MicrofinanceYesterday,TodayandTomorrow:WhatistheNextBestPrac;ce?

PiaBernade=eRomanTayagBangkoSentralngPilipinas

2010RBAP‐MABSNa.onalRoundtableConferenceHya=HotelandCasino,ManilaJune2‐3,2010

Presentation Outline

 Microfinance: The Story so Far  The Role of a Supportive Regulatory

Environment  Looking Forward: Microfinance Tomorrow

 Key Opportunities and Challenges  Direction for Policy and Regulation

Microfinance Yesterday

 Microfinance was once seen as a very risky activity provided mostly by civic-oriented institutions

 Microfinance was limited to loans or microcredit  Traditional banking was still focused on using

collateral to ensure security/ repayment  Regulator/ Supervisor did not yet have the

framework for microfinance practice within the banking sector

Role of a Supportive Policy and Regulatory Environment

  Following the General Banking Law, the BSP established the framework for microfinance practice within the banking sector

  Allowed the establishment of new banks and transformation of NGOs into the formal financial system

  Provided incentives for microfinance practice as well as necessary risk management for its sustainable practice

RISKS HOW WERE THEY ADDRESSED?

Bank’s limited technical know-how in the methodologies and technologies of microfinance

Required banks to have clear microfinance methodology and clear underwriting standards

Inadequate risk management system attune to the peculiar characteristics of microfinance

Required adequate risk management systems (i.e. daily monitoring of portfolio-at-risk and corresponding provisioning requirements)

Governance issues especially with banks that were transformed from NGOs

Clear and comprehensive governance standards imposed

Microfinance Today

 Microfinance is fully mainstreamed into the formal financial system

 Interest of commercial investors  Expansion of the range of microfinance services

offered  Innovation in delivery channels  Moving toward financial inclusion

Role of a Supportive Policy and Regulatory Environment

 Provision of the framework for the he wider range of products offered by microfinance institutions

 Provision incentives for wholesale microfinance  Recognition of the importance of third party

independent ratings to enhance investing climate  Liberalization of branching regulations  Recognition of the potential to leverage the reach

of brick and mortar offices through using e-money platforms and the use of bank and non-bank based delivery channels to reach the financially excluded more efficiently.

Key Opportunities Wider range of products/ increased and diversified income streams Larger market beyond usual reach of brick and mortar offices Lower costs of delivery Access to commercial funding

More options of providers Lower costs/ greater convenience Wider range of products for all financial service needs Being reached, even those hard to reach

Key Challenges

 For Banks/ Microfinance Institutions  Continued strength and stability of the institution  Lowered cost and increased efficiency in operations  More appropriately designed products and services  Increased client satisfaction through transparent pricing

and fair practices  Maintenance of credit underwriting standards in light of

increased competition and possible over- indebtedness

Key Challenges

 For Clients  Financial Inclusion brings in new consumers who are

potentially vulnerable. They need appropriate information and increased capacity to use financial access to their best interest.  Financial literacy  Awareness of consumer rights  Awareness of redress mechanisms

 With increased competition, clients must maintain credit discipline/ upgrade personal finance capacity

 Close and continuous monitoring of market developments. Regulations remain appropriate and responsive  Review of enhancement of e-money platform/ operations

through recognition of e-money technology providers  Review of policies on OBOs  Review on the definition of microfinance and microfinance

loans  Supporting increased SME lending

 Review of consumer protection regulations  Price transparency  Fair treatment

Role of a Supportive Policy and Regulatory Environment

 Steady advocacy for personal finance and financial literacy

 Quick response to emergent risks  Financial crime  Abuse of financial services  Over-indebtedness

Role of a Supportive Policy and Regulatory Environment

P R O M A N @ B S P . G O V . P H W W W . B S P . G O V . P H

Thank you.