Will microfinance spur small business?

We can thank our overseas Filipinos for saving the country, but we cannot rely on them forever.

Which is why, after having been cited in the Micro-credit Summit in New York in 2001 as one of the few countries with a sound microfinance framework, it’s a pity that the Philippines has not really made any headway into the country’s P50-billion microfinance market.

Microfinance is key to opening financial services in terms of lending, savings and insurance to poor households so that they may participate in more productive ventures instead of just relying on remittances from their overseas relatives and family members.

At present, there are only about 200 small banks – mainly rural and thrift banks – dabbling in microfinance, providing collateral-free loans with a value base of only about P3 billion to over 500,000 micro-enterprises nationwide.

Community banks are showing signs of penetrating the microfinance market. Industry reports indicated that the rural banking sector had reached double-digit income growth in 2005 due to a marked increase in micro-lending activities.

True, the Philippines may be ahead of other developing countries in Asia in terms of setting an enabling environment for microfinance: the Banko Sentral ng Pilipinas, after all, is one of the few central banks in the world with regulation guidelines tailored fit for microfinance.

Letting the big banks in

Despite established policy infrastructure for microfinance in the Philippines, the ADB is quick to point out that the Philippines needs to seriously look at commercialization of microfinance as the key to improving the low penetration rate of the microfinance market.

Commercialization, according to the ADB, is not an end in itself, but a means to expand financial services to poor and low-income households and their micro-enterprises on a sustainable basis.

ADB noted that while the Philippines has given birth to both formal and informal microfinance institutions, there is still significant progress to be made for commercialization to take place.

To date, big banks with an orientation to support agribusinesses are the only ones given to microfinance. Land Bank of the Philippines has reported that it loaned out P18.5 billion to micro-enterprises and small and medium-size enterprises during the first quarter of the year from P17.3 billion in the same period of the previous year.

Land Bank has earmarked P20.6 billion for micro-lending for 2006. The United Coconut Planters Bank has been supporting coco farmer-led micro-enterprises, but this has been limited only to about P20 million in 2005.

Other banks seem to be trying. Industry leader Bank of the Philippine Islands has undertaken a pilot run of its foray into microfinance. Allied Bank followed suit sometime last year. Citibank, in a surprising announcement, has declared it will be looking at the prospect of dabbling in micro-lending.

Promoting commercialization

To promote commercialization, an ADB study calls on governments in developing countries to treat microfinance as an integral part of the financial sector, and for donors to advocate for commercialization themselves.

The study cites that about 95 percent of 180 million poor households have no access to institutional financial services. It advises developing countries to foster commercialization of microfinance as a means to plug the gnawing gap between the potential demand for and the actual supply of microfinance.

One policy rewrite being looked at to encourage commercialization of micro-lending is allowing the pooling of micro-credit receivables for wholesale fund-raising campaigns like a bond issuance.

Additionally, the central bank would like to see a future when it would be attractive for major commercial banks to invest in microfinance portfolios and prepare a market for selling securities backed by income from micro-credit.

While commercial banks may still need a lot of convincing and enticement to engage in such activities, BSP noted that selling microfinance portfolios would be helpful to rural banks as it would definitely broaden their capital base.

At this time, BSP believes that the wholesale lending of microfinance receivables and purchase of microfinance loan portfolios are already ripe for the market. BSP says that microfinance remains profitable, having a non-performing ratio of only two percent.

Strengthening branch operations

But more needs to be done. In its last country-level savings assessment on the Philippines, Washington-based Microfinance Gateway observed that loose policy guidelines on branching is one cause for the underdevelopment of microfinance in the country.

A moratorium on setting up of branches had been blamed as the main reason why microfinance had not taken off even after the establishment of some degree of policy infrastructure for micro-lending in 2000. But even after the branching moratorium was lifted in 2001, specifically to allow community banks to engage in collateral-free lending in underserved markets, things still did not move.

The paper also pointed out that ambiguous guidelines on branching for microfinance-oriented thrift and rural banks had slowed down new branches, with supervision being uneven: too little for non-bank institutions and apparently too much for banks.

The donor agency-led consultant also criticized the universally-accepted standard procedure in lending, particularly the Know-Your-Customer clause which requires lenders to present two national IDs, as a major impediment to increasing micro-lending.

Gateway Microfinance said that such practice, unless addressed by BSP, constituted an impediment particularly in communities where potential microfinance clients could only present community tax or voter’s certificates as valid identification.

Microfinance for the agri sector

Earlier in the year, another micro-credit facility has been made available to farmers through the rural banks. It’s called the Micro Agri Loan Product under the Micro-enterprise Access to Banking Services. This is a program that will channel micro-credit to farmers through 250 rural banks with microfinance operations.

But the key for microfinance in the agri sector to take off, according to BSP, is for banks, microfinance institutions and micro-enterprises to create a working alliance that will support not only agri-based businesses but also export-based micro-enterprises that will form a supply chain for the profitable export market.

Until lending is made available to a greater number of our hard-working countrymen, we cannot expect the economy to grow on its own steam. We must remember that the country is barely surviving, and only because of the remittances of our overseas Filipinos.

Bigger Philippine Poker tour is back

Philippine Poker Tour (PPT) and Pagcor recently agreed to launch the second major poker event for the year, the P3 Million Hold’em Philippine Championship, with the grand finals scheduled on 16th & 17th December 2006 at Casino Filipino Pavilion at UN Avenue, Manila.

Based on the response of the recently concluded Million-Peso Hold’em Championship (conducted 29th and 30th April), it is expected that more poker tournament enthusiasts are expected to participate considering the bigger amount of prizes being offered during the eight (8) legs and the Grand Finals.

Call the PPT secretariat (c/o Cindy) at 812-9092 or 812-0153 or visit the Philippine Poker Tour official web site www.PhilippinePokerTour.com <http://www.philippinepokertour.com/>, and see the details of the next major non-wager competition in the country. The web site also features the full pictorial coverage of the biggest non-wager poker tournament that was recently concluded, the Million-Peso Hold‚em Philippine Championship. The final table action of the tournament was covered by Solar Entertainment, and will be shown shortly on the television cable station Sports Plus.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected] or at [email protected]. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz http://bizlinks.linkedge.biz/.