The Consultative Workshop began with the introduction of participants. Afterwards, Ms. Lalaine Joyas of the Microfinance Council of the Philippines (MCPI) briefly explained the background of the consultation.  The Philippine Country Profile on Microfinance, she explained, was primarily an initiative of the Banking with the Poor (BWTP) network and the Foundation for Development Cooperation. MCPI’s engagement in preparing the country profile was made possible by TSPI Development Corporation.

At this point, Ms. Joyas called on Ms. Jesila Ledesma, Director of the Social and Business Development Services of TSPI, to welcome the participants to the workshop. Ms. Ledesma, in her short address, reminded all the participants that as the stakeholders in the microfinance industry, they all belong to one family. She hoped that the day’s event would help each one to take stock of where the microfinance sector stands presently. Moreover, she expressed hope that the activity will help them see how all those involved in microfinance can progress in alleviating poverty in the country. Finally, she exhorted everyone to actively participate in the workshop in order to take maximum advantage of the consultation.

After Ms. Ledesma’s message, Ms. Frances Barns, Programme Manager of the Foundation for Development Cooperation, gave a background on BWTP and the Philippine Country Profile project. BWTP, she explained, is a regional network of organizations committed to improving the quality of life of the poor in Asia by promoting and facilitating access to credit and financial products and services. It was initiated in 1991 by the Foundation for Development Corporation. She said that the network found that lack of credit was a major obstacle in poverty reduction and growth in the Philippines. The goals of BWTP, she said, are very similar to other microfinance organizations, and these are to increase outreach, improve efficiency and attain sustainability. The methods to achieve them involved information sharing among microfinance institutions (MFIs) and capacity building. She added that an important aspect of the latter is action research, whose aim is to spread information on issues and other concerns related to advocacy and policy dialogues.

The Asia Resource Center for Microfinance (ARCM) was established by the BWTP network. Current activities of the ARCM include the development of Microfinance Country Profiles which focus on the best practices, innovations, partnerships in the country in focus; and supporting research which include the following studies: increasing outreach and sustainability of microfinance through ICT; policies and regulations to expand electronic banking for the poor; remittances and microfinance; microfinance and innovative partnerships; and microfinance in post-crisis situations.

Ms. Barns added that BWTP’s future plans have three phases. In Phase 1, it plans to expand its network and research activities by identifying more areas of interest for the BWTP members. Phase 2 will involve capacity building programs while Phase 3 will cover the design, supervision and monitoring of pilot projects and testing new approaches for products and partnerships.

At the end of Ms. Barns’ presentation, Ms. Joyas of MCPI presented the Workshop’s objectives and process. She stated that the objectives of the Workshop were: first, to get useful comments, updated facts and information that will help TSPI, MCPI and BWTP improve the country profile; second, to validate issues and raise other relevant issues worth mentioning in the country profile; third, to enable a participatory approach in the preparation of the country profile by consulting with the participants and by getting comments and feedback from other MFIs.

The country profile, she explained, has three main parts. The main part contains the overview of the microfinance sector while the second part lists the organizational or institutional profiles of the major players in the microfinance industry in the Philippines. The last part discusses the current issues and challenges that the sector faces. The structure of the report, she added, was based on a template prescribed by BWTP. In essence, the country profile is largely a compilation of existing literature on the Philippine microfinance using new studies, profiles, reports and some secondary sources of information. The country profile therefore, is not a primary research.

Going to the consultation process, Ms. Joyas explained that the content of the Philippine country profile would be presented by thematic area. After a brief presentation of the main points of each area, a plenary discussion would follow. The discussion should aim to: validate the content of the profile, particularly the issues and facts provided; substantiate or simplify the discussion on certain topics and issues; and to update facts and information, keeping in mind that the audience is the public at large. Ms. Joyas also reminded everyone that though the workshop discussion serves as a good opportunity to bring up certain relevant issues that the microfinance sector is facing, the workshop, however, is not the venue for resolving those issues.

Mr. Edgardo Garcia, Executive Director of MCPI, facilitated the discussion of the content of “The Philippine Country Profile on Microfinance”. The outline of the presentation followed the chronology of topics as they appear in the report:  the need for microfinance; the microfinance players; competition and other challenges; regulation and other government initiatives, practices and innovations; and other issues.

The relevant points in this section following Mr. Garcia’s presentation were as follows:

The Philippines’ current population stands at 85 million. Poverty estimates by the National Economic Development Authority’s (NEDA) in the year 2000 reveal that the proportion of families with per capita incomes below the poverty threshold is 28.4% while the poverty incidence of the population for the same year is 34%. In absolute figures, there are about 4.3 million households considered poor or 26.5 million poor Filipinos as of the last census in 2000. Only one third of these poor households or some 1.5 million households, according to estimates, are being served by the microfinance industry. The range of the estimates from the data culled from the Bangko Sentral ng Pilipinas (BSP), People’s Credit and Finance Corporation (PCFC) and MCPI is between 1.3 million and 1.6 million. This indicates that approximately 2.9 million households are not yet served by the microfinance industry at present.

