14

Sa-Dhan Patrika

Volume 6

Issue 1

Another issue particular to microfinance

the NGOs' source of funds. Because of

NGOs is their inherent weak ownership

t h i s , several microfinance NGOs

and governance structures. Their board

transformed themselves into formal

of directors lack true owners with a

financial institutions, such as rural banks

financial stake in the business. Thus, this

and thrift banks. They resorted to this

results in an overemphasis of the NGOs'

strategy to enable them to have access

social agenda and hinders profitability

to other sources of funds ­ the general

and long-run sustainability.

public.  As of now, there are five

microfinance NGOs that successfully

Internal/ External Environment

transformed into four rural banks and two

The recent report by ADB  6 states that the

thrift banks.

g r e a t e s t  challenge  facing  the

microfinance industry is expanding

Among the wholesale lending institutions,

access by the poor and near poor to

the People's Credit and Finance Corp.

sustainable microfinance. According to

(PCFC) a government-owned finance

A D B , many Filipino microfinance

company, is the biggest source of funds

stakeholders see provision of commercial

f o r the various MFIs that serve as

microfinance as the way to address this

conduits for lending to the poor such as

challenge. However, the same report

NGOs, rural banks, cooperatives and

states that several impediments to

other intermediaries. PCFC normally

microfinance commercialisation exist at

charges 12 per cent per annum to its

the micro (institutional) and macro

borrowers. This rate is still higher

(environmental) levels. Some of the

compared to the cost of funds (savings

major impediments are discussed below.

deposits) sourced from the general public

which ranges from one per cent to 4 per

Internal Constraints - Perhaps most of the

cent.

pervasive internal constraints to

c o m m e r c i a l microfinance is the

Based on the prevailing rates, the funds

"perception problem". Because the

from the public are still the cheapest

microfinance market is not monopolised

source of funds for banks. However,

by microfinance NGOs, one big internal

since most microfinance lenders are

challenge faced by some players or

either rural or thrift banks, these banks

potential players in the commercial

could not compete with the bigger banks

microfinance market (e.g., rural banks

such as commercial and universal banks

and cooperatives) is the lack of

in attracting deposits from the public. This

appreciation of the viability and

is mainly due to the perception among

sustainability of microfinance as a market

depositors that it is safer to put their

niche.  The 'perception problem' is

deposits in bigger and stable banks

partially based on the lack of ability or

(commercial and universal banks) than

flexibility of the existing systems of rural

in smaller banks (rural and thrift banks)

banks

and

cooperatives

to

which are more prone to closure.

accommodate the unique features of

microfinance technologies (e.g., daily or

O n the other hand, the BSP has a

weekly monitoring of small repayments

rediscounting facility for both rural and

and small deposits).

thrift banks engaged in microfinance.

However, only a few have availed of

Constraints in the Operating Environment

this facility owing to its rather 'strict'

- The external environment impediments

qualification requirements.

identified by ADB are as follows:

Regulatory Requirements

·

'Crowding out' of the private sector

by  government  microcredit

With the increase in the number of formal

programmes

institutions involved in providing

·

Mandatory lending and investment

microfinance services, an appropriate

·

Threat of policy reversal

regulatory and supervisory framework is

·

Unclear regulation and supervision

of paramount importance. The NCC

Some

of microfinance operations

approved a Regulatory Framework for

microfinance

·

I l l e g a l deposit mobilisation by

Microfinance in 2002. The framework

NGOs are allowed

microfinance NGO

covers only institutions taking deposits

only to solicit

deposits from their

·

Inadequate access to commercial

from the general public and/or from its

sources of funds

m e m b e r s , specifically banks and

members in the

form of what they

·

No credit information bureau that

cooperatives, and is subject to

captures microcredit information

prudential regulation and supervision.

call 'capital

·

Lack of microfinance training centres

S i n c e microfinance NGOs are not

build-up'

supposed to take deposits from the

Access to Capital

public, they are generally not covered

Some microfinance NGOs are allowed

by prudential regulations.

only to solicit deposits from their members

in the form of what they call 'capital

State of Regulatory and Supervisory

build-up'. These organisations had been

Challenge

traditionally sourcing their funds from

Ø  Except for banks, other microcredit

donors abroad. However, the shift of

providers are not adequately

international donors' focus from the

regulated and supervised

Philippines to other countries depleted