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About The Bank

Facts regarding Microfinance

A. Understanding Microfinance

  1. What is microfinance?
  2. Who are the clients of microfinance?
  3. How can microfinance assist the poor?
  4. What are the core principles of microfinance?
  5. Who are the providers of the microfinancial services?
  6. What are the different methodologies of microfinance?

B. National Strategy and Framework of Microfinance

  1. What is the National Strategy for Microfinance?
  2. What is the National Framework for Microfinance Regulation?
  3. How can the directed credit programs by the government fit into this microfinance strategy?
  4. What is the difference with the current microfinance framework from the past failed credit programs?
  5. What is the difference between private microfinance institutions and other government financing programs? (I.e. Quedancor)
  6. Is the DTI program, under the BMBE law, in line with the national policy of non-participation of non-financial institutions in credit programs?

C. BSP Initiatives for Microfinance

  1. What is BSP's policy for advocating microfinance?
  2. What are the BSP initiatives for microfinance?
  3. What was the driving force of the BSP to promote microfinance?
  4. What are the key success indicators of the program?
  5. Is the focus of the BSP Microfinance Program exclusively for banks?

D. Some Operational Issues for Microfinance in the Banking Sector

  1. If you are not a microfinance-oriented bank, and have unsecured loans under PhP150,000, is this considered microfinance?
  2. If you are an existing rural bank, do you have to establish a separate organization to engage in microfinance?
  3. Once transformed into a microfinance branch, can we use same personnel?
  4. What is needed to start a microfinance operation in terms of staff, capital, etc?
  5. What services and incentives are offered to banks engaged in microfinance or want to engage in microfinance?
  6. How will microfinance operations be supervised by the BSP?

E. Other Issues

  1. Why is a Credit Bureau important?
  2. What are the other available resources for training and capacity building?
  3. What other funding sources can non-bank microfinance institutions tap?

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A. Understanding Microfinance

  1. What is microfinance?
    Microfinance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products to the poor and low-income households and their microenterprises. By definition, it is important to note that Microfinance is NOT subsidized credit, NOT a dole-out, NOT salary or consumption loans, and a cure-all for poverty.
  2. Who are the clients of microfinance?
    The clients of microfinance are the economically-active, entrepreneurial poor (e-poor). Some examples of these are shopkeepers, ambulant vendors and household based entrepreneurs. These are the clients who have a stable economic activity and will be able to sustain and enhance these if they are provided with even a small amount of readily available funds.
  3. How can microfinance assist the poor?
    If provided on a sustainable basis, microfinance can help increase income, build viable businesses, reduce vulnerability to external shocks, empower the client, and improve the quality of their lives.
  4. What are the core principles of microfinance?
    The core principles are 1) that the poor need sustained access to financial services and products and this sustained access is a primary issue over interest rates, 2) that the poor have the capacity to repay their loans and to save and, 3) that microfinance institutions can be operationally and financially self sufficient. The Consultative Group to Assist the Poorest (CGAP) Website points out that “Data from the MicroBanking Bulletin reports that 63 of the world's top MFIs had an average rate of return, after adjusting for inflation and after taking out subsidies programs might have received, of about 2.5% of total assets. This compares favorably with returns in the commercial banking sector and gives credence to the hope of many that microfinance can be sufficiently attractive to mainstream into the retail banking sector.”
  5. Who are the providers of the microfinancial services?
    In the Philippines, microfinance services are provided mainly by Banks (mainly rural and thrift), Non-governmental Organizations (NGOs), and Cooperatives.
  6. What are the different methodologies of microfinance?
    Microfinance institutions have various methodologies and technologies depending on their client demand, and organizational goals and objectives. There are, however, two main types of approaches: group methodology is where the microfinancial service is provided in the context of a group, and the individual approach or single client lending where repayment and schedules rely solely on the individual (i.e. character, cash-flow, etc.)