Comments/ Reactions/Suggestions:

(a) One of the participants suggested that the figure for households served by microfinance be broken down by the major types of microfinance players: i.e. the report should indicate how many clients are being served by the microfinance NGOs, banks, and cooperatives. Mr. Garcia said that it might be difficult to give exact outreach figures for each group since many borrowers of PCFC (composed of rural banks/cooperative rural banks, cooperatives and NGOs) are also members of MCPI. As of 2005, MCPI has an outreach of 900,000 members, PCFC has 1.6 million and the rural banks are serving about 500,000. There has been no attempt to remove the double count and find out the collective number served by each major grouping.

(b) Another participant asked where the data for the number of poor was derived. Mr. Garcia explained that the figures were from NEDA based on the Family Income and Expenditure Survey (FIES). It was also clarified to the body that there are regional differences in estimating poverty threshold. In Metro Manila, he said that a family of 6 should have a monthly income of P12,000. There were some objections with regard to the amount. A participant from NEDA stated that the figure of P12,267 is the annual per capita threshold for a family of five or 6. Therefore, for a household of 6, the poverty threshold level would be around P60,000. Mr. Garcia stated that the figures cited in the Philippine Country profile are all official statistics.

(c) There was some disagreement on whether to use the figure 2.9 million, as the number of poor households that are not yet served by the microfinance industry. Someone commented that not all these poor households go into business. So far, no classification or categorization of the 2.9 million poor households has been done. However, someone interjected that the goal of microfinance is to help the poor even if not all the poor have micro-enterprises or need microfinance services or products. Mr. Garcia disclosed that the Center for Community Transformation (CCT), another MFI, has initiated contact with the poor living under the bridges and are now assisting these families by giving food rations.

(d) Another participant pointed out that there is no clear-cut distinction between the micro-enterprising poor and those who are not. If categories will be strictly employed and the clients of MFIs will be defined as the enterprising poor, then some poor households would be excluded. She said that the poor still need microfinance even if the loans they get are not necessarily used for the micro-enterprise. The more flexible microfinance instruments are making waves now because these do not specify where the loans are to be used so long as the poor are able to pay it. 

(e) Mr. Garcia also cited a study made by the Philippine Business for Social Progress (PBSP) about 10-15 years ago to define who the poor are. Using a resource based in terms of income, their findings were that the poorest were the tribal peoples, followed by the upland farmers, landless tenants, municipal fishermen (those using hand-mechanized boats), small farm cultivators and the least poorest are the urban poor (those served by microfinance).

(e) To resolve the issue, the body came to an agreement that instead of saying that the 2.9 million are the number of families not yet served by microfinance, the report should indicate that this is the potential market that can be served by the microfinance sector.

* There are three (3) major providers of microfinance services in the Philippines: NGOs, rural banks, and cooperatives. These are institutional providers although there are other players such as the institutional lending investors and the itinerant vendors (or bombays).

* It is estimated that there are around 300 NGOs that are involved in some form of delivery of micro-credit to the poor. Usually, these NGOs are multi-purpose NGOS, that is, they provide health services, organizational and social services, including micro-credit for the people that they serve. From PCFC data, there are only 38 NGOs that are seriously into microfinance. NGOs---as a group---are the leading MFIs in terms of outreach and portfolio.

* As of December 2002, 182 rural banks and cooperative rural banks are engaged in microfinance. Most of these rural banks have 1,000 to 3,000 microfinance clients.

• * Around 50 cooperatives are into microfinance operations and most of these are community based or open type savings and credit cooperatives. In terms of number, there are 66,000 registered cooperatives. However, only 28,000 of these are functioning and of this number only 3,000 are properly operating.

* As of December 31, 2004, the major microfinance providers with their amount of gross loan portfolio and number of active borrowers were: TSPI Development Corp., Taytay sa Kauswagan Inc. (TSKI), Center for Agricultural and Rural Development Inc. (CARD NGO), Negros Women for Tomorrow Foundation (NWTF), CARD Bank Inc., Kabalikat para sa Maunlad na Buhay, Inc. (KMBI), CCT Credit Cooperative, New Rural Bank of San Leonardo Inc., ABS-CBN Bayan Foundation Inc., and Opportunity Microfinance Bank Inc. (OMB).

At present, TSPI’s loan portfolio is close to 600 million; TSKI’s portfolio as of 2004 was at 413 million but is now also at 600 million. CARD has two institutions and for the purpose of the profile, the operation of the NGO was separated from the bank. CARD-NGO is the third in terms of portfolio followed by NWTF, CARD Bank, KMBI, CCT, New Rural Bank of San Leonardo, ABS-CBN Bayan and Opportunity Microfinance Bank.

