pamilya beneficiaries to establish and manage their own micro-enterprises through an entrepreneurial skills training program that includes the provision of non-collateral and interest-free loan amounting to Php 10,000 per family-beneficiary as seed capital.

On the other hand, the GE scheme will access the “Pantawid Pamilya” beneficiaries to locally available jobs through a job network system that will be established in partnership with national government agencies, non-government organizations and business sector.

With the P150,000 capital seed fund provided by the DSWD for their individual microenterprise project, the group members made 100% compliance to their target loan repayment and savings. The Alpha SKA members actively participated in the different community activities such as weekly SKA meetings and monthly family development sessions. They also engaged in a mutual benefit association for their family’s micro-insurance policy.

From January to March 2011, the DSWD has started the selection and profiling of the 61,920 family-beneficiaries in identified municipalities.

Likewise, the DSWD already coordinated with concerned government agencies, NGOs and private sector to discuss partnership opportunities for micro-enterprise development, job-generation, technical assistance and access to micro-insurance.

In a related development, local government units (LGUs), concerned line agencies and other stakeholders in Northeastern Mindanao (Caraga region) gathered at a downtown hotel and restaurant at this capital and frontier city of Butuan early this week and tackled various issues that will strengthen the Human Resource Management and Development Plan (HRMD).

The stakeholders specifically made their action plan for the year 2011 and beyond on how to quickly respond the basic needs of the local communities through the LGU’s and concerned line agencies of the government.

The meeting spearheaded by the Department of Interior and Local Government (DILG) under the Strengthening Local Governments in the Philippines Project (SLGP) sponsored by the Agencia Espanola de Cooperacion Internacional para el Desarollo (AECID).

The meeting and workshop also formalized the HRMD Plan conducted last December 2010. It was aimed at perfecting the initial HRMD Plan crafted last year by using various tools for the development of a good HRMD plan.

Philippines: Microfinance loan portfolio nears P7Billion ($226 million)

From Malaya Business Insight

With focus shifting to providing financial services to the unbanked in remote areas of the country, the microfinance loan portfolio of local banks stood near P7 billion as of end-2010, data from the Bangko Sentral ng Pilipinas (BSP) showed.

There were 203 banks engaged in microfinance with a total loan portfolio of P6.9 billion and serving 930,965 microborrowers.

This was P900 million more than 2009’s level of P6 billion.

These microentrepreneurs, in turn, generated employment in their local communities and saved about P3.2 billion in bank deposits, higher by P200 million than the previous year’s level.

The central bank said it recognizes that financial inclusion is a worthy policy objective and is something that can be pursued alongside the promotion of stability and efficiency in the financial system.

Inclusive financial system is one where there is greater access to much-needed financial services by more Filipinos, especially those that are traditionally unserved or underserved.

“This makes sense especially in an archipelagic country where 37 percent of our municipalities are still unbanked and many are left wanting for much-needed financial services,” the BSP said.

The central bank added that the 2010 policy directives focused on a wide range of areas including expanding products and services that can be offered by banks to service the varying needs of the market; widening access points where financial services can be delivered; developing the market infrastructure to increase transparency and competition in the industry; promoting innovation to encourage growth in scale and increases in efficiency; and addressing existing barriers that hinder the access to finance by the unserved and underserved market.

All in all, the issuances build the framework for an inclusive financial system that can service the needs of all markets in an effective, efficient and sustainable manner, the central bank said.

The BSP said many banks have demonstrated success in serving microfinance clients.

“In recognizing the unique features of these new products, banks can be more responsive and effective in serving the needs of this growing market,” BSP said.

Efforts to develop a truly inclusive financial system have started to show gainful results with the recent citation from the Economist Intelligence Unit (EIU) ranking the Philippines (together with Cambodia and Pakistan) as the best in the world in terms of providing regulatory framework for microfinance.

This is an upward ranking compared with the 2009 survey where the Philippines landed No.3 in overall business environment while retaining its No.1 position in the regulatory framework category.

“This recognition affirms the good work that all microfinance industry players are doing. It indicates that each stakeholder ably and ardently performs its roles and responsibilities in order to make the Philippine microfinance market what it is today: viable, sustainable, sound, safe and strong,” the BSP said.

Philippines microfinance cited as best in the world

By Jimmy Calapati, Malaya Business Insight

THE country’s microfinance industry was cited as the world’s best in terms of regulatory framework and second best performing in terms of overall business environment recently by the Economist Intelligence Unit (EIU) through its “Global Microscope on the Microfinance Business Environment”.

This is an upward ranking compared to the 2009 survey wherein the Philippines landed number three in overall business environment while retaining its number one position in the regulatory framework category.

This recognition affirms the good work that all microfinance industry players are doing. It indicates that each stakeholder ably and ardently performs its roles and responsibilities in order to make the Philippine microfinance market what it is today: viable, sustainable, sound, safe and strong.

From a small industry a decade ago, there are now about 210 local banks who have granted over P6 billion in microfinance loans to more than 900,000 microentrepreneurs, latest data from the Bangko Sentral ng Pilipinas (BSP) said.

