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Bangko Sentral data as of December 2004 shows that there are 42 universal and commercial banks, 87 thrift banks, and 764 rural banks (RBs)/cooperative banks (CRBs) in the Philippines. It is estimated that over 50 percent of banking offices of commercial banks are located in the Philippine capital of Metro Manila. In general, commercial and thrift banks in the Philippines are not engaged in microfinance because they have no expertise in handling small loans without any collateral and there is minimal information available on the markets and potential microfinance clients.
Most banking offices of thrift and RBs/CRBs are outside Metro Manila. Offices and branches of RBs/CRBs are widely spread in rural areas. Given this scenario, RBs/CRBs are well placed to provide microfinance services to poor Filipinos. However, many RBs veered away from microfinance, citing high transaction costs and microenterprise lending risks. Informal institutions have emerged to fill the gap in the demand for financial services in rural and urban communities where the formal sector fails to operate or where its services do not meet the needs of low-income clients. The attitude of the formal financial sector was transformed only when the BSP acknowledged and actively promoted microfinance with the passage of the General Banking Law of 2000. As of December 2005, there were 195 banks engaged in microfinance. Four of these banks are microfinance oriented thrift banks and another four are microfinance oriented rural banks. The remaining 187 banks are RBs and CRBs engaged in some level of microfinance operations.
For its part, the government has worked for the creation of a favorable environment for microfinance through the NCC and the CPIP. Likewise, the Bangko Sentral ng Pilipinas (BSP) has issued various circulars supporting the creation and strengthening of MFIs. The favorable environment has contributed to the rapid growth of outreach of MFIs as well as the strengthening of the microfinance programs of RBs/CRBs. With this, it is expected that participation of RBs/CRBs will increase significantly in the next few years as current players expand their microfinance operations and new RBs/CRBs will be encouraged to start microfinance operations in their banks.
NGOs that have reached a sizeable scale of operations in microfinance have either established formal financial institutions or are planning to establish one. Center for Agriculture and Rural Development (CARD) established CARD Bank in 1997. Opportunity Microfinance Bank (OMB) was formed in 2001 by microfinance NGOs under the Alliance of Philippine Partners in Enterprise Development (APPEND) network. Negros Women for Tomorrow Foundation (NWTF) opened Dungganon Bank in 2005. Taytay sa Kauswagan, Inc. (TSKI) began operating Kauswagan Bank in 2005. TSPI Development Corporation already submitted their application for a bank license to the Bangko Sentral ng Pilipinas (BSP). These banks were established to offer microfinance clients with a wider range of financial services, including savings. Nevertheless, it is likely that these NGOs will continue to co-exist with their established banks as mutually supporting institutions.
