1. Money Talk: Microfinance for Microenterprises
Mr. Eduardo C. Jimenez
Microfinance Consultant
Bangko Sentral ng Pilipinas
Business World Entrepreneurs Forum
August 25, Century Park Sheraton, Manila

2. Outline of Presentation
Microenterprises in the Philippines
Definition/ Background Information of Microfinance
Myths, Misconceptions and Barriers to Microfinance Development
Principles and Success Factors of Microfinance
Best Practices and Leading Methodologies
Institutions that Provide Microfinance
BSP Initiatives For Microfinance

3. Importance of Micro-enterprises in the Philippines
Small and medium enterprises (SMEs) comprise 99.6% of all registered business in the Philippines and employ 70% of the workforce
Of total, micro-enterprises account for 743,949 (97.1%), small enterprises 61,759 (7.6%), medium enterprises 2, 923 (.4%), and large enterprises only 2,958 (0.3%).
Micro/ cottage enterprises make up about 91% of total establishments surveyed by the National Statistics Office
Like in your respective countries, micro and small enterprises in the Philippines are extremely important.
I’m sure our participants from Indonesia can attest that during the Asian Financial Crisis in 1997, it was the micro and small enterprises that helped keep the Indonesian economy afloat.
This sector bears the same significance in the Philippines, data has shown that small and medium enterprises comprise 99.6% of all registered business in the Philippine and employ 70% of the population.
Of total enterprises make up 97.1%, small enterprises 7.6%, medium enterprises .4% and large enterprises .3%.
Another study has shown that micro and cottage enterprises make up about 91% of the total establishments surveyed by the National Statistics Office.
Aside from the sheer number of micro and small enterprises, we know that these enterprises are the ones with the most direct effect in the lives of our countrymen. They also, at times, are the ones that keep the resilience of economies.

4. Invigorating MICROENTERPRISES through
access to MICROFINANCE can lead to
economic growth and development on the
local and national level.

5. What is Microfinance?
It is a provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products to the poor and low income households and their microenterprises

6. Important Features of the Definition
It is not just credit
It has a target market - the poor and low income households
It is linked to the microenterprise

7. What Microfinance is NOT
Subsidized Credit
Dole-out
Consumption/ Salary Loan
Cure-all for poverty
It is important to discuss what microfinance is not because of the many misconceptions about microfinance.
(read slide)

8. “Entrepreneurial Poor”
Who are the Clients?
“Entrepreneurial Poor”
Near Poor
E-poor
Laboring
There is an emphasis on two words, poor and enterprises. This is basically the target client of microfinance, who we usually refer to as the “entrepreneurial poor”. These are those engaged in very small businesses like vending or shopkeeping but are unable to grow their businesses and raise their quality of lives because of the lack of credit available to them. Microfinance, is then, seen as the best intervention for the entrepreneurial poor.
Various interventions may be better fit for others. For example, for the ultra poor, microfinance may not be appropriate, instead government social programs and charity may be better interventions.
Ultra Poor

9. Features of Microfinance Loans
Fit for those who can not access “traditional” sources of financing
Innovative Product Designs
Use of collateral substitutes
Short term loans
Frequent amortizations
Inclusion of savings
Enterprise lending
Simple Documentation Requirements

10. Benefits of Microfinance for Microenterprises
Increase economic activity and income
Generate employment
Save and invest in the future
Guard against emergencies and shocks
Better invest in health, nutrition and education

11. Myths, Misconceptions and Barriers
Poor people can not pay market interest rates and can not save
Microfinance institutions are primarily civic-oriented, non-profit organizations that can not be sustainable and viable
Microfinance institutions can not access commercial funds

12. Myths, Misconceptions and Barriers
High transaction costs of serving the poor
Regulatory barriers
Implementation of government directed credit programs
Poor are intimidated by formal institutions
Lack of infrastructure and physical access to formal institutions
In the past, there was an aversion to microfinance primarily because of the following perceived and actual barriers. (read the slide)

13. New Paradigm of Microfinance
From beneficiaries to clients
From directed credit to market approach
From evolving programs to evolving institutions
From donor dependence to financially self sufficient institutions with access to commercial funding

14. Key Success Factors for Microfinance – 4 “C”s
Clearly identified market
Capable and committed staff
Creative methodologies and technologies
Commitment to standards and best practices
Here are some key success factors for microfinance institutions:

15. Best Practices for Microfinance
Appropriate Products for Clients (flexible, accessible, simple in process and documentation, appropriately priced, and permanent)
Appropriate Delivery
Clear Organizational/ Institutional Structure (Governance)
Adequate Risk Management (Use of Portfolio-at-Risk, Zero Tolerance for Delinquency)
Subscription to Performance Standards

