Microfinance groups push tax-perks bill

The national network for micro-finance institutions (MFIs) is seeking the passage of a bill that would allow to the government to collect gross revenues tax in lieu of all other national and local taxes to boost microlending in the country. In a briefing, Ruben de Lara, Microfinance Council of the Philippines Inc. (MCPI) president, said the group is pushing for the passage of the bill on Microenterprise Development Institution (MEDI) of 2008, which proposes a tax rate of 2 percent on microfinance institutions’ gross revenues in lieu of all other national and local taxes.

De Lara said the government would not loose revenues from this measure as it will even rake in an additional P11 million annually from the proposed tax rate.

He said the bill would encourage its MFIs—which are mostly nongovernment organizations—to adopt a more holistic approach in eradicating poverty, not only through microenterprise lending but also through housing, education, healthcare, micro-insurance and other non-financial value-added services.

“Microlending alone is not enough to eradicate poverty,” de Lara said.

The bill will also provide a legal framework for the regulation of MFIs, since MEDI will be responsible for accrediting them.

Under the proposal, MEDI will put up an initial fund of P10 million so it will not have to take in deposits to fund its lending activities.

According to de Lara, MCPI has a total of 48 members including NGOs as well as thrift banks and rural banks as associate members.

The group has a total loan portfolio of P9 billion and it was able to extend loans worth P1 billion last year, with interest rates ranging from 2.5 percent to 3 percent a month.

“We have excess liquidity in terms of funding sources,” since MFIs have enough funding sources from banks that offer wholesale lending that carry interest rates of 6.25 percent to 8 percent, the MCPI official said.

De Lara said the recent calamities that hit the country affected P480-million worth of loans to 56,000 microfinance clients of the total 500,000.

The Bangko Sentral ng Pilipinas (BSP) has been promoting microfinance, which is recognized as a legitimate banking activity, for the development of sound and sustainable microfinance operations.

Microfinance is a service exclusively for the poor, whose income fall below the poverty line, so they can avail loans for as low as P3,000.

Moody’s Investors Service had reported that microfinance loans are usually unsecured and do not require the submission of financial statements and income tax returns like in the case of larger borrowers.

Microborrowers’ small scale makes them vulnerable to economic shocks, hence, their credit quality could be considerably weaker than that of traditional loans.

Moody’s said the bad loans ratio of rural and cooperative banks at end-March was higher at 10.6 percent compared with the universal and commercial banks’ 4 percent.

However, microfinance delinquencies can vary significantly and are relatively low for some lenders. This implies the importance of knowing the borrowers and financing production as opposed to consumption. –MARICEL E. BURGONIO SENIOR REPORTER, Manila Times