UNITED NATIONS CAPITAL DEVELOPMENT FUND    Microfinance

Issue 10 / March 2005

Issue Table of Contents

Marketplace

Made by Microentrepreneurs

Update

on the International Year of Microcredit 2005

Upcoming Events

Conferences, events and trainings.

Links

New websites and publications.

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Past Issues

The Government of the Philippines took a decidedly pro-microfinance stance ten years ago. How has the sector evolved in relation to your expectations at that time? Do you feel that the 1997 National Strategy is still valid today? About ten years ago, the vision to have a viable and sustainable private microfinancial market was espoused through the creation of the National Strategy for Microfinance. The main objective of this strategy is to provide low income households and microenterprises access to financial services. I am happy to report we have made significant progress since then. Through the National Strategy for Microfinance, a policy framework was created and several laws and issuances were passed to ascertain that the private sector will have a greater role in the provision of financial services and that the Government will focus on the creation of an enabling policy environment. It is evident that these policy principles are being adopted. At present, more and more private microfinance institutions are providing this much needed service while the Government rationalized its directed credit programs and established a microfinance-friendly policy and regulatory environment. The strategy is definitely still the guiding principle of the development of the sector in the Philippines.

2. What are the salient features of microfinance in the Philippines? What are the main challenges facing the microfinance sector in the Philippines today?

   I would say that one of the most salient features of microfinance in the Philippines is that there is a microfinance-friendly environment in which microfinance institutions operate, whether Bank, Non-Governmental Organization (NGO) or Cooperative.

   In the Philippines, the necessary infrastructure is in place for these microfinance institutions to flourish in a sound and sustainable way. Aside from the National Strategy, we have a regulatory framework and a uniform set of performance standards that cut across all types of microfinance institutions.

   The development of microfinance in the banking sector is also one of the encouraging features of microfinance in the Philippines. The Bangko Sentral NG Pilipinas (Philippine Central Bank / BSP) has taken proactive measures in institutionalizing microfinance within the banking sector through the creation of an enabling policy environment, capacity building, as well as promotion and advocacy. We now have, in the BSP, a Microfinance Committee, a Microfinance Unit and a core group of examiners specialized in microfinance operations of Banks. These initiatives have borne much fruit as the number of Banks with microfinance operations has increased by 300%.

   Because of the increased interest in microfinance and the ever-growing number of microfinance institutions, the main challenges lie in assuring that the operations maintain a good level of performance standards. At the end of the day, only sound and viable institutions can provide quality and timely services to the entrepreneurial poor, the microfinance clients.

   Another challenge is the need for a comprehensive credit bureau. Again, because of the increased number of players in the field, credit pollution and multiple borrowings need to be addressed through the proper reporting and sharing of credit information.

3. Where does the Philippines stand in terms of reaching the goal of providing access to financial services to the majority of poor households and microenterprises by the year 2005? How has microfinance contributed to poverty alleviation?

   In the Philippines, around 4.1 million families who belong to the lowest income strata are engaged in microenterprise activities. In addition, it has been shown that 70% of the country's poorest rely on entrepreneurial income. Microfinance, by invigorating these microenterprises, therefore has a direct contribution and impact to poverty alleviation and economic development. As I mentioned, the number of microfinance institutions is increasing and therefore serving more and more poor households. Our President, Gloria Macapagal Arroyo, has set a target of reaching 300,000 new borrowers per year, and in the past few years, we have been exceeding our targets. The banking sector alone is now reaching more than half a million microfinance clients.

4. The Philippines is an excellent example of significant growth in a tiered structure of financial institutions providing financial services to the poor. What have been the success factors of fostering a range of institutions? How has the regulatory environment fostered this development?

   The success factor in developing a range of microfinance institutions is that the policy environment encourages the development of these different types of institutions, recognizes the strength of each type in delivering microfinance services.

   Banks are ideal microfinance service providers because of their existing networks around the country and most especially their ability to mobilize savings. NGOs have the advantage of not being limited in terms of branching out their operations so they are able to more easily increase their outreach. Credit Cooperatives (or Credit Unions), having the member based structure, assure that the benefits are reflowed to the members. Because of each of these advantages, the regulatory framework was established to support and not limit these institutions. The framework uses existing regulatory structures and focuses on key areas of portfolio quality, transparency in operations, efficiency and outreach.

5. There is a paradigm shift to thinking in terms of "building inclusive financial sectors," with the accent placed on "pro-development" financial sector development overall. How have financial sector policies overall included microfinance?

   The financial sector policies have focused on the promotion of private sector involvement and the adoption of market-oriented financial and credit policies. Microfinance has also taken this general policy direction.

   In the banking sector, microfinance has been officially recognized as a legitimate banking activity and the BSP has laid down the rules and regulations for its practice within the banking sector.

6. What is your vision for an inclusive financial sector in the Philippines? What do you see as the main opportunities over the next five to ten years?

   My personal vision is to see that those who were, in the past, marginalized from accessing financial services will now find institutions who will provide them with appropriate, adequate and quality services. Whether Bank, NGO or Cooperative, I envision that these institutions will recognize that the microentrepreneurs or the entrepreneurial poor are indeed worthy partners toward development.

   I see the continuous commercialization of microfinance in the Philippines as the main opportunity for growth in the next five years. With the increase in competition in the sector, I look forward to institutions innovating and improving their services to better serve their clients in a sustainable manner. With this commercialization I see more responsive products, better prices and more viable microfinance institutions.

7. To commemorate the launch of the year of microcredit, Bangko Sentral NG Pilipinas issued 10 million 20-piso banknotes with the year logo and the tagline "sustainable microfinance services for the filipino entrepreneurial poor." How did you come up with this initiative? What kind of response have the banknotes received?

   The reason why we decided to overprint the Year of Microcredit logo in our 20-piso currency is to give microfinance the high-level attention that it deserves. Microfinance is indeed an answer to the needs of the many disadvantaged yet industrious filipino entreprenurial poor.

   The tagline that we selected "sustainable microfinance services to the filipino entrepreneurial poor" highlights two important words: sustainable and microfinance. "Sustainable" was used because we want to emphasize that only sustainable microfinance institutions are able to provide continuous access to quality services for their clients. The word "microfinance" aimed to underscore that microfinance is not only microcredit but also a wider range of important financial services such as savings, insurance, remittances and payments.

   The response has been encouraging. Because the 20-piso banknote has the widest circulation nationwide, more and more people are curious and beginning to be interested to learn more about microfinance.

8. What are some of the other innovative initiatives your National Committee is undertaking to celebrate the Year?

   The National Committee is planning a wide range of activities for 2005. We have developed Sub-committees that focus on the following areas: 1) policy makers and regulators, 2) microfinance institutions, 3) microfinance clients, and 4) promotions and advocacy. For each area focus, there are numerous activities planned such as policy dialogues, conferences, practitioner workshops, training seminars, awards programs, microfinance products trade shows, and similar activities. We will definitely keep you posted on these activities.