15

Scaling Up in Microfinance - Issues and Challenges

At present, there are a number of

b e i n g developed to allow greater

institutions involved in the delivery of

transparency in the operations of MFIs.

microfinancial services to the basic

More particularly, the standards will

Considering the

sectors, e.g. the rural banks, thrift banks,

provide the user the necessary basic

credit

cooperatives

and

the

significant

tools that will facilitate the evaluation

number of

microfinance NGOs. Thrift banks and

and assessment of the operations of MFIs

microcredit

rural banks are currently being

and

compare

their

financial

providers (about

supervised by the Bangko Sentralng

performances, regardless of whether it is

300 NGOs, around

Pilipinas  (BSP)  while  the  credit

a rural bank, credit cooperative or

30,000

cooperatives are legally under the

microfinance NGO.

cooperatives and

supervision  of  the  Cooperative

less than 200

Development Authority (CDA).  The

Ø  Creation of Credit Bureau

banks), there are

microfinance NGOs are not being

Considering the significant number of

higher incidence

supervised nor regulated by any

microcredit providers (about 300 NGOs,

of multiple

government regulation agency.

around 30,000 cooperatives and less

borrowings, credit

t h a n 200 banks), there are higher

pollution and

The BSP is the regulatory authority over

incidence of multiple borrowings, credit

all banking institutions including those

unsound

pollution and unsound competition

competition

engaged in the provision of micro

practices among MFIs. Thus, there is a

practices among

f i n a n c i a l services.  BSP issues the

need to promote a market-led

MFIs

necessary rules and regulations for the

mechanism to address these issues by

safe and prudent operations of banks.

creating a credit bureau that will foster

As part of its regulatory mandate over

transparent and accessible information.

banks, BSP supervises and conducts

regular examination of banks. During

In this regard, a credit bureau will be

e x a m i n a t i o n , examiners check for

established in BSP to include data/

compliance with banking laws, rules and

information on microfinance loans on a

regulations, soundness of systems for

nationwide basis. To institutionalise the

evaluating credit, supervision and

establishment of a credit bureau, a draft

collection of loans and the quality of the

bill creating a nationwide credit bureau

loan portfolio. While the laws and

that will capture microfinance loans is

regulations

do

not

prohibit

being prepared by BSP.

microenterprise lending, most banks are

Possible Strategies

not keen on providing microfinance

loans for fear of being penalised by bank

With the array of challenges hampering

examiners.

the growth of microfinance institutions,

the government, private sector and BSP

The CDA is mandated under the

have launched various initiatives to

R e p u b l i c Act No. 6539 to provide

s u p p o r t , promote and uphold the

oversight functions for all types of

p r a c t i c e of microfinance in the

cooperatives. However, despite its legal

Philippines. These are:

mandate to regulate and supervise

Government

Initiatives

on

credit  cooperatives  and  other

Microfinance

cooperatives with credit services, CDA is

not effectively performing this function.

The Philippine Government's response to

CDA has been mostly engaged in

the poverty situation during the 1960s

development activities, which is also

and 1970s was the establishment of

allowed by their present charter. At

directed  credit  and  guarantee

present, CDA still has to regularly supervise

programmes.  These programmes

or examine the books of credit

provided massive credit subsidies to

cooperatives.

bring down the cost of borrowing for the

targeted  sector.  These  credit

At present, there is no single agency that

programmes did not reach the targeted

has supervision over microfinance NGOs.

clientele and instead subsidies were

Microfinance NGOs register with the

captured by large-scale borrowers.

Securities and Exchange Commission

Moreover, due to the availability of

(SEC) as a non-stock, non-profit

cheap funds, deposit mobilisation was

organisation. SEC, however, does not

neglected leading to the weakening of

regulate nor supervise them. In view of

the rural banking sector. Massive

this, microfinance NGOs do not report to

repayment problems occurred because

any oversight agency (whether private

of  the  wrong  perception  that

or public) and hence, there is no single

government funds need not be repaid.

institution that has a complete set of

This resulted in huge fiscal costs for the

relevant information on the financial

government and a failure of the directed

performance of microfinance NGOs.

credit programmes.

In light of this, there is a need to supervise

During the term of then President Fidel V.

the microcredit operations of the credit

Ramos, significant reforms were made

cooperatives and microfinance NGOs

focusing on private sector participation

in order to protect the microfinance

and for the government to only play a

industry. Towards this end, a common

strategic role in creating an enabling

set of performance standards for all

policy environment to empower the

institutions engaged in microfinance is

private sector and the market to work