B. National Strategy and Framework

  1. What is the National Strategy for Microfinance?
    The National Strategy envisions a viable and sustainable microfinancial market that will help provide poor households and microentrepreneurs with greater access to microfinancial services. It calls for a greater role by the private in providing credit and guarantee programs vis-a-vis the non-participation of government line agencies. Emphasis is on the adoption of market-oriented financial and credit policies to ensure viability and sustainability.
  2. What is the National Framework for Microfinance Regulation?
    The Framework covers all types of microfinance institutions with regulations focusing on portfolio quality, outreach, efficient and sustainable operations and transparent information.

    The basic premise is that all deposit taking institutions (banks, cooperatives) are subject to prudential regulation, microfinance NGOs collecting savings greater than the compensating balance are be subject to regulation and supervision; banks with microfinance operations are to remain under the regulation and supervision of the BSP; cooperatives are be under the supervision and the regulation of the Cooperative Development Authority (CDA); and NGOs while not regulated, are encouraged to submit information to the Microfinance Council of the Philippine (MCPI).
  3. How can the directed credit programs by the government fit into this microfinance strategy?
    In the Philippines, policy has shifted the function of providing financial services directly to government financial institutions (i.e. Land Bank of the Philippines, Development Bank of the Philippines, etc) that are competent to implement such programs. Government agencies (DSWD, DILG, etc) previously handling these are to focus on areasof a greater competency such as capacity-building, social preparation, provision of infrastructure, etc.
  4. How different is the current microfinance framework from past failed credit programs?
    Past government credit programs (Masagana 99, etc.) focused on providing loans without the necessary credit discipline. Because of lack of preparation or other supporting mechanisms, these programs failed. In addition, there were massive repayment problems because government money lent out was perceived as dole.
  5. What is the difference between private microfinance institutions and other government financing programs? (I.e. Quedancor)
    In the case of Quedancor, there was an agreement that it will leave the retail market and focus on providing wholesale funds to retail institutions. In the next few months, adjustments may be seen in Quedancor’s policies that will address issues of competition with private financial institutions. Similarly, the People’s Credit and Finance Corporation (PCFC) which, in the past, was also involved in retailing, now shifted to providing wholesale funds; all their project-monitoring units (PMUs) are selling their portfolios to private microfinance institutions.
  6. Is the Deparment of Trade and Industry program, under the BMBE law, in line with the national policy of non-participation of non-financial institutions in credit programs?
    Yes, this facility complements the national strategy insofar as focusing on capacity building, social preparation and business support services, which are crucial in the development of a vibrant micro enterprise industry.


C. BSP Initiatives for Microfinance

  1. What is BSP's policy for advocating microfinance?
    To be able to reach a larger number of entrepreneurial poor, the BSP is encouraging the establishment of microfinance-oriented banks, and microfinance operations inexisting banks . The BSP, however, emphasizes that microfinance is a serious business and institutions that want to engage in it should be serious, well-prepared and committed to upholding the best practices and high performance standards.
  2. What are the BSP initiatives for microfinance?
    The BSP’s initiatives focus on: creating an enabling policy and regulatory environment; increasing the microfinance know-how, capacity and skills of the BSP employees and the banking sector; and promoting and advocating for sustainable and viable microfinance operations within the banking sector. To achive this, the BSP has established a top-level Microfinance Committee, a Microfinance Core Group of Examiners, and a Microfinance Unit making it among the first central banks in the Asia-Pacific Region with a permanent office dedicated to the endeavor.
  3. What was the driving force of the BSP in promoting microfinance?
    The BSP is mandated by the General Banking Law of 2000 to recognize microfinance as a banking activity, and to draft the guidelines for its operations within the banking sector. If properly sustained, the BSP sees this as an effective intervention for poverty alleviation.

    Also banks, especially rural and thrift banks which fall under BSP supervision, are channels of microfinance because they have the infrastructure to provide such services to the countryside. As long as the BSP closely monitors their operations, then microfinance in the banking sector is ideal.
  4. What are the key success indicators of the program?
    The BSP has made notable strides in its microfinance program. The main success indicator is the increase in thenumber of banks engaging in sustainable microfinance. Another is the increase in the number of provinces that are now covered by the program.

