Bangko Sentral forms microfinance foundation

Recognizing the importance of the rural banking system in economic progress and its role in microfinancing, the Bangko Sentral ng Pilipinas (BSP) has decided to put up a foundation dedicated solely for the development of microfinance in the country.

"We are going to start a foundation and we are going to get some bilateral grants from bilateral and multilateral agencies. There is an institution that specializes in this in Germany, Holland, and the World Bank has a grant for this," BSP Gov. Rafael B. Buenaventura said during a forum of the Rural Bankers Association of the Philippines (RBAP) last week.

The main purpose of the foundation is to extend training to entities interested in starting microfinance activities. "What is important here is the training, the technique on how to lend to microfinance."

Buenaventura further revealed that they would also be tapping the assistance of bilateral and multilateral agencies for funding to form the foundation and a facility for institutions interested in microfinancing.

There are several microfinance companies already operating in the company which have been reportedly successful with their collection record of up to 98 percent. The rural poor are the main beneficiaries of these microfinancing, and they have proven that they are credit worthy and with the highest level of the so-called palabra de honor.

"What they need is the opportunity to borrow, to get credit to start a business. That is the sector that we want to help through microfinance. They tap loans amounting to P1,000 to P5,000 and this increases to P100,000 when they are already operating. Then eventually they will graduate to the banking system," the BSP chief added.

Meanwhile, the BSP continued to protect the rural banking sector by exempting them from an increase in reserve requirement.

Monetary authorities increases recently by two-percent reserve requirement of banks with an option to increase it further to another two percent depending on the performance of the system.

The move was designed to mop-up excess liquidity in the market as well as curb speculation in the foreign currency trading market.

"We have been supportive with the thrift and rural banks. In fact, we have not increased their reserve requirements so that they can use the capital for lending in the rural areas," Buenaventura said. "When we mopped up excess liquidity, we addressed these on the commercial and universal banks."

Monetary authorities also lifted the moratorium on establishing new banks and the branch network as long as this activities are directly related to microfinancing activities.

That could result in an environment wherein the thrift and commercial banks would be involved in microfinancing aside from the rural banking sector which has been in that activity from the start.

"The Bangko Sentral has had a strong desire to promote microfinance, and we have been supportive of the rural banking sector," Buenaventura said.

The sectors total assets increased to P66.7 billion end March this year, up 8.6 percent from last year. The non-performing loans (NPLs) dropped to 18 percent in 2000 from 21 percent the year before.

However, the number of rural banks dropped from 805 last year to 787 in the first three months of the year. But the number of its total branch network rose to 1,121 offices.

Industry-wide, the industry’s profitability rose by 22.8 percent with an estimated net income after tax reaching P279-million.

The banking system’s NPL ratio eased to 17.3 percent in the first three months of 2001 to 19.7 percent. Loan loss provisioning improved to more than 30 percent from less than 24 percent a year ago.

Earlier, President Gloria Macapagal-Arroyo said that they plan to exempt deposits in rural banks from the 20-percent withholding tax on interest earned on deposits. This will further encourage savings anjd generate more capital for investments among the rural households, farmers, fisherfolk and the like.

Arroyo likewise revealed in an earlier forum that another incentive scheme being studied is the exemption from dividends earned from investments in rural and cooperative banks from taxes. It is likewise looking to restore the collateral integrity of lands in the countryside, particularly lands covered by the Comprehensive Agrarian Reform Program (CARP).

The three proposed incentive steps is part of the government’s modernization plan for the agriculture and fisheries sector to create a channel for credit assistance and financing for the rural areas.

In fact, the national government has already earmarked P350 million for the use of rural banks for retailing and re-lending in the countryside. The administration claims that it is only an initial release and that it was prepared to release more funds as the need arises.

"My administration recognizes that rural banks individually and collectively as an industry have the capability of delivering much-need credit services to the rural poor and the broad masses of our farmers and fisherfolk. This is the emphasis and preeminent objective of my administration," Arroyo said.