“The Philippine Experience in Developing A Vision/Strategy for Financial Services to the Poor and Adjusting the Regulatory Framework” Ricardo P. Lirio Managing Director Bangko Sentral ng Pilipinas

High overhead costs High incidence on non-payment of loans Social Intermediation vs. Financial Intermediation Distorted the financial market Suppressed the development of private financing institutions

Banks Shy away from granting loans High risk High operational cost Informal Financing Institutions Weak institutional capacity

of the 75 million Filipinos are living below the poverty line Source:World Development Poverty Indicators, 2001 (Survey Year 1997) 36.8%

are engaged in entrepreneurial activities but only one-fourth had access to loans. Source:Annual Poverty Indicators Survey, out of 5 Filipino families

Philippine population grows by 2.36% or by 1.7 million persons a year.

Philippine Commission to Fight Poverty 1.Promote and sustain economic growth to create employment and livelihood opportunities. 2.Sustain growth based on people- friendly strategies. 3.Expand social services to provide minimum basic needs. 4.Foster sustainable income-generating community projects 5.Build capabilities of the poor to help themselves

Financial and Market Reforms Lifting of interest rate ceiling Liberalization of licensing and branching of banks Intensified competition More products and services

Mandated Credit Allocation of Loanable Funds PD % for agri-agra loans (10% for agrarian and 15% for agricultural loans) R.A as amended by R.A % for small enterprises

Agency under the Department of Finance Created under Administrative Order No. 86 in 1993 Rationalize and optimize government credit programs

“To have a viable and sustainable private micro (Financial) market, with the government providing a supportive and appropriate policy environment and institutional framework to that market.” Vision of National Strategy for Microfinance

Greater role of the private sector MFIs in the provision of financial services.

Provide a financial and credit policy environment conducive to the effective and efficient functioning of the financial markets

Establish market-oriented financial and credit policy environment, which is conducive for the broadening and deepening of microfinancial services. Broadening and deepening mean the development of new product lines and services, the design and implementation of new microfinance technologies and practices which will result to increased microfinance intermediation between the target clientele and MFIs.

Implement capacity building program for MFIs

Social Reform and Poverty Alleviation Act (1997) Executive Order 138 (1999) Agriculture and Fisheries Modernization Act (RA 8435)

Role of the state in institutionalizing and enhancing a Social Reform Agenda that would pursue programs for the disadvantaged sectors Creation of People’s development Trust Fund

Government Non-Financial Intermediaries Directed Credit to the poor Subsidized Credit Programs

Complements Executive Order 138 Phase-out of agriculture directed credit programs

Action Plan “Provide an appropriate supervisory and regulatory framework for Microfinance Institutions which will enable them to engage in the development of new and innovative product lines and services appropriate for the demand for financial services/products by poor households and microenterprises”

Requirements for Granting Unsecured Loans At least one co-maker Proof of financial capacity (documents)

Sec. 40 Sec. 43 Sec. 44 Cash flow based lending to the basic sector that should not be covered by traditional loan collateral requirements Monetary Board may regulate the interest rates imposed on microfinance borrowers by the lending investors Schedule of amortization of the credit accommodations to the microfinance sector should consider the cash flow of the borrower

Bangko Sentral ng Pilipinas Guidelines for implementing the provisions in the General Banking Law 2000 Licensing of Microfinance Oriented Banks Rediscounting facilities for Microfinance Loans

Bangko Sentral ng Pilipinas Minimum Capital Requirement Type of Bank Pesos (Millions) US $ (Millions) Thrift Bank (within Metro Manila) Thrift Bank (outside Metro Manila) Rural Bank (1 st,2 nd,3 rd class) Rural Bank (other areas) 5.098

Bangko Sentral ng Pilipinas Reserve Requirement Maintain % of deposits as cash, deposits in BSP and government securities Type of Bank Demand Deposit Savings Deposit Thrift Bank8% + 2%*6% + 2%* Rural Bank7%2% *Liquidity reserve =2%