Comments/ Reactions/Suggestions:

The suggestions and comments from the body after a long interpellation were as follows:

• Put the figures in US$

• Update the data using 2005 figures, if possible

• Validate the data regarding the major players. Someone commented that the NGOs may be the biggest in terms of outreach but the rural banks are generating the largest portfolio.

• There was also a question raised regarding the inclusion of teachers’ salary loans in the figures of the rural banks. This could be the reason why the rural banks’ portfolio is bigger than that of NGOs.  It was suggested that figures for rural banks be verified by getting the exact figures from the BSP.  Aside from loan size, the BSP employs other criteria in order to assess whether the rural banks’ loans fall under the definition of microfinance. As of June 2005, the cumulative microfinance loan portfolio of banks stands at 3.5 billion.

Funding

•People’s Credit and Finance Corporation (PCFC)

•Overseas Development Assistance (ODA) and technical assistance sources: The United States Agency for International Development (USAID), Australian Agency for International Development (AUSAID), United Nations Development Programme (UNDP), ADB International Fund for Agricultural Development (ADB-IFAD), European Union (EU), Canada Fund, and World Bank

•International organizations that provide wholesale funds: Plan International, Oikocredit, CARE Philippines, World Vision, and Catholic Relief Services (CRS)

•Local organizations that provide wholesale funds: Peace and Equity Foundation (PEF), Foundation for Sustainable Societies, Inc. (FSSI) and the Federation of People’s Sustainable Development Cooperatives (FPSDC)

Support organizations

•Bangko Sentral ng Pilipinas

•Land Bank of the Philippines

•National Credit Council – Department of Finance

•National Anti-Poverty Commission

•Microfinance Council of the Philippines

•Alliance of Philippine Partners for Enterprise Development

•Rural Bankers Association of the Philippines

•Project based initiatives: Microenterprise Access to Banking Services (MABS), Credit Union Empowerment and Strengthening (CUES), Credit Policy Improvement Program (CPIP)

•Asian Institute of Management – Center for Entrepreneurship

•Punla sa Tao Foundation

Comments/ Reactions/Suggestions:

a) Include National Livelihood Support Fund (NLSF), Small Business Guarantee and Finance Corporation (SBGFC), Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), National Confederation of Cooperatives (NATTCO) and Bank of the Philippine Islands (BPI) under Funding organizations

(b) Include the regional councils, such as the Mindanao Microfinance Council, Bicol Microfinance Alliance, and Central Luzon Association of MFIs under Support organizations

(c) Classify or categorize the support organizations into councils or regional networks, policy, promotion and advocacy capacity building organizations in order for the readers to see that all areas have been covered.

(d) There are layers in the funding side. It may be better to put the volume of fund contribution beside the organizations mentioned since not everyone will read part II. This would help give more credibility to the report and show the reader how substantive is the institution’s support. Some organizations give support one at a time only. To illustrate, the information should mention, for instance, that Microenterprise Access to Banking Services (MABS) allocated so many billions for a 10-year program; Landbank has x amount of portfolio; and so forth.

(e) It may also be good to point out the relationships between the microfinance players. For example, the report can also explain the relationship between the People’s Credit and Finance Corporation (PCFC) and Microenterprise Access to Banking Services (MABS), to show that the sector is not highly dependent on subsidy. This would mean giving the categories for each institution and showing upfront that these are operating under market-based settings.

(f) The alternative is also to just point out the deviants to that policy. In general, most of the microfinance institutions are working under market conditions. There are certain institutions that have asked the government to operate under less than market interest rates. But these organizations that give subsidized credit are very minimal. Rather than reporting whether each institution is working or not working under market conditions, it would be better to mention only those that do not.

(g) All the government financial institutions (GFIs) and government owned corporations (GOCCs) submit a report on their work in microfinance. The People’s Credit and Finance Corporation (PCFC) studies the terms and conditions, their documentary requirements and so on to see which ones are following the national status. The report can also make use of the data from the National Anti-Poverty Commission (NAPC), which are also provided to PCFC and to the Congress and Senate. MCPI could write a letter to ask if the data used in the State of the Nation (SONA) reports could be published in the country profile.

(h) However, if the issue is about the sustainability of the organization, it may be better to mention this under the section on challenges rather than under Part 1 of the profile. If the organizations are all working under market-based conditions, this information will show that the industry is heading toward self-sustainability.

(i) It is also important to mention that savings are being used more and more as part of the portfolio. In aggregate terms, the figure among members of MCPI is already approaching 46% of the portfolio. We should include savings as a major source of funding and then discuss what to do with it as a source of funds under the Challenges/Issues section.

• Rising credit pollution among MFI clients
• Result of the growing number of microfinance providers
• Clients borrowing from multiple MFIs

Comments/ Reactions/Suggestions:

(a) The National Credit Council is supporting a bill to establish a Credit Info Bureau, which could help solve the problem of credit pollution. The bill is now being deliberated in the Senate and House of Representatives. It may be good to summarize the bill and put it in the Annex of the country profile.

(b) There was a request to put also the top 20 rural banks and their portfolio.

