Philippines
With a population of 85.2 million people, 26.5 million of whom are considered as poor, the demand for microfinance services in the Philippines is immense, particularly in rural areas where the majority of the population is concentrated. Rural banks and co-operatives started the concept and practise of servicing small loans as early as the 1950s. Between the 1970s and the mid 1980s the government mobilised rural banks, development banks and other government financial institutions to provide highly subsidised credit to the poor.
These directed credit programmes failed and resulted in big losses in resources. Since the end of the 1980s, non governmental organisations (NGOs) have become potent partners of the new and democratic government in the fight against poverty. These NGOs devised alternative options for non-collateralised loans and savings instruments for the poor. They provided individual as well as group lending, but used group pressure or group accountability as a collateral substitute. These microfinance NGOs were able to meet the needs of the entrepreneurial poor. In 1996 a group of microfinance NGOs in the Philippines initiated ‘Developing Standards for Microfinance Projects’ to address the lack of capacity of Philippine MFIs to reach significant numbers of the poor on a sustainable basis. Growing interest in microfinance within the formal financial sector led to the establishment of the Microfinance Access to Banking Services (MABS) supported by the Rural Bankers Association of the Philippines. This programme helps rural banks to develop sustainable microfinance strategies that focus both on loans and deposit services. Government policies in the last decade brought about reforms to streamline microfinancing in the Philippines. The National Credit Council (NCC), established in 1993, crafted the National Strategy for Microfinance (NSM) in 1997 with the central vision of having a viable and sustainable private microfinance market providing low-income households and micro-enterprises access to financial services.
At present, there are three major providers of microfinance services in the Philippines: NGOs, rural banks and co-operatives. It is estimated that 500 NGOs and 4600 savings and credit co-operatives are engaged in microfinance. Many other types of registered co-operatives also provide some form of financial services or the other. As of December 2005, there were 195 banks engaged in microfinance. Four of these banks are microfinance-oriented thrift banks and another four are microfinance-oriented rural banks. The remaining 187 banks are rural and co-operative banks engaged in some level of microfinance operations ranging form 3% to 40% of their gross loan portfolio.
In August 2006 the president issued Executive Order 558 and by thus revoking EO 138, promoted a market-oriented microfinance sector and restricted the participation of government non-financial agencies to capacity building and creating a favourable policy environment for microfinance. The new EO 558 expands the participation of the government non-financial agencies in providing direct credit services. This will most likely have adverse effects on the already effective and stable microfinance sector.
Members initiatives
Dutch organisations[1] have provided some € 1.5 million in grants in 2005 and have an outstanding loan balance of € 8.1 million to various types of institutions involved in microfinance in the Philippines. A large chunk of the assistance (almost 70 percent of the grant funds and almost all of the loan funds) were given to first-tier financial services provider (i.e. the retail MFIs). The funds were mostly used for capacity building and as loanable funds at the MFI level.
With regard to sector-level organisations, both Cordaid and ICCO provided support in the period 2002-2005 (€ 98,291 and € 139,982 respectively) to the Microfinance Council of the Philippines (MCPI), a network of retail microfinance NGOs. The assistance of Cordaid was focused on institutional support to MCPI whereas that of ICCO was focused on building the capacity of member institutions – to do market research and develop products tailored to the needs of clients of MFIs – and promoting Social Performance Management. The Rabobank Foundation has long-standing ties with NATCCO and the regional co-operative federations MASS-SPEC and VICTO. The Rabobank Foundation has also provided assistance to NATCCO for the development of standard MIS software (Coop Banker) amounting to € 50,000. Cordaid and ICCO also have their respective obligations to the co-operative sector through NATCCO, mainly on capacity building of savings and credit co-operatives in hard-to-reach areas.
Oxfam Novib also provides support to three sector-level organisations, one of which is the International Network of Alternative Financing Institutions (INAFI), which has been a global network since 1995 and of which INAFI Philippines is an active member. Oxfam Novib also provided support (€ 128,518) to the Economic Resource Center for Overseas Filipinos in the period 2003 – 2005. Amongst others, this organisation explores possibilities of linking up MFIs (through the Rural Bankers Association of the Philippines) with the influx of remittances transferred by the hundreds of thousands of Philippine Overseas Workers. Finally, Oxfam Novib has also been providing support (US$ 325,706) to the Foundation for a Sustainable Society (FSSI) for the 2005 – 2007 period. This organisation was established thanks to a ‘debt swap’ arrangement between the Philippine and Swiss governments and functions as a financing institution for MFIs and sustainable enterprises.
[1] Cordaid, Oxfam-Novib, ICCO, Rabo Foundation, Doen Foundation, FMO, Oikocredit, Interpolis)