Support institutions vital to microfinance growth

The development of the microfinance industry will need the help of support institutions to sustain the growth it achieved in the past five years, according to study.

Among the support institutions identified were: microfinance networks like the People’s Credit and Finance Corp. (PCFC); credit information bureau; and training centers.

Global Consulting firm Chemonics International Inc. recently released a study commission by the Asian Development Bank (ADB) on the development and commercialization of the microfinance industry in the Philippines. The study was complied and written by Stephanie Charitonenko.

It said that a standard chart of accounts and reporting must be introduced including standardized accounting practices, subjectivity to external audit, and standard presentation of financials with a view toward eventual ratings.

"The microfinance networks should continue to play a role in linking their members with PCFC funds and whenever possible, commercial bank credit," it added.

Charitonenko cited the credit bureau operated by the Bankers Association of the Philippines (BAP) as highly commendable. It recently expanded its scope to include microcredit information and "holds promise in terms of further expansion to include a greater number and type of microfinance institutions (MFIs)."

The study also pointed out the importance of training centers and institutions as another prerequisite to the continued commercialization of the microcredit industry.

Punla sa Tao Foundation (Punla) is the only institution that is offering training on a regular basis. It has the potential to serve as a one-stop shop that could help the microfinance industry build the technical capacity.

The Asian Institute of Management (AIM) Center of Development Management and the Asian Center for Entrepreneurship offer advanced training such as project management, social development, and entrepreneurship. But it is not designed for public training programs for MFI managers.

The study however recommended that Punla must direct its focus more toward servicing the complex and varied needs of commercial microfinance providers.

Aside from Punla, other institutions should conduct market research to explore what types of managerial and operations courses would be most attractive to microfinance professionals to various levels within different types of institutions, and to determine willingness to pay.

The study further recommended that Punla, the two AIM centers, PCFC, BSP and all the other institutions involved in microfinance also build linkages with other foreign institutions like the Small Enterprises Education and Promotion Network to develop more modules.

The ADB-commissioned study also commended the BSP "as one of the world’s leaders in terms of developing and enabling legal and regulatory framework to support the development of a sustainable microfinance industry."

Charitonenko said most of the Asian country’s endeavoring to launch microfinance initiatives are now looking at the Philippines as a successful model and that they are poised "to adapt some of the Philippine lessons for their specific contexts."

Several government and non-government entities coming from as far as Bolivia, is reportedly coming to the Philippines next month to look into the country’s credit initiatives.

"Most of these country’s are at a state where the Philippines was in 1994 in terms of the legal and regulatory framework for microfinance and effective credit utilization," she added.

From 1994 to the present, the Philippine central bank spearheaded the formation of various entities and initiatives directly and indirectly involved in the development of microfinance in the country.

In 1994, the BSP along with the national government formed the National Credit Council (NCC), which later developed a credit programs and a national credit delivery system to address poverty. Three years later, the national framework for microfinance was institutionalized through the National Strategy for Microfinance.

The passage of the General Banking Law of 2000 set the stage for specific legal and regulatory adaptions concerning microfinance. The new banking law was complimentary to the tiered licensing system also initiated by the BSP.

The central bank issued several circulars also designed to encourage the development of microfinance. BSP Circular 272 accommodated cash flow-based lending over lending based on traditional collateral while Circular 273 lifted the moratorium on the establishment of new banks to allow the entry of new microfinance-oriented thrift and rural banks.

Last year, the BSP again issued new rulings affecting the establishment of branches and loan collection and disbursement points of microfinance-oriented banks as well as banks that are not solely devoted to microfinance activities.