RP world's second best in microfinance

MANILA, Philippines - The Philippines has been ranked second best worldwide in the microfinance business, and the leader in the Asia Pacific region.

Based on a study conducted by the Economist Intelligence Unit (EIU), the business information arm of The Economist Group that publishes The Economist, the Philippines outperformed Bolivia slipping to third overall.

Peru remained in top spot, while Ghana took fourth overall followed by Pakistan. The next five nations that served as models for microfinance business were Ecuador, El Salvador, India, Colombia and Kenya.

The study, entitled the Overall Microfinance Business Environment, reviewed 54 countries and evaluated each country’s microfinance business environment in terms of its regulatory framework, investment climate and level of institutional development. Interviews with microfinance industry leaders and stakeholders along with secondary information were analyzed to come up with the rankings.

In terms of regulatory framework, the Philippines, Cambodia and Pakistan shared top position. The three Asian countries were followed by Peru, Bolivia, Ghana, Kenya, Kyrgyz Republic and Uganda.

In terms of institutional development, the Philippines topped all Asian nations at sixth overall behind Bolivia, Ecuador, Peru, El Salvador, and Nicaragua.

However, looking at the rankings in terms of creating a healthy investment climate for microfinance, the Philippines only ranked 18th overall. Chile, Turkey, Bosnia, Morocco and Peru were the five best performers in that category.

According to the EIU, one of the key factors that catapulted the Philippines in the second spot past Bolivia was the recent approval of the Bangko Sentral ng Pilipinas (BSP) for rural and thrift banks to sell authorized micro-insurance products.

The BSP also issued a circular that sets the rules for accrediting rating agencies for microfinance, which, according to the EIU, is a move to encourage local microfinance institutions to be externally rated. 

The country’s central bank followed this up by issuing rules on the extension of housing microfinance and eased requirements for agricultural microfinance. The entry of major commercial banks and telecommunications companies into microfinance is also seen as a contributory factor towards the advancement of the sector.

The BSP was the leading advocate for institutional microfinance at the time when only non-government organizations (NGOs) were advocating informal microfinance.

The signing into law of the Credit Information Systems Act (CISA) and the subsequent approval of its implementing rules and regulations (IRR) are also positive developments.

But industry sources revealed that the failure to fully implement CISA kept the Philippines from being named the world’s leader in microfinance.

“That was the single biggest negative factor that cost the Philippines the opportunity to unseat Peru in top spot,” they said.  

The CISA, which mandates all lending institutions to submit both positive and negative credit data, allows for better and easier credit information sharing among financial institutions for more secure and credible lending.

The Bankers Association of the Philippines (BAP) Credit Bureau is one of the more credible private bureaus utilized by the country’s banking industry. It was originally established to service the universal and commercial banks but has since opened its doors to other banking systems.

Meanwhile, the EIU said that the adoption of a national strategy for microfinance by the Philippine government in the late ’90s opened the floodgates for the development of microfinance.

NGOs flourished giving birth likewise to microfinance institutions (MFIs), which includes rural banks.

“There are no regulatory restrictions on the ability of MFIs, whether banks or NGO-MFIs, to accept debt investment from international investors in foreign currency. However, rural banks were prevented from taking foreign equity investments,” the study said.

The BSP required all regulated MFIs to disclose effective interest rates and to be audited by an external auditor. However, NGO-MFIs, which are among the largest providers in the country, are unregulated and thus not obligated to disclose information under these provisions.

“Although still very much credit-oriented, MFIs in the Philippines are able to offer a variety of services. Regulated MFIs can accept deposits, and those linked to the international payments system can accept remittances.

Clients in the Philippines have a wide choice of service providers, including local and national institutions,” it added.

Two of the country’s leading telecommunications companies have since joined the microfinance bandwagon by introducing mobile banking services. And in 2009, the Bank of the Philippine Islands (BPI) and Globe Telecommunications (Globe) formed a joint venture to launch mobile-oriented retail micro?nance.