Bangko Sentral calls microfinance bright spot in RP system

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) has called the country’s microfinance sector as the “brightest spot” in the country’s financial system in the face of the global credit crunch.

However, BSP Governor Amando M. Tetangco Jr. sternly reminded the rural banks involved in microlending that “more needs to be done.”

Speaking before an assembly of rural banks practicing microfinance recently, Tetangco said that banks should tightly monitor loan portfolios and maintain a low portfolio at risk (PAR).

“Banks must maintain strong capital positions. Capital adequacy is central to ensuring that banks have sufficient buffer whenever risks turn into losses. Remember that our banking sector’s strong capital position is one of the main reasons why it has remained resilient amidst the continuing global financial crisis,” the central bank governor said.

Microentrepreneurs seek microfinance and pay diligently, in the hope that their business flourishes, and that they may return to the banks for commercial loans as they expand their businesses.

“I do look forward to banks becoming more proactive, rather than reactive, in terms of strengthening their capital positions,” Tetangco stressed.

He urged microfinance institutions to view the crisis as an opportune time to push for reforms to further strengthen the microfinance industry.

Specifically, the governor challenged rural banks and other microfinance institutions “to improve efficiencies, strengthen governance structures, enhance the quality of its management, diversify funding, become more transparent, and strengthen consumer protection.”

Rural banks have increasingly become the major advocates of microfinance in the Philippines. Thus the risks to the liability side of microfinance institutions remain more manageable.

Banks, as deposit taking institutions, are less reliant on external sources of funds and therefore less vulnerable to any reversals in foreign capital flows and shifts in investor preferences as a result of the crisis, he added.

Monetary authorities noted that the culture of zero tolerance for delinquency and vigilance in monitoring of portfolio at risk is clearly evident among rural banks under the Rural Bankers Association of the Philippines (RBAP) and the Microenterprises Access to Banking Services (MABS).

The MABS is funded by the United States Agency for International Development (USAID) and is jointly implemented in collaboration with the RBAP.

There are presently 91 rural banks participating in MABS program covering nearly 500 banking offices nationwide.

Tetangco pledged the support of the BSP in encouraging further the microfinance efforts of the banking sector.

“On the part of the Bangko Sentral, we will continue with our policy approach of enabling banks, particularly rural banks, to increase the scale and scope of their microfinance operations,” he said.

That has to do with branching regulations, product and technological innovations in banking services, outsourcing, and other policy approaches.

Right now, rural banks can provide a wider range of services and products to their clients such as electronic money, FCDUs, mobile phone banking, investments in ATM networks, aside from the regular banking products.

“You are the crucial channels for countryside development and the catalysts for promoting a truly inclusive financial system. You can therefore count on Bangko Sentral’s continuing support in this important task,” Tetangco added.