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BSP Pursues Microfinance Policy

01.12.2001

The Bangko Sentral ng Pilipinas reiterated today its determination to carry out its decision to open a rediscounting facility for banks engaged in microfinance lending.

BSP Governor Rafael B. Buenaventura dismissed objections raised by Dr. Orlando Sakay, Chairman and President of the People's Credit and Finance Corporation (PCFC) that the rediscounting facility "will have deleterious effects and wipe out the gains in the microfinance sector."

Buenaventura said that PCFC should welcome rather than denigrate the opening of a new facility "to help small entrepreneurs get away from the clutches of loan sharks or the so-called five-six operators."

"The market is so huge," the BSP Governor explained."  The operation of PCFC continues to be valid but it cannot claim exclusivity because the country probably needs a hundred of PCFC's to cope with the problem."

As defined by the BSP, microfinancing consists of small loans of from P25,000 to P150,000 granted to small business to enable poor and low-income households to raise their incomes and improve their living standards.

The BSP rediscounting window will be made available to rural and cooperative banks to maximize their ability to serve the many small enterprises that do not otherwise qualify for credit from the big commercial banks.

Regarding Sakay's concern for the "institutional capacity of retail channels,"  Buenaventura said the facility will be open only to banks that have undergone actual training in microfinance and already have achieved efficiency in microfinance activities.

He emphasized that the BSP has a mandate under the General Banking Law of 2000 (RA 8791) to engage in credit operations including those related to microfinance.

Buenaventura said there is no basis for fears that the rediscounting facility would result in a "repeat of the dismal performance of past rediscount programs."  He said the BSP has put in place enough safeguards in the implementation of the facility.

Buenaventura justified the use of the T-Bill rate as a basis of pricing rediscount loans.  He said the treasury bill rate is a bellwether rate and is widely used a reference by banks to price their loans.  He said it is not a subsidized rate.

Buenaventura said the rediscounting facility opens the avenue for microfinance institutions to join the formal banking system which is the ultimate objective, if sustainability is to be achieved. This is the spirit of the General Banking Law of 2000 which gives the BSP Monetary Board the mandate in credit operations including those related to microfinance.

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