Regulators: PH microfinance robust

REGULATORS in the Philippines, regardless of the state of the microfinance elsewhere, insist on the continued robustness of an industry worth some $30 billion globally and around P7 billion within the country’s borders.

While countries like India report fund misallocation and lending scandals in their microfinance programs, no such problems hound the program in the Philippines, the Bangko Sentral ng Pilipinas said on Sunday.

According to BSP Deputy Governor Nestor Espenilla Jr., some very basic things differentiate microfinance as practiced and regulated in the Philippines against that of other countries, notably India’s.

The microfinance business model and regulatory environment in that country “has led to overaggressive expansion,” for instance.

The Indian model delivers microfinance services by for-profit companies funded by wholesale loans from commercial banks or funds raised by the sale of debt notes in international capital markets. This allowed the microfinance program to grow very fast in India, Espenilla said.

“The downside is aggressive focus on returns that has weakened credit discipline and careful selection and preparation of borrowers, a key success factor for sustainable microfinance. In the Philippines, commercial microfinance is directly delivered by retail banks that focus on both savings and credit,” he said.

As for the regulatory aspect, Espenilla said microfinance firms in India are lightly regulated compared to peers in the Philipppines.

“Finance companies in India are very lightly regulated. Also, Indian banks are mandated to provide microcredit which they comply with through wholesale lending to finance companies doing microfinance. In the Philippines, mincrofinance through banks is well regulated to achieve both prudential and consumer protection objectives. In fact, the Philippines has been consistently recognized internationally for the quality of its microfinance regulatory framework,” Espenilla said.

“In the Philippines, microfinance is also not mandated so banks have full flexibility to make a sound credit decision based on proven group and individual lending technologies. The emphasis on savings has likewise enabled banks to have better direct understanding of borrower cash flows.

“Finally, Philippine mincrofinance is targeted to the entrepreneurial poor to support their viable micro-enterprises. Credit is granted based on borrower cash flows. More recently, the robustness of microfinance is being further enhanced by making microinsurance available to protect against unexpected risks,” Espenilla said.

He acknowledged the local microfinance program is not without its share of problems, like for instance the fact that most programs tended to be established in populous and more urbanized places in the country.

This has the effect of leaving out from the program 13 of the 17 provinces considered underbanked or unbanked by the BSP.

Espenilla said the BSP continues to pursue more inclusive financial services for Filipinos down the line no matter where they are in the country down the line.

Thus far, some 200 microfinance banks serve 869,763 micro borrowers around the country for a total loan portfolio of P6.6 billion as at end-June 2010. –Jun Vallecera / Reporter, Businessmirror