These microentrepreneurs, in turn, have generated employment in their local communities and saved about P3 billion in bank deposits.

STAKEHOLDERS SUMMIT

These were the reason why the BSP recently convened the National Microfinance Stakeholders Summit to bring together nearly 300 microfinance industry players: policymakers, regulators, microfinance institutions, donors and investors to celebrate the triumphs and milestones of Philippine microfinance, further encourage commitment to expanded microfinance and financial inclusion, and provide opportunity for broader networking among industry players.

“This Summit is inspired by the consistent high ranking of the Philippines in the international survey of countries with microfinance industries,” the BSP said in a statement.

The overarching objective of the Summit was to take stock of what the Philippine microfinance industry has achieved so far, and to tackle emerging issues like preventing credit pollution and over-indebtedness, supporting a comprehensive credit information system, strengthening consumer protection and enhancing financial literacy of the population.

The Summit included presentations from two international experts.

Dr. Alfred Hannig from the Alliance for Financial Inclusion provided an international perspective on the importance of instituting policies that work and the value peer-to-peer learning in order to help shape the global landscape for microfinance and financial inclusion.

On the other hand, Dr. Elisabeth Rhyne from the Center for Financial Inclusion at ACCION International discussedhe microfinance client protection principles and the present the global initiatives of the Smart Campaign in promoting consumer protection.

Following these presentations was an interactive discussion on the emerging issues and challenges faced by the Philippine microfinance industry among local resource persons who will bring in perspectives from policymakers, regulators, practitioner microfinance institutions, donor program implementers and the academe.

Greater participation by the general audience was encouraged through structured workshop discussion to generate from the stakeholders themselves, a concrete action plan to address issues and challenges in order to preserve what the microfinance industry has gained and level it up towards greater heights.

Representatives from microfinance networks then participatedin the ceremonial signing of a Practitioners’ Statement of Commitment as a testament of practitioners’ dedication to safe, sound, sustainable, consumer-friendly microfinance in the Philippines.

The highlight of the Summit was a Ceremonial Toast by BSP Governor Amando Tetangco to recognize the contributions of all stakeholders in the development of a robust microfinance industry in the Philippines, and challenge them to remain committed to providing safe and sound microfinance services, increase access to finance for the untapped markets, and practice consumer protection to support full financial inclusion.

WIDE RANGE OF ISSUANCES

As a tool for an inclusive financial system, Tetangco said that microfinance has liberated millions of Filipinos from poverty.

In 2000, the BSP was mandated by the General Banking Law to recognize microfinance as a legitimate banking activity and to set the rules and regulations for its practice within the banking sector.

In the same year, the BSP declared microfinance as an advocacy and flagship program for poverty alleviation.

“Ten years hence, microfinance has become a mainstream activity in the banking sector, and microfinance supervision has been institutionalized within the BSP,” Tetangco said.

The year 2010 was marked by a wide range of issuances from the Bangko Sentral ng Pilipinas (BSP) that sought to build an inclusive financial system in the country.

Inclusive financial system is one where there is greater access to much needed financial services by more Filipinos, especially those that are traditionally unserved or underserved.

On the expansion of products and services, the Bangko Sentral issued in 2010 Circulars 678, 680 and 683 which recognize products like housing microfinance, micro-agri loans, microinsurance and micro-deposits.

These products reflect the reality that the unserved market needs a wide range of financial services that are appropriately designed and priced to suit their needs and their capacities.

Hand in hand with the expansion of products and services, the Bangko Sentral also issued Circular 694 which provides the opportunity for banks to expand its network of offices particularly in areas that are hard to reach and remain unserved through the establishment of micro-banking offices (MBOs).

Through these MBOs, the usual barriers of cost and distance can be addressed and people who have been deprived of a face-to-face banking presence in their areas need not travel far to be able to save, pay their loans or make simple financial transactions.

The brick and mortar offices of banks are also being fully complemented by gains being made in the mobile banking and electronic money space.

The Bangko Sentral has built the groundwork for this by issuing regulations that clearly define e-money and e-money issuers.

As a result, banks are already making use of these available platforms in providing financial services, including microfinance services.

With the use of e-money as a revolutionary solution for low value payments, banks have dramatically lowered transaction costs, increased the productivity of account officers, decreased cash-on-hand risk and increased accessibility to a wide range of financial services, including loans and deposits.

Since March 2009 when Circular 649, which governs e-money issuance, was issued, there are now 20 banks providing e-money services.

This year, the e-money framework has been further expanded with the recognition of e-money network service provider (EMNSP).

This issuance recognizes the complexity of the technology required in an e-money business as well as the substantial investment necessary which may constitute a formidable barrier to entry.

Cognizant of this limitation, the BSP has now authorized, through Circular 704, the outsourcing of services to the EMNSP which will now allow more institutions, particularly rural banks, to become competitive e-money issuers and therefore service more clients especially the unbanked in the countryside.

As the products and access points are being carefully considered, other barriers to entry into the financial system have also been addressed.

Most recent of BSP issuances is the soon-to-be-issued Updated Anti Money Laundering (AML) Rules and Regulations which now recognizes that some AML rules applied uniformly across all types of transactions may not be the proportionate approach especially in dealing with low-value transactions of the unserved and underserved market.

