MANILA, Philippines - The Philippines is still among the leading countries promoting the microfinance industry and even improved its ranking from last year, an annual study showed.
The country ranked fourth out of 55 nations with a score of 63.3 in The Economist Intelligence Unit’s Global Microscope on the Microfinance Environment. This was better than previous year’s 58.5 which placed us sixth.
Peru still led the annual ranking for the third straight year, while Vietnam was at the bottom.
In terms of regulatory framework however, the Philippines continued to be No. 1 together with Peru for the third straight year. They both garnered a score of 80.
We also moved two notches up-to 15th from 17th-in terms of institutional framework, which measures business practices such as financial reporting, transparency, client protection and credit bureaus.
Meanwhile, despite retaining its 72.5 score from last year, the Philippines went down a notch to 22nd in terms of the industry’s stability which takes into account “political shocks to microfinance.”
The study noted efforts from various government agencies in justifying the Philippines’ upgraded ranking.
“The Bangko Sentral ng Pilipinas (BSP) continues to promote and enabling environment for microfinance, seeing it as one of its key poverty reduction efforts,” the study noted.
Among others, EIU cited BSP Circular 744 issued last year which allowed banks to grant microfinance loans up to P300,000 from the original P150,000. This has enabled lenders extend more assistance to lower-income borrowers who are otherwise unable to meet stringent requirements in availing regular loans.
There was also improved transparency, EIU said, noting of the BSP’s order in July, effectively declaring flat interest rates charged on bank loans as illegal. The study said microfinance institutions are expected to follow suit, “but the BSP lacks the authority to require them to do so.”
In issuing the order, the central bank said banks should compute for the correct interest rate for each loan product they offer.
On the legislative front, EIU also hailed the passage of a bill in the House of Representatives allowing up to 40 percent foreign ownership in rural banks which is “likely to be passed by the Senate later this year.”
Since rural banks are considered primary lenders at the countryside, allowing more foreign ownership is expected to boost their capital and in effect allow them to take in more risks such as loans.
On the flipside, the study noted of the need to have a “set of institutions” or “regulatory and supervision regimes” that would monitor the “relatively fragmented” industry. Aside from BSP, the Department of Finance is also pitching for microfinance development.