P4.2B sought for relending to small borrowers

The microfinance industry needs at least P4.2 billion to provide for the financing of some one million borrowers from the lower segment of society.

In a national survey sponsored by the United Nations Development Program (UNDP), microfinance institutions (MFIs) said they need the amount to beef up their loan portfolios and to expand their operations to meet the demands of one million borrowers.

The one-million target was set by President Arroyo administration under a poverty alleviation program which she discussed in her state-of-the-nation (SONA) address earlier this year. The survey indicated that by 2005 there would still be another five million households in need of microfinancing.

The 53 MFIs which responded to the UNDP survey reported a total loan portfolio of P1.264 billion lent out 316,410 clients as of June this year. This means an average of 300,000 new clients must be tapped per year if the Arroyo administration hopes to hit its one-million "poorest of the poor" target.

Of the total number of clients, 217,024 had been tapped by non-government organizations (NGOs) while another 76,825 clients were clients of the rural banking sector. The remaining 22,561 borrowed from cooperatives.

For funding sources, the MFIs are not only looking for assistance from government but also from multilateral funding agencies like the Asian Development Bank (ADB) and the World Bank (WB).

The MFIs said that to meet their target, there should be appropriate policy changes from government especially the Bangko Sentral ng Pilipinas (BSP).

Among the policy changes needed from the BSP are: reduced or simpler formats for reportorial requirements; exemptions of banks from branching moratorium; assignment of a special group of bank examiners for MFI banks or financial institutions or groups; the exclusion in the loan-loss provision of all microlending portfolio which is non-collateral; and exemption of co-op banks with microfinance from the imposition of an additional two-percent of loan portfolio as loan reserve.

MFIs are also asking for certain tax privileges such as the non-imposition of taxes on MFIs/NGOs helping the poor; tax incentives for microfinance oriented banks with a client base of 10,000 or more serving the rural areas; and tax exemption and/or rebates, to minimize transaction costs of MFIs.

MFIs, which are geared for lending to the poorest segment of society, are also seeking better borrowing terms with the GFIs such as better leverage terms for MFI borrowing and lower government interest rate to achieve financing stability as well as to maintain minimal interest rate to the clients.

MFIs include over 800 rural banks, 300 credit-granting NGOs, 59 cooperatives and 26 cooperative rural banks. – Ted Torres