BSP looks anew at raising P150-K cap on microfinance loans

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is looking anew at the possibility of raising the existing limit on microfinance loans that is currently pegged at P150,000 in its bid to enable banks with microfinance operations to provide services to an even wider range of clients and to deliver financial services to more unserved markets.

BSP Deputy Governor Nestor Espenilla Jr. said in an interview with reporters that the bank regulator is reviewing an existing regulation that cap the loans provided by microfinance companies at P150,000 as stated under BSP Circular 409 that was issued way back in 2003.

“Although monitoring of microfinance loan is quite strict, a microfinance loan does not require a collateral. It (increasing the ceiling) will have an advantage to low-income earners who want to engage in business,” Espenilla stressed.

The BSP has issued Circulars 678, 680, and 683 allowing microfinance companies to diversify their product offerings to include housing microfinance loans, micro-agri loans and microinsurance.

BSP Circular 678 expanded the definition of microfinance by allowing qualified housing microfinance loans up to P150,000 for home improvement and up to P300,000 for lot acquisition and house construction while Circular 680 allowed banks to offer micro-agri loans as credit not exceeding P150,000 to small farmers.

Furthermore, the BSP through Circular 683 has authorized rural banks to market, sell and service microinsurance products, subject to certain prudential rules and regulations.

The BSP has also issued Circular 685 supporting the commercialization of the industry by recognizing the importance of independent and third party ratings provided by Microfinance Institution Rating Agencies (MIRAs).

MIRAs would provide an institutional rating rather than just a rating related to a safely grade of a specific instrument or a rating on an institution’s ability to service an existing or proposed debt. The assessment of the MIRAs would focus holistically at the governance, human resource, as well as the strategic, management, and financial performance of the microfinance institution.

In fact, the BSP has engaged the consultancy services of small and medium-sized enterprises (SME) lending experts to further strengthen the capacity of the central bank in supervising SME lending technologies.

The BSP said the number of microfinance players has increased significantly unlike before when microfinance operations was limited to microcredit provided by leading non-governmental organizations (NGOs), cooperatives, and a number of banks.

The BSP was mandated by the General Banking Law in 2000 to recognize microfinance as a legitimate banking activity and to set the rules and regulations for its practice within the banking sector.

As of June 2011, banks with microfinance operations have outstanding loans to over 963,000 borrowers reaching over P7 billion, or an average of P7,260 per microentrepreneur.

The Microfinance Council of the Philippines reported that in 2010, it had 2.3 million active borrowers with P13 billion pesos in loans or an average of P5,650 per microentrepreneur.