Ricardo P. Lirio

1. “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

2. Government-Sponsored Direct Credit Programs • 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

3. Private Financial Intermediaries • Shy away from granting loans • High risk • High operational cost Banks Informal Financing Institutions Weak institutional capacity

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

5. Statistics on Poverty 3 out of 5 Filipino families are engaged in entrepreneurial activities but only one-fourth had access to loans. Source:Annual Poverty Indicators Survey, 1999

6. Statistics on Poverty Philippine population grows by 2.36% or by 1.7 million persons a year.

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

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

9. Mandated Credit Allocation of Loanable Funds • PD 717 25% for agri-agra loans (10% for agrarian and 15% for agricultural loans) • R.A. 6977 as amended by R.A. 8229 6% for small enterprises

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

11. National Credit Council Vision of National Strategy for Microfinance “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.”

12. National Strategy for Microfinance Greater role of the private sector MFIs in the provision of financial services.

13. National Strategy for Microfinance Provide a financial and credit policy environment conducive to the effective and efficient functioning of the financial markets

14. National Strategy for Microfinance 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.

15. National Strategy for Microfinance Implement capacity building program for MFIs

16. National Strategy for Microfinance Agriculture and Fisheries Modernization Act (RA 8435) Social Reform and Poverty Alleviation Act (1997) Executive Order 138 (1999)

17. Social Reform and Poverty Alleviation Act • 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

18. Executive Order 138 Government Non-Financial Intermediaries Directed Credit to the poor Subsidized Credit Programs

19. Complements Executive Order 138 Agriculture Fisheries Modernization Act Phase-out of agriculture directed credit programs

20. 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”

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

22. General Banking Law 2000 Cash flow based lending to the basic sector that should not be covered by traditional loan collateral requirements Sec. 40 Monetary Board may regulate the interest rates imposed on microfinance borrowers by the lending investors Sec. 43 Schedule of amortization of the credit accommodations to the microfinance sector should consider the cash flow of the borrower Sec. 43 Sec. 44

23. Bangko Sentral ng Pilipinas Guidelines for implementing the provisions in the General Banking Law 2000 272 Licensing of Microfinance Oriented Banks 273 Circulars Rediscounting facilities for Microfinance Loans 282

24. Bangko Sentral ng Pilipinas Minimum Capital Requirement

25. Bangko Sentral ng Pilipinas Reserve Requirement • Maintain % of deposits as cash, deposits in BSP and government securities *Liquidity reserve =2%

26. 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

27. Bangko Sentral ng Pilipinas Loan Classification and Valuation Requirement

28. 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

29. Bangko Sentral ng Pilipinas Opportunity Microfinance Bank (started its operations on August 17, 2001)

30. International Micro Investment (Germany) 20% Doen Foundation - 20% Dutch Planters Development Bank (40%) International Finance Corporation (10%) Netherlands Development Finance Company (10%) Microenterprise Bank (started its operations on November 21, 2001)

31. 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

32. Bangko Sentral ng Pilipinas Rural Banks under MABS

33. 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

34. Cooperatives • 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

35. Microfinance NGOs • 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

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

37. 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

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

39. 6 Core Principles of the Coalition • The poor needs access to appropriate financial services • The poor can repay loans, can pay the real cost of loans, and can save • Microfinance is one effective tool for the alleviation of poverty • Microfinance institutions must aim to provide financial services to great numbers of poor people

40. 6 Core Principles of the Coalition • Microfinance can and should be undertaken on a viable and sustainable basis • Microfinance non-governmental organizations must develop performance standards that will help define and govern the microfinance industry toward greater reach and sustainability

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

42. National Credit Council • 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

43. Technical Working Group • National Credit Council • National Anti-Poverty Commission • Bangko Sentral Ng Pilipinas • People’s Credit and Finance Corporation • Cooperative Development Authority • Agricultural Credit Policy Council

44. Technical Working Group • 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

45. Differentiate Social from financial Intermediation Programs Initiate reforms that will create a financial system conducive to operations of financing conduits D I E T S 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