(c) Under issues and challenges, the microfinance sector could also rethink the definition of microfinance. Prof. Chua stated that the sector has defined microfinance traditionally. Some MFIs believe that their purpose is simply to finance micro-enterprises. However, impact studies show that maybe as much as 70% of micro loans go into household consumption. Therefore, microfinance has to redefine its industry; it is not microenterprise financing per se but household financing. This would expand the potential number of clients to include those who avail of personal loans and this would also redefine the potential competition. Personal loans are really more of salary loans for low-income groups. This may be the development in the future.

The point is that eventually, institutions giving salary loans may actually be into microfinance. How you define the industry and the market will help define the competition. The reality today is that there is a trend towards personal and household financing. Financial services go beyond savings and loans; they cover all the household’s financial transactions and therefore, a different business model has to be thought of.

d) The BSP has recently approved that agri-loans could now qualify as microfinance. Micro-housing as part of microfinance is still under evaluation. It is good to study the issue of broadening the concept of microfinance as covering not just microenterprise lending.

e) Part of the challenge to microfinance institutions is to go beyond the concept that remittances are only for overseas workers. If a particular household financing were studied, it would show that a good part includes remittances not only from relatives overseas but also from other provinces. The linkage between remittances and microfinance for the poor needs to be further studied.

f) It was mentioned during the workshop that there is a need to discuss the trend now of mainstream players going into the microfinance sector

1. Good governance of financial institutions
2. Product development skills of MFIs
3. Spread of credit pollution
4. Building the capacity of MFIs (very small range of qualified MFIs that commercial banks would like to lend to. There are too few good players.)
5. Lowering the cost of delivering microfinance services
6. Using the latest innovations in technology for more cost-efficient operations

Comments/ Reactions/Suggestions:

(a) On credit pollution

It has been a common observation that despite the number of players or MFIs the market does not see a lowering of interest rates. In answer to the question, Prof. Chua posed another question: How have the MFIs been dealing with the competition in the field or on the ground? It seems that there are still enough variables to play with so the price or cost of loans is not yet played with. It would be the last one to be changed. MFIs have been adding other features to their programs such as micro-insurance, Philhealth, and so on, to differentiate themselves among the competition. It could be that competition is not yet that stiff and MFIs are left with more levers of differentiation that pricing is not yet being tweaked.

In reply, another participant countered that the mere fact that MFIs are reaching only a third of the market means that there are a lot of poor people that MFIs have not reached. They have more options.

Mr. Garcia stated that the observation might be valid since the concentration of MFIs is in Central Luzon, Metro Manila area, and Southern Tagalog where 67% of the country’s GDP is produced. Hence, it seems that the MFIs are also concentrated here in terms of outreach and portfolio. Thus, credit pollution may be due to MFIs operating in similar areas and not because of an already saturated market.

The People’s Credit and Finance Corporation (PCFC) could give the saturation map where certain indicators would show where MFIs are weakest and where they are strongest. MFIs are not widely dispersed, as they should be. They are only in areas where economic business is highly brisk and not as risky. It would be good to show the distribution of poor households against active borrowers in the various areas such as the National Capital Region (NCR), the Autonomous Region Of Muslim Mindanao (ARMM), and so on. In summary, credit pollution is strong in certain areas but not in all.

(b) Regarding capacity building of MFIs, it was also observed that one big MFI raised their interest rates because it needed to raise income for expansion. Another reason it put up interest rates is to reach saturation quickly and sustainability in new areas.

A factor to be considered also in expanding the outreach of MFIs are the costs and risks in going to hard–to-reach areas. The challenges range from lack of infrastructure to market demands to the lack of a banking system. Most of the MFIs offer single product, single segment target market such as the Association for Social Advancement Program (ASA), Grameen, and so on.  If an MFI went to an island with only 7,000 inhabitants to do pure targeted microfinance for the poor and only a certain percentage of the population availed of microfinance, it may not be viable. One needs a broader range of products. In this case the rural banks may be able to offer a range of services.

(c) On building the capacity of MFIs

Most of the MFIs are heterogeneous and can be classified into two. The big players are those with over 100,000 to 200,000 outreach while the small ones are those serving only 5,000 or 10,000 clients. We do not see any medium MFIs. The concern is the capacity for growth of the small players. In the next five years, we should see the big players moving from 100,000 to one million. However, the majority remains as a single unit operation, with borrowers of 5,000 to 10,000. Their growth targets may be limited only to 100,000 although there is no stopping them from aiming higher. In the Philippines, we have not seen any MFI who can grow in the same magnitude of some MFIs in other countries, such as the case of an MFI that grew from zero to 500 to one million. In Sri Lanka, an MFI was able to grow to serve 500,000 in 15 years. The question is, “What is holding the country’s microfinance industry back?” Perhaps, a different model can be looked at. Mr. Garcia suggested that the internal capacities of MFIs in relation to expansion be further studied.

