BSP reviews microfinance rules

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is reviewing existing regulations that limit the amount of microfinance loans to P150,000 in its bid to enable banks with microfinance operations to provide services to an even wider range of clients and to deliver financial services to more unserved markets.

BSP Governor Amando M. Tetangco Jr. told members of the Rural Bankers Association of the Philippines – Microenterprise Access to Banking Services (RBAP-MABS) that the central bank is working continuously to provide a supportive environment that would further promote the growth and development of microfinance.

“We are reviewing our earlier regulations that define microfinance and microfinance loans. As I mentioned earlier, much has changed in the practice of microfinance and we want our regulations to be in step with the times,” Tetangco stressed.

Part of the review, according to him, is to allow microfinance companies to provide loans of above P150,000. BSP Circular 409 issued way back in 2003 placed the maximum principal for microfinance loans at P150,000. 

“Our objective is to craft regulations that will enable microfinance practitioners to provide services to an even wider range of clients and to deliver financial services to more unserved markets… including those who fall in the so-called gray area of microfinance who need loans above P150,000. These are the microenterprises that are ready to scale up their operations as small… or even medium… enterprises,” he said.

Tetangco said the BSP has issued Circular Nos. 678, 680, and 683 allowing microfinance companies to diversify their product offerings to include housing microfinance loans, micro-agri loans and microinsurance.

BSP Circular 678 expanded the definition of microfinance by allowing qualified housing microfinance loans up to P150,000 for home improvement and up to P300,000 for lot acquisition and house construction while Circular 680 allowed banks to offer micro-agri loans as credit not exceeding P150,000 to small farmers.

Furthermore, the BSP through Circular 683 has authorized rural banks to market, sell and service microinsurance products, subject to certain prudential rules and regulations.

He added that BSP has also issued Circular 685 supporting the commercialization of the industry by recognizing the importance of independent and third party ratings provided by Microfinance Institution Rating Agencies (MIRAs).

MIRAs would provide an institutional rating rather than just a rating related to a safely grade of a specific instrument or a rating on an institution’s ability to service an existing or proposed debt. The assessment of the MIRAs would focus holistically at the governance, human resource, as well as the strategic, management, and financial performance of the microfinance institution.

In fact, he added that the BSP recently engaged the consultancy services of small and medium-sized enterprises (SME) lending experts to further strengthen the capacity of the central bank in supervising SME lending technologies.

Furthermore, the BSP chief said the central bank would continue to expand and deepen the reach of its financial education and consumer protection program. 

“We want to have a truly inclusive and empowering financial system that will mainstream the previously unserved or unbanked. Typically, they are more economically vulnerable and stand to benefit the most from information and capacity building that will give them access to financial services,” he added.

Tetangco said the number of microfinance players has increased significantly unlike before when microfinance operations was limited to microcredit provided by leading non-governmental organizations (NGOs), cooperatives, and a number of banks.

The BSP was mandated by the General Banking Law in 2000 to recognize microfinance as a legitimate banking activity and to set the rules and regulations for its practice within the banking sector.

Latest figures show that 214 banks involved in microfinance have outstanding loans of over P6.4 billion to nearly 900,000 microentrepreneurs who have over P1.5 billion in savings.