The Bangko Sentral ng Pilipinas (BSP) is one of the very few central banks in the world with a clear vision and framework to support the development of microfinance within the banking sector. As early as 2001, the BSP declared microfinance as its flagship program for poverty alleviation and has since then taken a pro-active stance to create an enabling policy and regulatory environment for sustainable microfinance operations.
The BSP was cited during the 2002 Microcredit Summit in New York for its efforts in promoting microfinance. In the book “Pathways out of Poverty” which was launched during the Summit, the BSP was presented as a case study in creating a sound country regulation and policy framework for microfinance. The book recognized that bank regulators in the Philippines “no longer base their risk assessments of microfinance portfolios on the underlying collateral, rather the regulators now look at the maintenance of excellent aggregate portfolio quality, with rigorous standards on loan loss provisioning and reserves and the adequacy of systems to evaluate risk and maintain portfolio quality.” This risk-based approach was further developed by the BSP by creating a supervision and examination manual specifically for microfinance. The BSP is once again among the few central banks in the world with supervision and examination guidelines that are attuned to the peculiarities of microfinance operations.
The move of the BSP towards risk based supervision as a general policy and specifically for microfinance has resulted in remarkable developments in the banking sector. At present there are nearly 200 banks engaged in microfinance operations providing an average of P6,000 collateral-free loan each to over half a million microentrepreneurs. This is a marked 200% increase in just 4 years.
The BSP continues to look at other issues to further develop the sector. It aims to create a policy environment that will allow banks to have a wider scope for their microfinance operations, while protecting their depositors and the financial system. Among the areas currently under consideration are the branching guidelines and regulations, the recognition of the various innovations in the delivery of microfinance services and new product designs for microfinance clients. In some cases, it may entail more flexible provisions, while in other cases it may entail more rigorous standards. The ultimate objective is that the policies and regulations seriously consider the needs of banks with microfinance operations in order to increase in outreach and sustainability.