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BSP Circular No. 836: Amending Mircofinance Reports, and Redefining “Microfinance Loans” and “Small and Medium Enterprises Loans” accounts in the Financial Reporting Package (FRP)

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To download a PDF copy, please click on this link: BSP Circular No. 836

Simplifying a complex problem

Poverty is a constant headache for every administration. It seems that no matter what the government does–whoever is at the helm of Malacanang at a particular time—there will always be poor people and their number will always be overwhelming.

One typical characteristic of being poor is the lack or utter absence of access to basic banking services. They often have no savings account to speak of, nary any borrowing to finance any budding entrepreneurial venture, nor a microinsurance instrument to fall back on in times of emergencies.

Thus, can poverty be fully addressed just by enabling the poor have access to financial services? No one truly knows. Poverty is such a complex animal that eliminating it effectively requires a multi-pronged approach covering a long period of time. However, it will certainly go a long way in support of the present administration’s poverty alleviation efforts if the poor will be empowered economically. One such way is through microfinance, an instrument tailor-made to the needs and financial capability of the rural poor and an important mechanism that rural banks wield today.

As described by Ms. Pia Bernadette Roman in her paper titled, “Microfinance in the Banking Sector: Current Environment and Future Directions,” traditional collateral requirements have been replaced with collateral substitutes such as peer-support or peer lending in microfinance. Documentary requirements and processing have also become simpler and faster, while product design is based on character and cash flow analysis, and savings is emphasized as an integral part of the microfinance package. All these add up to not only ease the requirements on the poor, but also enable their entrepreneurial ventures to be self-sustaining.

Rural banks are also deemed natural fit to engage in microfinance. For one, according to Roman, they have the resources and expertise in the provision of financial services that make them ideal vehicles for microfinance. Banks also have the authority and means to access cheaper sources of funding particularly by attracting deposits from the public. In addition, the existing network of banks is also an avenue in which to magnify the many benefits of microfinance.

Rural banks cover around 80 percent of the total municipalities in the Philippines, with more than 600 banks and 2,000 branches nationwide. By reach alone, rural banks can be the most effective purveyor of microfinance as majority of the country is still composed of the rural poor.

Microfinance today has morphed into a far more sophisticated tool than just loans for microenterprise. It has since expanded to micro deposits, microinsurance, micro-agri, housing microfinance, and microfinance plus for growing enterprises.

It has been proven over the years that microfinance is an effective poverty alleviation tool. Microfinance empowers those living in poverty to increase their economic activity and income, generate employment and improve the overall quality of their lives.

Rural banks have acted as effective conduits of microfinance in the countryside, disbursing more than P40 billion to micro-entrepreneurs. Through the provision of microfinance, rural banks have encouraged businesses to be market driven and not relying on subsidies to thrive, as well as encouraged poor individuals to help themselves and not depend on dole-outs or charity.

Poverty remains an overwhelming problem. Given that, it can still be conquered and we must believe that it can be done. Microfinance, with the help of rural banks, gives us the hope to finally slay that beast once and for all.

Culture of sharing

Filipinos are well known for our hospitality and sharing. In fact, whenever we are eating, it is not uncommon for us to say kain na to a friend, officemate or even to a complete stranger who just happened to walk by to ask for directions. In the event of disasters, this character comes to fore in the form of Bayanihan, a communal spirit that harnesses the power of unity and cooperation and symbolized by the carrying of a nipa hut to a new location after a calamity.

It is this natural kind-heartedness that has led micro entrepreneurship to flourish in the country. It is the kind of sharing that helps the poor grow and inspires others to follow by example.

A number of rural banks are wholly engaged in microfinance operations. Together with some 2,000 microfinance institutions, they are servicing close to seven million microfinance clients across the Philippines and are a big reason why microfinance has flourished in the country.

In his speech during the 2013 Citi Microentrepreneurship Awards (CMA) Awarding Ceremonies last December, Bangko Sentral ng Pilipinas (BSP) Gov. Amado Tetangco, Jr. said micro entrepreneurs have developed a culture of sharing.

“In words and in deeds, they inspire others who aspire to better their lives through microfinance. Across the country, microentrepreneurs prove that humble beginnings can lead to success beyond their dreams and sometimes even beyond our borders,” he said.

Funded by Citi Foundation, the CMA annually recognizes outstanding microfinance clients who have used microfinance and entrepreneurship to improve their lives and their communities.

One rural bank that has been ardent in its support for microentrepreneurs was First Agro-Industrial Rural Bank, Inc., which was awarded the Most Outstanding Rural Financial Institution for Visayas by the National Livelihood Development Corp. during the 8th Sustainable Income for People in the Agrarian Grassroots or SIPAG Awards, also last December.

As of end-June 2013, 186 banks with microfinance operations were serving over 1 million clients with combined outstanding loans of P8 billion.

These microentrepreneurs have likewise become net savers, according to Mr. Tetangco, with consolidated bank deposits of P8.9 billion, an amount that surpasses their total loan.

On the other hand, there are now 391 micro-banking offices that provide a broad range of financial services in new areas.

A retail electronic payments system through e-money and mobile banking is in place with 30 e-money issuers working alongside a network of more than 12,000 cash-in and cash-out agents.

Destructive natural calamities underscore the importance of having adequate insurance protection especially for the most vulnerable, according to the BSP chief as he stressed that microinsurance can protect the hard-earned gains of our microentrepreneurs.

With rural banks in the forefront and acting as a very active proponent, regulators and market players alike are hopeful that microfinance and microinsurance will continue to thrive in the country and protect the interest of the poor.

Revised reportorial requirements on Microfinance operations

This is to notify all rural banks, engaged in microfinance operations, of the amendments on the reportorial requirements under Circular No. 607 dated April 30. 2008. The thrust to amend or revise was due to the introduction of new microfinance products and, likewise, the growing exposure of banks, particularly universal and commercial, in wholesale MF loans.

For those interested in securing a copy of this latest BSP circular, kindly download the file from RBAP’s slideshare account.

Thank you.

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