MICROFINANCE MATTERS - Op-Ed: Creating Stronger Resolve to Build Inclusive Financial Sectors

By Amando M. Tetangco Jr., Governor, Central Bank of the Philippines and Chairman, Philippine National Committee for the International Year of Microcredit

When the Philippine National Committee held its first meeting in August 2004, the first item on the agenda was to identify the overall objective of the Philippine celebration of the UN International Year of Microcredit 2005. Anchored in an official National Strategy for Microfinance, the objective that was set was to build a viable and sustainable microfinancial market to be able to provide more low-income households and their microenterprises access to financial services. This objective served as the guiding principle of the National Committee throughout the yearlong celebration. From the national launch of the Year on November 18, 2004 at the Malacanang Palace, to the Culmination of the Year on October 10, 2005 at the Bangko Sentral ng Pilipinas (BSP), the Philippine celebration has done just that - worked to strengthen the microfinance sector.

The Evolution of the Microfinance Industry in the Philippines

The microfinance sector in the Philippines is undergoing positive changes. The industry has been met with increased commercialization of microfinance that is paving the way for the increased number of viable institutions, higher standards of operation, more responsive products and lower costs to clients. More fundamentally, commercialization enables microfinance to regenerate itself with little or no direct concessional funding assistance from government. It just requires a sustained microfinance-friendly policy environment.

The developments in the banking sector are a testament to this trend of commercialization. Just this year, the International Year of Microcredit, the number of banks with microfinance operations reached 187, showing over a 200% increase in just a period of four years. At present, all the regions in the Philippines have at least one bank with microfinance operations. This year, two of the country's largest and leading microfinance NGOs transformed into Microfinance Oriented Thrift Banks. Now, they are better positioned to mobilize savings and offer a wider array of services to their clients. Also this year, the BSP approved the modified Manual of Examination for microfinance operations. The BSP bank examination procedures are now more attune to the peculiarities and uniqueness of microfinance operations.

We welcome these developments in the banking sector as we believe that as more commercially viable microfinance institutions are in play (more banks and other deposit taking entities offering sustainable, efficient and responsive microfinance products), the ultimate benefit goes to the many bankable yet unbanked Filipino entrepreneurial poor.

The Experience of the Philippine National Committee

As the Chairman of the National Committee, I had the privilege and the opportunity to work with other equally important stakeholders of microfinance. The National Committee provided a critical venue where heads of the cooperative, banking, NGO sectors, as well as government institutions, the private sector and academia came together with a common objective and purpose.

Tangible proof to this coordination and cooperation among the various stakeholders is the Memorandum of Agreement (MOA) that was signed to adopt the uniform set of performance standards for all types of microfinance institutions. These standards may be used as an industry benchmark, an internal monitoring tool, an instrument for regulators and even as an evaluation tool for investors and donors. The signing of the MOA by the various stakeholders from the government and the private sector embody a joint commitment to the development of a transparent, sound and sustainable microfinance industry.

However, more important than any of the accomplishments and developments that took place throughout the year is the resolve of the microfinance stakeholders that although each sector has a significant role to play, it is important to come together and work hand in hand toward the creation of a stronger, more vibrant, responsive and inclusive microfinance sector. The Philippine Declaration on Microfinance which was presented in the National Microfinance Summit embodies this unity in action. This document translates into words the very foundation that was built through the efforts of the National Committee and through the celebration of the International Year of Microcredit. This is what we can build upon in the coming years.

On a personal level, being Chairman of the National Committee allowed me to develop a deeper appreciation of microfinance and its role in economic development and poverty alleviation. In a country where 99.6% of the total industries are comprised of micro, small and medium enterprises, microfinance seems to be an ideal intervention to invigorate these enterprises and allow them to grow. And in a country where those in the bottom 30% income strata manage at least two microenterprises, microfinance is a powerful tool to alleviate poverty. As our Filipino slogan for the Year of Microcredit says, "Sa Microfinance, Aangat ang Kabuhayan, Aasenso ang Bayan" ("Through Microfinance, lives will be uplifted and the nation will progress"). We will remain untiring in our task to see this to its fruition and to make sure that our entrepreneurial poor will enjoy the benefits of a truly inclusive financial sector.