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The Philippines remains a global leader in microfinance, with an international report placing the country among the top five in overall microﬁnance business environment rankings.
The country ranked 4th out of 55 in the Economist Intelligence Unit’s “Global Microscope on the Microﬁnance Business Environment 2012,” jumping two places from ranking 6th last year.
This, as it highlighted significant changes which are seen to promote the development of an enabling microfinance environment.
These include central bank Circular No. 744, which redefined microfinance loans to include amounts up to P300,000 from the previous P150,000.
Also noted was the House approval of a draft law which allow foreign ownership of up to 40 percent in rural banks.
The country’s score improved by 4.8 points to 63.3 index points calculated based on its performance in regulatory framework and supporting institutional framework.
The Philippines was one of only three Asia countries in the top 10 of the report, which covers a year’s period to June 2012.
This year’s overall ranking was topped by Peru, Bolivia and Pakistan. Below the Philippines, meanwhile, were Kenya, El Salvador, Colombia, Cambodia, Mexico and Panama.
In terms of regulatory framework, the Philippines shared the top spot with Peru, scoring 80 points.
“The Bangko Sentral ng Pilipinas (BSP, the central bank) continues to promote an enabling environment for microﬁnance, seeing it as one of its key poverty reduction efforts,” the report said.
A number of public sector institutions meanwhile provide wholesale funds to support the sector’s growth, it added.
Although improving by five points, the Philippines posted a slightly weaker performance, scoring 50 and sharing the 15th place with Brazil, Nicaragua and Uruguay.
“The industry remains relatively fragmented, as there is no one dominant institutional type, set of institutions, or network and multiple regulatory and supervision regimes owing to the diversity of the types of service providers,” the report said.
The country’s weak showing in this indicator may also attributed to a low “stability” score, particularly in terms of “political stability.”
by Cai Ordinario
Posted on 10/17/2012 11:30 AM | Updated 10/17/2012 1:51 PM
MANILA, Philippines – Only 3 million poor Filipinos or those living under $1.25 per day had access to microfinance loans in the Philippines in 2010, according to a study released by the Asian Development Bank (ADB) on Tuesday, October 17.
In a report titled Microfinance Development Strategy 2000: Sector Performance and Client Welfare, the ADB’s Independent Evaluation Department said this means that the penetration rate of microfinance loans among the poor was only at 14%.
Measured against a total population of 94.1 million in the Philippines, this means microfinance loans only reached 3.2% of Filipinos.
The ADB said while this already showed an improvement in microfinance penetration in the country, the microfinance penetration rate among the poor was significantly lower than Vietnam’s and Cambodia’s 75% and 32%, respectively.
According to the study, microfinance loans in Vietnam covered 8.5 million or 9.8% of its total population of 86.5 million as of 2010. In Cambodia, the ADB said there were 1.3 million covered by these loans or 9.1% of its total population of 14.3 million.
Penetration rates compare active borrowers against a potential client base of the population living below the international poverty line of $1.25 per day, the ADB said. Despite the growth in outreach and microfinance providers in Cambodia and Philippines, penetration rates were only 32% and 14%, respectively.
POOR ACCESS. The table shows how many poor people have access to microfinance in 6 countries. The image was obtained from the report.
Microfinance loans aplenty
The low penetration rate of microfinance loans in the country contrary to their availability. The study stated that the Philippines actually had a total of 14,935 microfinance providers, higher than in most countries. This was largely due to the high number of cooperatives that offer microfinance loans.
Further, the ADB said the Philippines was the second-largest recipient among 6 countries that received microfinance assistance from the ADB, accounting for a share of 19%.
Funds extended to the Philippines by ADB reached $173 million, of which $150 million was a sector development program loan approved in 2005.
During the 2000 to 2010 period, ADB support to 6 countries, including the Philippines, amounted to $916 million or nearly 33% of ADB’s total microfinance portfolio.
Program and sector development loans comprised the largest amount among the modalities of assistance at $660 million, while grants and Technical Assistance operations were the smallest at $18 million.
Microfinance has been mainstreamed in the banking sector and is supervised by the central bank. In the Economist Intelligence Unit 2011, of 55 surveyed countries globally, Pakistan and Philippines both ranked first and Cambodia third in the category of regulatory framework and practices, and they were 5th, 17th, and 25th, respectively, in terms of the supporting institutional framework. This suggests strong regulatory regimes and good prospects for microfinance in these countries, the ADB said.
In a statement, ADB said the penetration of microfinance among the poor in Asia and the Pacific remains low. As of the end of 2010, only 20% of the population living below the poverty level of $1.25 per day had direct access to microfinance services in 21 developing countries receiving ADB microfinance support. This level was below ADB’s goal.
Microfinance is seen in the region as an important means to helping low-income households take advantage of economic opportunities and improve living standards.
Despite the increasing popularity of microfinance in recent years, expanding the access of poor households to institutional financial services remains a great challenge to governments and development agencies, ADB’s Director General of Independent Evaluation, Vinod Thomas said in a statement.
MICROFINANCE LOANS. The chart shows the performance of ADB’s microfinance lending between 2000 and 2010. The image was obtained from the report.
The study said that for microfinance to have a greater impact on reducing poverty in the region, it needs to better target the poor and focus more on educating them in using basic financial services. Effective linking of microfinance services to complementary pro-poor interventions is also urged.
ADB said around 2.7 billion people worldwide or 70% of the adult population in the world’s developing countries, have no access to formal financial services, such as savings or checking accounts. They represent a key and still largely untapped market segment for financial inclusion. Rappler.com