Philippines bags #2 spot as world’s best in microfinance

RP world’s second best in microfinance
By Ted P. Torres (The Philippine Star)

MANILA, Philippines – The Philippines has been ranked second best worldwide in the microfinance business, and the leader in the Asia Pacific region.

Based on a study conducted by the Economist Intelligence Unit (EIU), the business information arm of The Economist Group that publishes The Economist, the Philippines outperformed Bolivia slipping to third overall.

[Propinoy Ed.: What is microfinance?]

From Wikipedia: “More broadly, it is a movement whose object is “a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.”[1] Those who promote microfinance generally believe that such access will help poor people out of poverty.”

Peru remained in top spot, while Ghana took fourth overall followed by Pakistan. The next five nations that served as models for microfinance business were Ecuador, El Salvador, India, Colombia and Kenya.

The study, entitled [sic. titled] the Overall Microfinance Business Environment, reviewed 54 countries and evaluated each country’s microfinance business environment in terms of its regulatory framework, investment climate and level of institutional development. Interviews with microfinance industry leaders and stakeholders along with secondary information were analyzed to come up with the rankings.

In terms of regulatory framework, the Philippines, Cambodia and Pakistan shared top position. The three Asian countries were followed by Peru, Bolivia, Ghana, Kenya, Kyrgyz Republic and Uganda.

In terms of institutional development, the Philippines topped all Asian nations at sixth overall behind Bolivia, Ecuador, Peru, El Salvador, and Nicaragua.

However, looking at the rankings in terms of creating a healthy investment climate for microfinance, the Philippines only ranked 18th overall. Chile, Turkey, Bosnia, Morocco and Peru were the five best performers in that category.

According to the EIU, one of the key factors that catapulted the Philippines in the second spot past Bolivia was the recent approval of the Bangko Sentral ng Pilipinas (BSP) for rural and thrift banks to sell authorized micro-insurance products.

The BSP also issued a circular that sets the rules for accrediting rating agencies for microfinance, which, according to the EIU, is a move to encourage local microfinance institutions to be externally rated.

The country’s central bank followed this up by issuing rules on the extension of housing microfinance and eased requirements for agricultural microfinance. The entry of major commercial banks and telecommunications companies into microfinance is also seen as a contributory factor towards the advancement of the sector.

The BSP was the leading advocate for institutional microfinance at the time when only non-government organizations (NGOs) were advocating informal microfinance.

The signing into law of the Credit Information Systems Act (CISA) and the subsequent approval of its implementing rules and regulations (IRR) are also positive developments.

But industry sources revealed that the failure to fully implement CISA kept the Philippines from being named the world’s leader in microfinance.

“That was the single biggest negative factor that cost the Philippines the opportunity to unseat Peru in top spot,” they said.

The CISA, which mandates all lending institutions to submit both positive and negative credit data, allows for better and easier credit information sharing among financial institutions for more secure and credible lending.

The Bankers Association of the Philippines (BAP) Credit Bureau is one of the more credible private bureaus utilized by the country’s banking industry. It was originally established to service the universal and commercial banks but has since opened its doors to other banking systems.

Meanwhile, the EIU said that the adoption of a national strategy for microfinance by the Philippine government in the late ’90s opened the floodgates for the development of microfinance.

NGOs flourished giving birth likewise to microfinance institutions (MFIs), which includes rural banks.

“There are no regulatory restrictions on the ability of MFIs, whether banks or NGO-MFIs, to accept debt investment from international investors in foreign currency. However, rural banks were prevented from taking foreign equity investments,” the study said.

The BSP required all regulated MFIs to disclose effective interest rates and to be audited by an external auditor. However, NGO-MFIs, which are among the largest providers in the country, are unregulated and thus not obligated to disclose information under these provisions.

“Although still very much credit-oriented, MFIs in the Philippines are able to offer a variety of services. Regulated MFIs can accept deposits, and those linked to the international payments system can accept remittances.

Clients in the Philippines have a wide choice of service providers, including local and national institutions,” it added.

Two of the country’s leading telecommunications companies have since joined the microfinance bandwagon by introducing mobile banking services. And in 2009, the Bank of the Philippine Islands (BPI) and Globe Telecommunications (Globe) formed a joint venture to launch mobile-oriented retail microfinance.

The ProPinoy Project

  • Mike

    I am just wondering saan kaya nakuha yung mga data na nagsasabi na we are number 2. I cant see it in actual, many are f$#<ing jobless in the philippines. Well kung totoo nga congrats to philippines.

  • UP nn grad

    to bert: Had you taken a few minutes from your busy schedule to talk to the very poor, you would have found out the answer to your question about GMA popularity.

    But once Noynoy sends Trillanes and some of the 300 to arrest Gloria-Arroyo (and Corona, too — so Corona does not issue a Tempor-Restraining-Order), then all will be settled, hindi ba?

  • KG

    http://kyotoreview.cseas.kyoto-u.ac.jp/issue/issue3/article_298.html

    The “Bombay 5-6”: Last Resource Informal Financiers for Philippine Micro-Enterprises

    many still rely on 5/6 from the laborer to the pensioner.They all surrender their atms to their creditors.so you won;t be surprised of seing people withrawing from the atm duiring payday using multiple atm cards.

    speaking of bombay in India as reported in walll street journal:

    India’s Microlenders Still Struggling

    http://blogs.wsj.com/indiarealtime/2010/10/25/indias-microlenders-still-struggling/

    India’s microlenders this week are anxious to see whether they will actually be allowed to start distributing and collecting payments for the tiny loans they make to poor borrowers.
    Early reports from the field Monday suggested they were still sometimes being blocked from doing business in the state of Andhra Pradesh.

    They were effectively blocked from managing their loans to millions of borrowers in the southern state after it introduced new restrictions on the industry in response to a spate of more than 30 suicides by borrowers.

    A state court has put the implementation of the new rules on hold as it waits to hear from the microfinance institutions who say they need time to comply with the rules and that the state is not allowed to impose new rules on them as they are regulated by the Reserve Bank of India.

  • Bert

    UP n, was that the reason why the poor gave her a very negative ratings in the surveys?

  • UP nn grad

    USA’s USAID tracks where its aid-money goes, and it reports that about a quarter of its money does reach the extremely poor.
    ————
    Among the eight microfinance institutions that applied and reported on the Poverty Assessment Tools, the average share of Funds Benefiting the Very Poor (FVP) is estimated at 28.5 percent, up from 16.3 percent in FY 2007. … For the 14 enterprise development programs that applied and reported on the Poverty Assessment Tools, average FVP is estimated at 26.0 percent, up from 20.5 percent in FY 2007 …

    Now USAID is intended to donate — USAID is not an Ayala bank extending credit (but at a net positive rate of return) to the farmers of Mindanao or Samar.

    —————

    GMA did very well in reaching the poor when Arroyo administration instituted the 4P’s program (aka CCT). Not micro-finance, but cash for the very poor (which, if they can do it, they can use to do buy-and-sell with a small sarisari store). Of course, 4P/CCT is so the extreme poor do not use their children as laborers but keep the children in school.

    ————–
    But here is the question — when will Noynoy administration show more effort and accomplishments about one of its campaign promises — to create jobs for Pinoys in Pilipinas????

  • vangie

    hooray for our country! its so nice to hear that good news for a change i’m tired of reading those ugly news about those veryyyyyyyyyyyyyy fat bonuses and allowances specially those in the government and gocc that are not doing anything while many people are hungy…………….