BSP forms micro-finance unit

True to form, the Bangko Sentral ng Pilipinas (BSP) has formed a unit solely for the development of the microfinance sector.

"In view of the commitment of the BSP to encourage micro-lending, the Monetary Board (MB) approved the adoption of a microfinance unit and the creation of an inter-sectoral microfinance committee to centralize and oversee program," BSP Deputy Governor Alberto Reyes said.

Among the duties of the microfinance committee, is formulating guidelines for examination of micro-lending institutions, training programs for examination of banks and other institutions, and the centralization of all microfinance institutions.

It will also tap the assistance from technical experts such as the United States Agency for International Development (USAID) for training programs.

The unit will also be the 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 told The STAR in a separate interview.

Alindogan, will also be one of the leading MB members involved in microfinance regulations 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 flow-based lending that is primarily not covered by traditional collateral.

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

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

To ensure that banks engaged in microfinance remain financially viable, Alindogan said the interest rates on micro-loans should be reasonable but marked-based to enable lending institutions to fully recover costs and provide fair returns.

The BSP approved the opening of three microfinance-oriented banks. They are the Opportunity Microfinance Bank in Antipolo, Rizal, the Micro Enterprise Bank in Mindanao and VisionBank Inc., located in Bato, Catanduanes.

The biggest challenge in the near future according to the BSP, is to unite the microfinance sector under a situation where the leading proponent of micro-lending is not regulated by government.

The non-government organizations (NGOs) is the main proponent of the sector which is badly fragmented.

The BSP said that the sector is basically self-regulating without any state guidance or intervention. These situation resulted in generally positive results from well-meaning NGOs. However, they only comprise a fifth of the estimated number of the total NGOs involved in microfinance.

There are two general types of microfinance institutions (MFIs) involved in the extension microcredit. These are the formal and the informal sector. The formal sector is basically the banking sector including the commercial, thrift and savings, and rural and cooperative banks. There are also the lending investors and pawnshops. The informal sector is comprised of the NGOs and the cooperatives and credit unions.

The formal banking sector is regulated by the BSP while the lending investors and the pawnshops are under the supervision of the SEC.

Cooperatives and credit unions are registered with the Cooperative Development Authority (CDA). But it does not practice regulatory functions thus its activities are largely self-regulatory much like the NGOs which by its character is free of direct government control.

There are over 300 NGOs involved in microfinancing which get their funding from grants and soft loans while others tap the formal banking sector and the People’s Credit and Finance Corp. (PCFC), the government entity formed to provide credit and financing services for the poor.

There are over 30,000 registered cooperatives nationwide although only a third remain in the active list.

There are over 790 rural and cooperative banks involved in microfinancing in various degrees. Rural banks claim to have actually started microfinancing in the rural areas long before it was fashionable.

Towards proper self-regulation, the NGOs and cooperatives formed national organizations such as the Microfinance Council of the Philippines (MCP).

Other formations and capacity-building programs for an improved microfinance environment were established.

Among them are the Microenterprises Access to Banking Services or MABS program initiated by the Rural Bankers Association of the Philippines (RBAP), the Rural Bankers Research and Development Foundation Inc. (RBRDFI), and the USAID.

Then there is the World Council of Credit Unions, and the Credit Union Empowerment and Strengthening or CUES.