Bangko Sentral ng Pilipinas Reserve Requirement Serves as liquidity buffer in case of sudden inadequacy of operational funds Prompts bank to adopt an effective fund allocation system

Bangko Sentral ng Pilipinas Loan Classification and Valuation Requirement Classification Valuation Requirement Especially Mentioned5% Substandard Unsecured Secured 25% 10% Doubtful50% Loss100%

Bangko Sentral ng Pilipinas Risk – Based Supervision Approach Considers other types of risk (liquidity, interest rate, market, compliance, operations) Overall assessment of the system Mitigates examiners’ biases against unsecured loans

Bangko Sentral ng Pilipinas Opportunity Microfinance Bank (started its operations on August 17, 2001) Figures as ofDecember 31, 2001 Total Number of Clients Served 8,874 Total Loans Provided P million US$1.182 million Deposits Generated P million US$.244 million

Dutch International Micro Investment (Germany) 20% Microenterprise Bank (started its operations on November 21, 2001) International Finance Corporation (10%) Netherlands Development Finance Company (10%)

Bangko Sentral ng Pilipinas CARD Rural Bank Pioneer of microfinance lending in the Philippines Started as a non-stock non-profit organization offering savings deposit and lending services under the Landless People’s Fund Authorized to operate as a bank in 1997

Bangko Sentral ng Pilipinas Rural Banks under MABS Figures as of October 31, 2001 Total Number of Borrowers 20,268 Loans Outstanding P million US$2.289 million

Bangko Sentral ng Pilipinas Microenterprise Access to Banking Services USAID-financed effort operated by the Rural Bankers Association of the Philippines Aims to accelerate national economic transformation by encouraging rural banks to significantly expand microenterprise access to innovative microfinance services

Under the mandate of the Cooperative Development Authority Allowed to mobilize deposits from their members Resources come from the capital contribution of members and their surplus from credit, marketing and economic activities

Not under any regulatory body Developed and adopted their own standards Microfinance Council of the Philippines, Inc. and other microfinance networks provide self- regulatory measures to their members

Government Non-Governmental Organizations Other Civic Groups Philippine Coalition for Microfinance Standards

To develop and promote standards for NGO microfinance operations that seek to provide the poor with greater access to financial services on a viable and sustainable basis

Philippine Coalition for Microfinance Standards 3 Core Groups Policy Advisory Group Project Support Group Secretariat

6 Core Principles of the Coalition 1.The poor needs access to appropriate financial services 2.The poor can repay loans, can pay the real cost of loans, and can save 3.Microfinance is one effective tool for the alleviation of poverty 4.Microfinance institutions must aim to provide financial services to great numbers of poor people

6 Core Principles of the Coalition 5.Microfinance can and should be undertaken on a viable and sustainable basis 6.Microfinance non-governmental organizations must develop performance standards that will help define and govern the microfinance industry toward greater reach and sustainability

Microfinance is the cornerstone of the current administration’s fight against poverty. Lead Agency to Promote Microfinance

Spearheads the standardization of the chart of accounts and the creation of performance standards for credit cooperatives Created a Technical Working Group (TWG) that will develop a uniform set of standards applicable to all types of microfinance institutions

National Credit Council National Anti-Poverty Commission Bangko Sentral Ng Pilipinas People’s Credit and Finance Corporation Cooperative Development Authority Agricultural Credit Policy Council

National Council for Filipino Women Bureau of Rural Workers Rural Bankers Association of the Philippines Microfinance Council of the Philippines Landbank of the Philippines Philippine Deposit Insurance Corporation

D ifferentiate Social from financial Intermediation Programs Initiate reforms that will create a financial system conducive to operations of financing conduits Enact laws upholding the fight against poverty through microfinance. Take on strategies promoting microfinance as a primary tool to fight poverty Synergize anti-poverty efforts with non-governmental organizations and other stakeholders