financial innovations1
TRANSCRIPT
Money Talk: Microfinance for Microenterprises
Mr. Eduardo C. JimenezMicrofinance Consultant
Bangko Sentral ng Pilipinas
Business World Entrepreneurs ForumAugust 25, 2006 - Century Park Sheraton, Manila
Outline of Presentation Microenterprises in the Philippines Definition/ Background Information of
Microfinance Myths, Misconceptions and Barriers to
Microfinance Development Principles and Success Factors of Microfinance Best Practices and Leading Methodologies Institutions that Provide Microfinance BSP Initiatives For Microfinance
Importance of Micro-enterprises in the Philippines Small and medium enterprises (SMEs) comprise
99.6% of all registered business in the Philippines and employ 70% of the workforce
Of total, micro-enterprises account for 743,949 (97.1%), small enterprises 61,759 (7.6%), medium enterprises 2, 923 (.4%), and large enterprises only 2,958 (0.3%).
Micro/ cottage enterprises make up about 91% of total establishments surveyed by the National Statistics Office
Invigorating MICROENTERPRISES through
access to MICROFINANCE can lead to
economic growth and development on the
local and national level.
What is Microfinance?It is a provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products to the poor and low income households and their microenterprises
Important Features of the Definition
It is not just credit It has a target market - the poor and low
income households It is linked to the microenterprise
What Microfinance is NOT
Subsidized Credit Dole-out Consumption/ Salary Loan Cure-all for poverty
Who are the Clients?
Near Poor
E-poor
Laboring
Ultra Poor
Features of Microfinance Loans
Fit for those who can not access “traditional” sources of financing
Innovative Product Designs Use of collateral substitutes Short term loans Frequent amortizations Inclusion of savings Enterprise lending Simple Documentation Requirements
Benefits of Microfinance for Microenterprises Increase economic activity and income Generate employment Save and invest in the future Guard against emergencies and shocks Better invest in health, nutrition and
education
Myths, Misconceptions and Barriers Poor people can not pay market interest
rates and can not save Microfinance institutions are primarily
civic-oriented, non-profit organizations that can not be sustainable and viable
Microfinance institutions can not access commercial funds
High transaction costs of serving the poor Regulatory barriers Implementation of government directed
credit programs Poor are intimidated by formal institutions Lack of infrastructure and physical access to
formal institutions
Myths, Misconceptions and Barriers
New Paradigm of Microfinance
From beneficiaries to clients From directed credit to market approach From evolving programs to evolving
institutions From donor dependence to financially self
sufficient institutions with access to commercial funding
Key Success Factors for Microfinance – 4 “C”s Clearly identified market Capable and committed staff Creative methodologies and technologies Commitment to standards and best
practices
Best Practices for Microfinance
Appropriate Products for Clients (flexible, accessible, simple in process and documentation, appropriately priced, and permanent)
Appropriate Delivery Clear Organizational/ Institutional Structure
(Governance) Adequate Risk Management (Use of Portfolio-
at-Risk, Zero Tolerance for Delinquency) Subscription to Performance Standards
Leading Microfinance Methodologies
Group Methodology - Microfinance services are provided in the context of a group.
Some Examples of Group Methodolgy Grameen Methodology
7-8 groups of 5 women forming 1 centerDisbursement and collection through centerLoans are provided on a rotation basis (2-2-1)Collateral substitute (i.e. JSS, peer
support/pressure)
ASA (Association for Social Advancement)
7-8 groups of 5 women forming 1 centerDisbursement and collection through centerSimultaneous disbursement of loansCollateral substitute (i.e. peer
support/pressure)
Leading Microfinance Methodologies
Individual Methodology - single client lending where repayment and schedules rely solely on the individual (cash-flow, character based lending)
Some Examples of Individual Methodology MABS approach (Microenterprise Access
to Banking Service)USAID funded technical assistance to rural
banks that want to engage in microfinance Individual loans are granted based on the
character and household cashflowCulture of zero tolerance for delinquency
Banks (Rural, Thrift, Some Commercial NGOs Cooperatives
Where Can I Access Microfinance?
BSP Initiatives
Anchored on the General Banking Law of 2000, Sections 40, 43 and 44
Recognizes the peculiar characteristics of microfinance in the requirements, terms and amortization of loans and other credit accommodations.
Three-Pronged Approach
Microfinance “Friendly” Policy and Regulatory Environment
Training and Capacity Building within BSP and banking sector
Promotion and Advocacy
Policy and Regulatory Environment
Issuance of 13 Circulars governing the practice of microfinance in the banking sector – provides incentives like rediscounting, recognize microfinance loans (no collateral, loan documentations, etc), allow for branching, promote best practices
Modification of Manual of Examination to include microfinance operations
Member of the Technical Working Group that established the regulatory framework and performance standards for all types of MFIs
Ways How a Bank can Engage in Microfinance Establishment of a microfinance-oriented
bank Establishment of a microfinance-oriented
branch Establishment of a microfinance unit within
an existing bank
Training And Capacity Building
Creation of a Microfinance Committee and Microfinance Unit
Establishment of a Core Group of BSP Microfinance Examiners
Inclusion of microfinance in the Basic Rural and Thrift Banking Courses
Conduct of training for banks on microfinance best practices
Promotion And Advocacy
Regional tour to promote microfinance best practices to practitioners and potential players
BSP as Chair of the Philippine Celebration of the UN International Year of Microcredit
Microentrepreneur of the Year Awards
Banking Sector Exposure to Microfinance As of March 31, 2006 (in millions)
Micro Loans Portfolio No. of
Amount BorrowersMicrofinance-oriented Banks:
Thrift Banks (5 banks) 212.400 50,187Rural Banks (4 banks) 230.992 34,984
Traditional Banks:
Thrift Banks (9 banks) 144.666 Rural Banks (159 banks) 2,373.291 410,110
Cooperative Banks (27 banks) 696.803 97,899
Total (204 banks) 3,658.052 593.180
Thank you.
http://www.bsp.gov.ph/about/advocacies_micro.asp
Microfinance Unit – (02) 523-6130