The consolidated rules now take into consideration the risk based approach in conducting customer due diligence, record keeping and customer retention policies.

This is ideal for the underserved and unserved market where the transactions may now be considered low risk by the financial institution and thereby undertake more commensurate measures.

The consolidated rules now also take into consideration arrangements for reliance on third party customer due diligence and the use of technology to produce the necessary photo bearing identification cards.

These new rules will lower the AML costs associated with servicing low risk customers and therefore make financial services more accessible to those that are currently marginalized due to prohibitive AML requirements.

Finally, the BSP has also made some important headway in creating the necessary infrastructure that will ensure transparency and competitiveness in the industry.

Circular 685 was also issued in 2010 recognizing Microfinance Institution Rating Agencies.

With the increased commercialization and growth of the microfinance industry, the demand for such ratings is increasing. Ratings are seen as an effective tool to raise the quality and efficiency of microfinance institutions, increase the transparency in the industry as well as provide confidence for social and commercial investors.

For banks with microfinance operations, ratings may provide valuable assessments that can materially improve access to financing and capital by qualified banks and generate a useful benchmark vis-à-vis other microfinance institutions both locally and internationally.

FINANCIAL INCLUSION

The central bank said that it recognizes that financial inclusion is a worthy policy objective and is something that can be pursued alongside the promotion of stability and efficiency in the financial system.

“This makes sense especially in an archipelagic country where 37 percent of our municipalities are still unbanked and many are left wanting for much needed financial services,” Tetangco said.

He said that the 2010 policy directives have focused on a wide range of areas including: expanding products and services that can be offered by banks to service the varying needs of the market; widening access points where financial services can be delivered; developing the market infrastructure to increase transparency and competition in the industry; promoting innovation to encourage growth in scale and increases in efficiency; and addressing existing barriers that hinder the access to finance by the unserved and underserved market.

All in all, the issuances build the framework for an inclusive financial system that can service the needs of all markets in an effective, efficient and sustainable manner.

He said many banks have already demonstrated success in serving microfinance clients.

In recognizing the unique features of these new products, banks can be more responsive and effective in serving the needs of this growing market.

“Already the world’s leading microfinance rating agencies have set up offices in the Philippines and have demonstrated their interest in being recognized by the BSP,” Tetangco said.

Moving forward, Tetangco said that the central bank will continue to work on creating a sound and stable banking system that can cater to the needs of all markets, including the underserved and unserved leading to a truly inclusive financial system.

With many key elements now in place, the Philippines is set to make even bigger strides toward financial inclusion in 2011.

Microfinance industry needs to implement reforms, reorientation

By Ted Torres, The Philippine Star

MANILA, Philippines – The anti-poverty business formation known as microfinance is under attack worldwide, but efforts to get it back on track are afoot.

Negative global reports on the practice of microfinance for poverty alleviation have been accumulating.

There are accusations that microfinance has been used for usurious lending, which was one of the targets that it was designed to eliminate. This was followed up by various reports that microfinance has only buried the micro-borrowers deeper in debt.

A report by regional publication FinanceAsia indicates that Muhammad Yunus, founder of Grameen Bank in Bangladesh and recipient of the Noble Peace Prize in 2006, was ejected from the bank’s leadership.

In the Philippines, critics are saying that microfinance institutions are charging sky-high interest rates or that nobody really knows why the interest rates on microfinance products are higher than commercial rates.

But recently, MicroFinance Transparancy (MFTransparency) was in the Philippines to try to make some sense of all the disturbing feedback on the once-hailed answer to poverty. MFTransparency representatives held one-day seminars in three key regions to explain its advocacy for transparency in pricing of microfinance products.

The main objective for the Philippine “roadshow” was to introduce standardized pricing practices under the so-called Transparent Pricing Initiative.

In fact, it is introducing a standardized general formula for microfinance institutions (MFIs) that may be adopted and applied to the specific conditions of each market, stating that it is not possible to have a single, global interest rate level for micro-lending. But a standard formula on how the pricing of microfinance products and the subsequent interest rates was arrived at.

MFTransparency said that its mission is “to be the venue for the microfinance industry to publicly demonstrate its commitment to pricing transparency, integrity and poverty alleviation.”

Formed in 2008, MFTransparency urges the exchange of information on credit products and their prices in a clear and consistent fashion by all advocates.

That will allow the association to collate and release information on the pricing methods to guide the MFIs and the micro-borrowers to make wise decisions.

In one of its reports, MFTransparency said that the next stage in the growth of microfinance will require a new level of understanding and openness about the costs of lending in small units and transparent communication of the prices charged to cover those costs.

“An industry born to displace the moneylenders by providing low-cost credit to the working poor needs to ensure that its clients have clear information about the cost of the money they borrow,” it added.

During the World Economic Forum (WEF) held at Davos, Switzerland last month, it was stated more than three billion people globally are without access to formal and basic financial services.

It was likewise agreed in the annual gathering of global political and business elite that microfinance was facing major challenges. But it was also agreed that mobile banking technology was one of the best vehicles for extending microfinance.

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