ricardo p. lirio
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“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. Government-Sponsored Direct Credit Programs. High overhead costs. - PowerPoint PPT PresentationTRANSCRIPT
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“The Philippine Experience in Developing A Vision/Strategy for
Financial Services to the Poor and Adjusting the Regulatory Framework”
Ricardo P. LirioManaging Director
Bangko Sentral ng Pilipinas
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•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
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BanksShy away from granting loans
•High risk•High operational cost
Informal Financing
Institutions
Weak institutional capacity
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of the 75 million Filipinos are living below the poverty lineSource:World Development Poverty Indicators, 2001 (Survey Year 1997)
36.8%
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are engaged in entrepreneurial activities but only one-fourth had access to loans.Source:Annual Poverty Indicators Survey, 1999
3 out of 5 Filipino families
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Philippine population grows by 2.36% or by 1.7 million persons a year.
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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
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Financial and Market Reforms
•Lifting of interest rate ceiling•Liberalization of licensing and branching of banks
Intensified competition
More products and services
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Mandated Credit Allocation of Loanable Funds
• PD 71725% for agri-agra loans(10% for agrarian and 15% for agricultural loans)
• R.A. 6977 as amended by R.A. 82296% for small enterprises
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Agency under the
Department of
FinanceCreated under Administrative Order No. 86 in
1993
Rationalize and
optimize government credit
programs
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“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
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Greater role of the private sector MFIs in the provision of
financial services.
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Provide a financial and credit policy environment conducive to the effective and efficient functioning of the financial markets
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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.
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Implement capacity building program for MFIs
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Social Reform and Poverty
Alleviation Act (1997)
Executive Order 138
(1999)
Agriculture and Fisheries Modernizatio
n Act (RA 8435)
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•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
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Government Non-
Financial Intermediari
esDirected Credit to the poor
Subsidized Credit Programs
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Complements Executive Order
138Phase-out of agriculture
directed credit
programs
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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”
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Requirements for Granting Unsecured Loans
At least one co-maker
Proof of financial capacity
(documents)
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Sec. 40
Sec. 43
Sec. 43
Sec. 44
Cash flow based lending to the basic sector that should not be covered by traditional loan collateral requirementsMonetary Board may regulate the interest rates imposed on microfinance borrowers by the lending investorsSchedule of amortization of the credit accommodations to the microfinance sector should consider the cash flow of the borrower
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Bangko Sentral ng Pilipinas
272
273
282
Guidelines for implementing the provisions in the General Banking Law 2000
Licensing of Microfinance Oriented Banks
Rediscounting facilities for Microfinance Loans
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Bangko Sentral ng PilipinasMinimum Capital
Requirement Type of Bank Pesos
(Millions)US $
(Millions)Thrift Bank
(within Metro Manila)
325 6.373Thrift Bank
(outside Metro Manila)
52 1.020Rural Bank
(1st,2nd,3rd class) 6.5 .127Rural Bank
(other areas) 5 .098
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Bangko Sentral ng PilipinasReserve Requirement
•Maintain % of deposits as cash, deposits in BSP and government securities
Type of Bank Demand Deposit
Savings Deposit
Thrift Bank 8% + 2%* 6% + 2%*
Rural Bank 7% 2%
*Liquidity reserve =2%
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Bangko Sentral ng PilipinasReserve Requirement
•Serves as liquidity buffer in case of sudden inadequacy of operational funds•Prompts bank to adopt an effective fund allocation system
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Bangko Sentral ng PilipinasLoan Classification and Valuation Requirement
Classification Valuation Requirement
Especially Mentioned 5%
SubstandardUnsecured
Secured25%10%
Doubtful 50%
Loss 100%
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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
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Bangko Sentral ng PilipinasOpportunity Microfinance Bank
(started its operations on August 17, 2001)
Figures as of December 31, 2001
Total Number of Clients Served 8,874
Total Loans Provided
P60.262 million US$1.182 million
Deposits Generated
P12.429 millionUS$.244 million
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Dutch
International Micro Investment (Germany)
20%
Microenterprise Bank(started its operations on November 21, 2001)
International Finance Corporation
(10%)
Netherlands Development Finance
Company (10%)
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Bangko Sentral ng PilipinasCARD 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
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Bangko Sentral ng PilipinasRural Banks under MABS
Figures as of October 31, 2001
Total Number of Borrowers 20,268
Loans Outstanding
P116.717 million US$2.289 million
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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
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•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
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•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
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Government Non-Governmental Organizations
Other Civic
Groups
Philippine Coalition
for Microfinanc
e Standards
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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
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Philippine Coalition for Microfinance Standards
3 Core GroupsPolicy
Advisory Group
Project Support Group
Secretariat
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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
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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
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Microfinance is the cornerstone of the current administration’s fight against poverty.
Lead Agency to Promote Microfinance
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•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
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•National Credit Council•National Anti-Poverty Commission•Bangko Sentral Ng Pilipinas•People’s Credit and Finance Corporation•Cooperative Development Authority•Agricultural Credit Policy Council
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•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
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Differentiate Social from financial Intermediation ProgramsInitiate 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