BSP supports microfinancing

Responding to the challenge of poverty alleviation, the Bangko Sentral ng Pilipinas (BSP) has established a special unit for microfinance.

"We envision this unit as a vehicle for mobilizing and administering possible international and local donor funds as well as our own BSP funds to be earmarked primarily for microfinance training, advocacy and research," BSP Monetary Board member Antonino L. Alindogan said.

Alindogan said that it was critical that the importance of microfinance is propagated, and access to technology is available.

The BSP has also issued regulatory orders to develop, enhance and propagate microfinance.

Circular 272 allows the banks regulatory flexibility to adjust to the peculiar characteristics of microfinancing particularly its focus on cash flow-based lending that is primarily not covered by traditional collateral.

It likewise recognizes microfinancing loans as small loans, on the basis of borrower’s cash flow and other loans granted the poor and low-income households for their enterprises and small businesses.

Microfinance loans may be amortized daily, weekly, bi-monthly or on a monthly basis depending on the cash flow condition of the borrowers.

"As an incentive, microfinance loans will be considered compliance with small and medium enterprises (SMEs) mandatory credit requirements," the BSP official said.

Circular 273 exempts, on a selective basis, organizations and interested persons from the current general moratorium on the establishment of new banks.

Among the criteria covering this regulation are the following: the bank to be established should either be a thrift bank or a rural bank; the bank’s capital should be generated from private resources and/or multilateral entities, not from government, to promote appropriate conditions for sound internal governance; for rural banks, the minimum paid-up capital of P5-million or the applicable existing capitalization requirement for a new rural bank; at least 50 percent of the bank’s gross loan portfolio at all times should consist of microfinance loans; the organizers must have the capacity to engage in microfiannce, as evidenced by experience and track record; and the proposed bank must have an adequate information system that allows daily monitoring of loan releases, collection and arrearages, and any restructuring or refinancing.

To ensure that banks engaged in microfinance loans should be reasonable but market-based "to enable lending institutions to fully recover costs and provide fair returns."

So far, there have been a lot of success stories regarding the sector. Repayment rates have been an outstanding 96 percent.

Alindogan said that these stories have debunked the notion of traditional banking that the cost of lending to the poor is high and that this segment is not attractive due to the risks it involves. "The truth is that the poor can repay loans, can pay the real cost of loans, and can save."

Recently, the BSP approved the opening of two new microfinance thrift banks. They are the Opportunity Microfinance Bank in Antipolo, Rizal, and the Micro Enterprise Bank organized by the Planters Development Bank, the International Finance Corp., and several Euro-based NGOs. - TPTorres