(d) On regulating the microfinance industry

A participant proposed that two things be studied well: First, there is a need to look at the regulations governing NGOs handling microfinance. There is no government agency handling these entities. This could be an angle where performance or progress of the NGOs can be further examined. Second, there is a lack of information among players vertically and horizontally. A rural bank should be able to know how it fares among the other rural banks. There is a need for a clear set of performance standards for MFIs.

(f) Insert as item no. 5 or another item the issue of credit worthiness. Building an infrastructure on credit information will have a big impact on lowering costs and consolidating the issues in the market. The fact that there is an ongoing deliberation on the establishment of a credit bureau is a positive development.

(g) The broader issue is capital for expansion if the industry is to grow at a certain rate. How soon can the big players exceed their debt-to-equity ratio? For instance, if the industry is looking at a growth rate of 60% per annum, MFIs will need much more than debt-to-equity funds. The government also needs to get its act together on the wholesale side. If we are talking of cheaper money for wholesale, there may be no need for regulation as it may discourage private sector participation. Grameen Foundation and some others use their money and then they ask the local banks or some of the multinational banks to leverage it. 

(h) There was a question from the People’s Credit and Finance Corporation (PCFC) if it would be relevant to include wholesale funders in microfinance. There are many good players in the field but if the industry is not able to homogenize the players, there will be a problem. Competition among wholesale funders is one of the challenges that the sector will be facing in the next few years.  The whole issue of capital base of the MFIs has to be resolved if the growth rates are to be achieved. Related to that, however, is the issue of performance standards when additional loans and equity are discussed. With regard to regulation of NGOs, there were participants who believe that the best way to make an industry stagnate is to regulate it. They think that regulation could mean enforcing standards, which may stifle innovations. Thus, there is a need to balance the use of prudential regulations, particularly among NGOs.

Chronology

1990

• The Cooperative Development Authority (CDA) was established
• The Cooperative Code of the Philippines was enacted

1993-1995

• The National Credit Council (NCC) was created
• The People’s Credit and Finance Corporation (PCFC) was established
• PCFC received ADB-IFAD funds for on-lending to MFIs

1997

• The Credit Policy Improvement Project (CPIP) was implemented to strengthen the institutional capacity of NCC
• NCC published the National Strategy for Microfinance 

2000

• General Banking Law (GBL 2000) was enacted to include provisions that mandate the formulation of appropriate rules and regulations for microfinance operations

2005

• NCC launched the Performance Standards for all types of microfinance institutions

Regulation of Banks Engaged in Microfinance

• The Bangko Sentral ng Pilipinas (BSP) regulates all banking institutions including those engaged in microfinance
• General Banking Law of 2000 (GBL 2000) gave recognition to the peculiar characteristics of microfinance
• Sections 40, 43, and 44 of the GBL 2000 mandated the formulation of appropriate rules and regulation for microfinance operations

The Bangko Sentral ng Pilipinas (BSP) Circulars on Microfinance

• BSP Circular 272 (issued in January 2001)
• BSP Circular 273 (issued in February 2001)
• BSP Circular 282 (issued in April 2001)
• BSP Circular 324 (issued in March 2002)
• BSP Circular 340 (issued in July 2002)
• BSP Circular 365 (issued in January 2003)
• BSP Circular 369 (issued in February 2003)
• BSP Circular 409 (issued in October 2003)

Regulation of Cooperatives

• Under RA 6539, the Cooperative Development Authority (CDA) has been tasked to regulate all types of cooperatives
• CDA has conflicting mandates of regulation and development of cooperatives
• The Credit Policy Improvement Program (CPIP) developed a standard chart of accounts, accounting manual and COOP-PESOS for credit cooperatives

Regulation of Microfinance NGOs

• Register with the Securities and Exchange Commission (SEC)
• Not subject to any regulatory authority
• NGOs collect savings from member-borrowers only and not from the general public
• Consensus among microfinance NGOs: they should be allowed to collect savings from their clients provided that these collected savings do not exceed their total loan portfolio

Comments/ Reactions/Suggestions:

(a) It would be good to give a brief on each of the Bangko Sentral ng Pilipinas (BSP) circulars that are listed on page 7 of the report to guide readers on the content or objective of the circulars cited.  Include also BSP Circular 509, on  liberalizing bank branching

(b) Prof. Ron Chua of the Asian Institute of Management (AIM) mentioned that there are different drivers propelling government to impose regulations and undertake initiatives. The issue is how to strike a balance between these conflicting drivers. The following are some of the drivers he mentioned: first is that local governments are using congressional funds to lend out to the poor at subsidized rates to alleviate poverty; second is the initiative to safeguard or protect the public; third is the need to improve the performance and soundness of the sector brought about by local and international pressures; and the need to balance protection versus expansion, e.g. regulation on bank branching.