    In addition, the operations of PCFC, a major source of wholesale funds, reflects that most of its conduits are from the banking sector which also has the highest volume of loans and most extensive outreach. This is beneficial in that it allows for a modality for savings mobilization, which presents a huge potential for expansion.
  5. Is the focus of the BSP Microfinance Program exclusively for banks?
    The BSP’s mandate is to focus on the banking sector. However, our interest in the other sectors such as the NGOs and cooperatives relate to the following: 1) transformation of non-bank MFIs into banks, 2) other infrastructure needed for microfinance development (i.e., developing uniform set of standards), and 3) promotion of best practices for sustainable operations within banks, NGOs and cooperatives.


D. Some Operational Issues for Microfinance in the Banking Sector

  1. If you are not a microfinance-oriented bank, and have unsecured loans under PhP150,000, is this considered microfinance?
    No. Not all loans below PhP 150,000 are considered uner the microfinance program. These are loans given to low income households to finance microenterprises. The terms are based on the cash flow of the client and are usually unsecured. Salary and consumption loans are not considered microfinance.
  2. If you are an existing rural bank, do you have to establish a separate organization to engage in microfinance?
    No. You can either set up a microfinance unit in your existing bank or apply for one or more of your branches to undertake microfinance activities.
  3. Once transformed into a microfinance branch, can we use same personnel?
    One key success factor of microfinance is to have capable and committed staff. Microfinance operations require special skills so it is incumbent that management and staff are trained or have experience in microfinance operations.
  4. What is needed to start a microfinance operationsc?
    The answers to this question may differ based on what the bank’s objectives and goals are. Typically, it takes 18 months for a branch to be viable. This operation will have around PhP 5 million loans outstanding with 1,000-1,500 clients. The staffing of this sample operation is about 5 technical officers. Other approaches however can make a branch viable within 12 months of operation with just 1,000 clients and 3 full time personnel.
  5. What services and incentives are offered to banks engaged in, or want to engage in microfinance?
    To encourage engagement in microfinance, the BSP has created an enabling policy and regulatory environment. In addition, a rediscounting facility is open for banks to access for their microfinance loan portfolios.
  6. How will microfinance operations be supervised by the BSP?
    BSP undertakes on site examination of each bank once every year, evaluating such parts as risk management, quality of assets, and portfolio of banks. For microfinance oriented banks, the BSP has prepared guidelines since all loans of microfinance-oriented banks are unsecured. These guidelines help in evaluating any microfinance portfolio even of banks that are not microfinance oriented but have some microfinance operations.

E. Other Issues

  1. Why is a Credit Bureau important?
    Because of the increase in the number of players, there is high incidence of credit pollution where a client borrows from multiple institutions. To avoid this, a credit bureau creates a more transparent information system which at the same time improve the credit process of microfinance institutions.
  2. What are the other available resources for training and capacity building?
    The BSP has included microfinance in the Basic Rural and Thrift Banking Courses. In addition, there are several institutions, that are not linked to the BSP, that provide training for microfinance, among them: 1) PUNLA sa Tao Foundation which has an affiliation with Ateneo University and the Asian Institute of Management, 2) CARD Training Center, 3) TSPI Training Center, and 4) Microfinance Council of the Philippines which provides some select courses. Also, there are technical assistance providers such as the Rural Bank Association of the Philippines- Microenterprise Access to Banking Services (RBAP-MABS) particularly for rural banks, and the Credit Union and Environment Services (CUES) specifically for Cooperatives.
  3. What other funding sources can non-bank microfinance institutions tap?
    The PCFC is an institution that provides wholesale funds to banks, cooperatives and NGOs as loanable funds. Other investors may also be interested in supporting a viable and sustainable microfinance institution.