The Philippines ranked second overall in microfinance environment among all the developing countries in the world but still inferior in investment climate, according to The Economic Intelligence Unit index.
In a global microscope on the microfinance business environment for 2010, which is an index and study by The Economist Intelligence Unit, the Philippines enjoys the best overall regulatory environment for microfinance alongside Cambodia.
The report showed that for the second year running, the Philippines, Peru and Bolivia topped the Economist Intelligence Unit’s Global Microscope index.
Peru retained its position as the global leader, scoring 74.3 out of 100, similar to last year’s score, the Philippines moved up as second placer with a grade of 71.8 as it swapped positions with Bolivia, which came in at third with a score of 69.6.
On regulatory framework, the Philippines was top among all the developing countries alongside Cambodia and Pakistan.
This means that the Philippines has a framework in place that permit banks, non-bank financial institutions, nongovernment organizations (NGOs) and cooperatives to offer microfinance services to lower income communities.
It also has limited the extent and impact of state involvement in the microfinance sector.
In contrast, countries such as Thailand, Vietnam, Sri Lanka and Indonesia wrestle with both regulatory restrictions and significant state intervention that impacts competition and market development.
On institutional development, the Philippines ranked fourth below Bolivia, Ecuador and Peru, which gained similar scores.
The report outlines the findings of the Economist Intelligence Unit’s in-depth analysis of the microfinance business environment in 54 developing countries.
The global microscope on the microfinance business environment for 2010 provided a basis for benchmarking business conditions for privately provided microfinance in countries around the world.
The 2010 index covers August 2009 to May 2010.
The index that underlies the report allows countries and regions to be compared across three categories: regulatory framework, institutional development and investment climate.
Investment climate
Regarding investment climate, however, the Philippines ranked No. 18.
The Economist attributed the ranking to local commercial banks having withdrawn the few attempts made to provide retail microfinance services, preferring to act as wholesale funders to the sector instead.
It said that although there are no regulatory restrictions on the ability of microfinance institutions (MFIs), whether banks or NGO-MFIs, to accept debt investment from international investors in foreign currency, rural banks are prevented from taking foreign equity investments.
But the country later improved after the Bangko Sentral ng Pilipinas (BSP) allowed rural, cooperative and thrift banks to sell authorized micro-insurance products.
These institutions can be licensed as micro-insurance agents, and can only sell policies up to P190,000 under certain provisions.
This was a landmark move since banks are not allowed to directly engage in selling insurance policies in the Philippines. Other developments include the BSP’s move to ease the requirements for micro lending especially to farmers.
The survey conducted by The Economist was funded by Multilateral Investment Fund, a member of the Inter-American Development Bank Group; CAF (the Andean Development Corp.); and The Netherlands Technical Assistance Trust Fund at the International Finance Corp. –Katrina Mennen A. Valdez, Reporter, Manila Times
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