(c) There is also a trend now advocating for the government not to look at microfinance as a special sector within the finance services sector as this may discourage new entrants. Risk based supervision is a new phenomenon. Banks have been primarily, collateral based. The introduction of risk-based supervision has resulted well for the microfinance industry.  Risk based supervision, which means different ways of managing risks has opened the window for many things such as a change toward the way of supervising financial institutions. This is a good development that would be more in line with the growth of the microfinance sector.

(d) Microfinance has special features that put it in a different classification from conventional banking especially in the light of the extent of poverty in the country. It is very crucial that government initiatives dovetail the initiatives being taken by the private sector, which understands exactly what is happening on the field. The private sector must work closely with the government so that regulations and policies can be correlated in such a way that the views of those who are practicing microfinance can be fully considered.

(e) The NGOs were the ones who pioneered microfinance. Since MFIs are driven by their mission, it would be better not to box them. In the field, MFIs offer micro loans, savings, microinsurance but also money transfers, business development services, among others, in order to help the microfinance clients to move up and out of poverty. These are now the services of MFIs to reach the lower sector of poor and develop potential clients. Regulating MFIs may suppress such initiatives and restrain their growth. 

(f) Another participant expressed the opposite view. For him, the government should work more actively to regulate but the initiative is to be taken by the private sector. One good policy mentioned by a BSP official was to allow MFIs to write off accounts over 90 days. It is a distinct policy not seen in the conventional banking sector. The average loan size in microfinance, for instance, is about P8,000 to P9,000. The size of the market we are looking at will not remain at this level. Observation of some that the poor will remain poor would be valid. There has to be some regulations to encourage practitioners to step up the level of microenterpreneurship that the poor are engaged in. Hence, the private sector through the initiatives of institutions like the Microfinance Council of the Philippines, Inc. (MCPI) or Alliance of Philippine Partners for Enterprise Development (APPEND) should take a more active role so that the government consider what would help MFIs to develop in that category.

g) Greater transparency in the information available about MFIs. Mr. Garcia mentioned an initiative in Bangladesh that was shared by an official of the Central Bank of Bangladesh. In that country, they came up with a book on NGOs and MFIs in Bangladesh. About 321 out of the 700 players submitted information. The book used used the Fortune style of ranking in terms of savings, portfolio, etc. the information is transparent. If a microfinance client wants to know the ranking of her MFI among other MFIs, and so forth, it’s easy for her to find out and see those that are more stable. If the consumer knows the portfolio size, savings, profitability and even, portfolio risks, this will be a step toward consumer protection. While APPEND and MCPI in the Philippines have also these data, they do not have permission to print the individual data as in the case of the NGOS and MFIs in Bangladesh. On the practitioners’ side, something similar may be done in the Philippines so that information on the MFIs in the country is available to anyone who wishes to avail of it. This transparency of information is in response to regulation.

(h) More encouragement from the government. Micro financing is synonymous with the poor. It is important that the government in its policy pronouncements should have something that would encourage the private sector to deliver microfinance not from a business perspective but from a social perspective.

(i) The BSP is the most cooperative central bank. A 50% profit is normal for MFIs but this growth rate would only be for a few years. To sustain this, the government can look into offering long-term loans to MFIs. Only the Negros Women For Tomorrow Foundation (NWTF) has been a beneficiary of this facility. The People’s Credit and Finance Corporation (PCFC) should look into broadening the beneficiaries of this facility.

Rural Banks (RBs)

• About 15 RBs have earlier learned the group lending methodology patterned after the Grameen Bank Approach
• Regular banking: individual lending, collateral-based, clients are non-poor
• Microenterprise Access to Banking Services (MABS) Program: individual lending, cash flow based, clients are micro-entrepreneurs
• Authorized by law to collect savings from the public

 Cooperatives

• Generally employ the individual lending methodology
• Used to lend amounts that are a multiple of the value of share capital and savings deposit of the member-borrower
• Cash-flow based lending is slowly being accepted as a better lending method
• Savings and Credit with Education (SCWE), introduced by a USAID-funded project called Credit Union Empowerment and Strengthening (CUES), is essentially based on solidarity group lending

NGOs

• Chief proponent of the group lending methodology patterned after the Grameen Banking Approach (GBA)
• GBA is the preferred methodology by NGOs due to its feature of group accountability for loans
• Introduction of the Association for Social Advancement Program (ASA) by the Microfinance Support Project (MSP) funded by the United Nations Development Programme (UNDP)
• Target clients of GBA and ASA methodology: poor women

 NGOs

• Use of Housing Index and Means Test to screen out the non-poor from entering the microfinance program
• NGOs collect savings from member-borrowers only and not from the general public

Comments/ Reactions/Suggestions:

(a)          How is the Alliance of Philippine Partners for Enterprise Development (APPEND) network’s scale up methodology different from ASA and Grameen? Can we still reach the 2.9 million unserved households with these approaches? A participant said that for them, group lending is still the most effective approach to serve the poorer clients. ASA or individual lending is still used but mini group is good for lending in one area.