16. Leading Microfinance Methodologies
Group Methodology - Microfinance services are provided in the context of a group.

17. Some Examples of Group Methodolgy
Grameen Methodology
7-8 groups of 5 women forming 1 center
Disbursement and collection through center
Loans are provided on a rotation basis (2-2-1)
Collateral substitute (i.e. JSS, peer support/pressure)

18. ASA (Association for Social Advancement)
7-8 groups of 5 women forming 1 center
Disbursement and collection through center
Simultaneous disbursement of loans
Collateral substitute (i.e. peer support/pressure)

19. Leading Microfinance Methodologies
Individual Methodology - single client lending where repayment and schedules rely solely on the individual (cash-flow, character based lending)

20. Some Examples of Individual Methodology
MABS approach (Microenterprise Access to Banking Service)
USAID funded technical assistance to rural banks that want to engage in microfinance
Individual loans are granted based on the character and household cashflow
Culture of zero tolerance for delinquency

21. Where Can I Access Microfinance?
Banks (Rural, Thrift, Some Commercial
NGOs
Cooperatives
In the past, there was an aversion to microfinance primarily because of the following perceived and actual barriers. (read the slide)

22. BSP Initiatives
Anchored on the General Banking Law of 2000, Sections 40, 43 and 44
Recognizes the peculiar characteristics of microfinance in the requirements, terms and amortization of loans and other credit accommodations.
It is worth noting that, for the first time, the General Banking Law mandates the BSP to recognize and support microfinance as a banking activity.

23. Three-Pronged Approach
Microfinance “Friendly” Policy and Regulatory Environment
Training and Capacity Building within BSP and banking sector
Promotion and Advocacy
The BSP initiatives and programs for microfinance are three tier (read slide)

24. Policy and Regulatory Environment
Issuance of 13 Circulars governing the practice of microfinance in the banking sector – provides incentives like rediscounting, recognize microfinance loans (no collateral, loan documentations, etc), allow for branching, promote best practices
Modification of Manual of Examination to include microfinance operations
Member of the Technical Working Group that established the regulatory framework and performance standards for all types of MFIs

25. Ways How a Bank can Engage in Microfinance
Establishment of a microfinance-oriented bank
Establishment of a microfinance-oriented branch
Establishment of a microfinance unit within an existing bank

26. Training And Capacity Building
Creation of a Microfinance Committee and Microfinance Unit
Establishment of a Core Group of BSP Microfinance Examiners
Inclusion of microfinance in the Basic Rural and Thrift Banking Courses
Conduct of training for banks on microfinance best practices
Just as important as the regulatory and policy environment, the Bangko Sentral is also focusing on training and capacity building within the BSP and the banking sector.
We are now among the few in the world, and the first in Asia Pacific, to have a dedicated office and personnel to microfinance within a central bank.
The core group of examiners also provide technical assistance to banks in their microfinance operations.
At present, USAID is providing assistance to the BSP in modifying the manual of examination to incorporate microfinance operations.

27. Promotion And Advocacy
Regional tour to promote microfinance best practices to practitioners and potential players
BSP as Chair of the Philippine Celebration of the UN International Year of Microcredit
Microentrepreneur of the Year Awards
The BSP maintains priority in its advocacy efforts to promote microfinance in the country. This year, we launched our regional advocacy program. We have conducted seminars in Cebu, La Union and next week we will be in Iloilo.
We remain active in various microfinance activities by the NGO, cooperative and banking sector.
The BSP is recognized as an advocate of microfinance both locally and internationally. In April 2001, the BSP regulations on microfinance was published on Grameen Dialogue, the publication of Grameen Trust in Bangladesh. In February 2001, an Business World article on the same regulations were posted on Poverty Net, the virtual library of the World Bank. And just very recently, we were lauded in the recent Microcredit Summit in New York for our advocacy efforts for microfinance.

28. Banking Sector Exposure to Microfinance As of March 31, 2006 (in millions)
Micro Loans Portfolio
No. of
Amount Borrowers
Microfinance-oriented Banks:
Thrift Banks (5 banks) ,187
Rural Banks (4 banks) ,984
Traditional Banks:
Thrift Banks (9 banks)
Rural Banks (159 banks) 2, ,110
Cooperative Banks (27 banks) ,899
Total (204 banks) 3,
As a result, the developments in the banking sector have been encouraging. There are now six microfinance-oriented banks and around 115 rural and cooperative banks with some level of microfinance operations. These banks are now reaching, as I mentioned earlier, over 400,000 micro-borrowers.

29. Microfinance Unit – (02) 523-6130
Thank you.
Microfinance Unit – (02)