(b)          The challenge is really the loan product. There are only two methodologies: group or individual. The real challenge is: Are the financial products or services enough? Do the MFIs have the products to meet the market’s demands?

(c)          A participant put forward the idea that perhaps the poor do not need loans but rather savings. This is what could be studied: What services do the poor need, short-term savings or the long-term ones? MFIs could offer a 30-day savings time deposit or a 60-day or 120-days, for instance, to coincide with the agricultural cycle. MFIs face a lot of things in terms delivering other services and not just credit alone. In the case of Pampanga where there are more overseas Filipino workers (OFWs), is the credit the one that attracts the clients or is it the remittance services? Whether an MFI should lend individually or by group is not the question but the financial products that are being offered to the poor. With more and varied loan products and services, MFIs can have greater outreach. Housing can be a product or a service of an MFI but there is still an ongoing discussion whether housing loan is a microfinance loan.

(d)          The BSP recognizes that microfinance is a broad range of financial services. For Rural Banks, the regulation is focused on savings and loans since those are what they are allowed to undertake. In the circular, there is a provision that microfinance loans are for low-income households and their microenterprises. The availability now of agri-loans, in fact, is already an expansion of the definition.

• Microinsurance and Mutual Benefit Association
• Business development services
• Micro-agricultural loan products
• Use of Personal Digital Assistants
• Loan collection through SMS technology

(a)          Microinsurance and Mutual Benefit Associations (MBAs) should be discussed under the Practices section since the microfinance sector has been providing these services from the start. When one speaks of microfinance, it usually refers to savings, loans, microinsurance and so forth. Under the special loans concept, there are many that could also be mentioned such as multi-purpose loans, or even social housing loans. Most of the microfinance players have been offering these ever since. The strategy that has worked for TSPI is the idea that as the clients grow with the institution, they become more qualified for a wider range of financial products. This service is available usually for two-year old clients and above. Rather than thinking of new products, MFIs could consider better ways of delivering the same services that they have been providing to their clients. The MBA concept is a different way of tackling microinsurance. MFIs could either link up with private institutions or they could set up their own. These moves could be described as innovative although the product has been there for a long time.

(b)          There was a motion, however, to consider how to classify Mutual Benefit Associations (MBAs). The word MBA refers to a legal entity that is officially registered under the insurance group. It is not an innovation or a practice. If MBAs would be included under the practices section then, cooperatives insurance societies should also be incorporated. To put MBAs under practices or innovations would be confusing since it is a legal term referring to an institution. It may be better to use mutual aid.

(c)          Formalizing an existing practice would be an innovation. For instance, if the MFIs formalize their clients into an MBA, that would be an innovation since this is permitted under the regulatory framework provided by the government. Therefore, the innovation is the delivery of micro-insurance thru the MBA. The suggestion was to have a special discussion of microinsurance in the practices section and to put under it the following subheadings:

• Delivery structure (through the. MBAs)
• Cooperatives
• Partnership with local insurance companies

(d)          Business Development Services (BDS) are the new services promoted by MFIs. BDS have several categories: business advisory, marketing, formalization of micro-enterprises and the different innovations that go with those mentioned. One innovation that the Center for Agriculture and Rural Development (CARD) is planning is to set up is a CARD marketing corporation and also CARD housing. This last initiative is CARD’s answer to the need for housing of microfinance clients. BDS could also cover under marketing the packaging of products as well as registration.

(e)          TSPI Development Corporation will be piloting 4 test models of business development services (BDS). One concept is transforming the centers into business centers, which will provide capacity building for clients to appreciate what it means to be en entrepreneur. Also, this training will give them a mindset to plan for and grow in their businesses. Another is the coaching and mentoring model and one other scheme is a tie-up with DOST which aims at promoting good manufacturing practices. After this year, TSPI plans to launch the TSPI Business Solutions to deliver BDS to clients. The vision is for independent institutions to offer specialized services in answer to the needs of clients.

(f)           Taytay Sa Kauswagan, Inc. (TSKI) is doing well in its BDS. It has established a partnership with the Department of Trade and Industry (DTI). TSKI purchased some equipment for DTI for the use of TSKI clients. The idea is to use the existing business infrastructure of the government. This is patterned after ACTUAR, one of the more successful or progressive BDS providers in Columbia. TSKI’s program is ongoing. The clients have what is called “development funds”. Donors also provide development funds for the MFIs and the infrastructure for the MFIs. The clients shoulder part of the costs for the training and MFIs subsidize the other part.

(g)          Micro-agricultural loan products. There are now initiatives to go into micro-crop loans. The Negros Women for Tomorrow Foundation (NWTF) started with sugar farmers in agrarian reform communities. TSPI Development Corp. as well as Alalay sa Kaunlaran, Inc. (ASKI) are trying something similar with rice farmers. For agricultural loans, it is important for clients to have a non-farm source of income to ensure the success of the program in case of untoward events in farming.

              There was a suggestion to put agricultural production loans in the section on Other Issues and Challenges. Mr. Garcia mentioned that the number of those going into micro-agri is much smaller. Farm communities buying micro credit for agricultural farms are much smaller. The figure here is probably around 3 million hectares of rice farmlands multiplied by PhP20,000 per hectare for the lease. This would be equivalent to P60 billion just for rice farms, which is a considerable sum.

(h)          Use of Personal Digital Assistants (PDAs) and Loan collection through SMS technology.

Mr. Garcia asked the participants if the participants have heard of Compartamos, one of the fastest growing MFI in Mexico. This institution claims that it was able to expand fast and get more than 200,000 clients in three years because of the use of PDAs. One loan officer with the use of a PDA can handle up to about 700 clients. The assumption is that productivity will rise and it will lower costs and interest rates.

The Microenterprise Access to Banking Services (MABS) is piloting payment though cell phones for disbursement. A number of banks are already using PDAs and SMS applications.

The experience of Bank of Canada, which employed cell phones by making use of Globe’s products and assistance, was that the cost of disbursement was lowered by as much as 80% and the result was they were able to reduce their lending rates and fees by a total of 1%.

To expedite loan releases, one MFI is already using the Smart Card to lower costs especially for disbursement. The Microenterprise Access to Banking Services (MABS) is also doing a similar pilot test in agri-product loans. Taytay Sa Kauswagan, Inc. (TSKI), in fact, is offering a loan for a phone kit with Smart. Globe is also offering such an arrangement.

(i)           The Alliance of Philippine Partners for Enterprise Development (APPEND) has already piloted a remittance product which is card-based with the Hongkong and Shanghai Banking Corporation Limited (HSBC); this is the opportunity card. The Bank of the Philippine Islands (BPI) is still doing the traditional channels of remittances but what it has launched just a few months ago is the project that for every remittance x amount of remittance, BPI is committed to lend a y amount of loans. This is already picking up.

(j)           A participant pointed out that anybody could use PDAs or SMS to improve one’s personal efficiency. Therefore, the innovation to be discussed is how to adapt the advances in technology for microfinance and the use of that technology to improve MFI operations.

(k)          Ms. Barns of BWTP suggested that the country profile report link the section on the challenges and the section on innovations. This part could identify the challenges facing MFIs such as coverage, collecting from hard-to-reach areas and so forth. Then, the discussion on innovations can be linked to those challenges, categorized according to what difficulties or challenges MFIs are trying to overcome. The problem of coverage due to the need to scale up MFIs’ operations could also be included here.

(l)           There was a question on whether the focus of the country profile was solely on MFIs, rural banks and cooperatives offering microfinance. Since the Bank of the Philippine Islands (BPI) was represented at the forum, it was suggested that the interest on the part of commercial banks be reflected. Could the different schemes---such as wholesale lending or buying portfolios of NGOs---in which commercial banks and even the larger financial institutions want to be involved in microfinance be considered innovations? Commercial banks as well as investment companies are already looking into the schemes mentioned or making preparations for them. The suggestion was to discuss wholesale fund providers (e.g. the Development Bank of the Philippines (DBP), the People’s Credit and Finance Corporation (PCFC) as well as the other institutions that are interested in offering wholesale funds for microfinance and even the new entrants in the wholesale funding business such as the Hongkong and Shanghai Banking Corporation Limited (HSBC), Bank of the Philippine Islands (BPI), and what they are doing.

(m)         For greater clarity, it was suggested to put in matrix form the discussion on the challenges and the innovations. For instance, the challenges should incorporate how to reach the 2.9 million potential clients of MFIs and the non-enterprising poor who are not yet clients of MFIs. The innovations for these challenges would be for MFIs to build their capacity in community entrepreneurship not just their competence in microfinance. The challenge is to reach the non-enterprising poor and how to build the current microfinance clients or raise the level of the existing clients, which is also a way of addressing the problem of credit pollution. The profile would then be making use of the statistics provided in the country profile.

Ex:

STAKEHOLDER                      CHALLENGES FACED                       INNOVATIONS

(n)          It was also suggested that the MFI stakeholders be categorized including the innovations and challenges pertaining to that stakeholder level as well as what is happening in that sector. On the providers’ side, it would be good to identify who are these. On the end client side, there is a need to see more upgrading from microfinance to small and medium enterprises (SMEs).

At the end of the discussion, Ms. Joyas informed the participants that the summary of the suggestions and comments would be forwarded to them. There are other MFIs that could not be present at the forum who will be sending their comments on the country profile. The draft of the country profile would then be revised based on the information and comments that MCPI will receive.

To close the Workshop, Ms. Frances Barns thanked MCPI, TSPI and all the participants of the Workshop. She reminded all those present that the country profile is not only useful for having comprehensive information on the microfinance sector in the Philippines but it also has a function internationally as a benchmark for the future by identifying the challenges and innovations MFIs are facing right now. She also announced that BWTP has organized a microfinance forum in Beijing, China on March 21-25, 2006 for those interested in participating.

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