Is the promise being fulfilled?…Microfinance in the Philippines: status, issues and challenges

Topic :

In the Philippines, microfinance promises to provide and improve access to financing for small farmers, fisher folks and microentrepreneurs and is seen to be gradually replacing the government’s previous directed credit programs as a major source of financing for the poor, or so asserts the author of this policy note. Statistics included in the policy note demonstrate that the microfinance sector is growing thanks to new entrants such as rural banks and medium- and small-sized MFIs. These institutions are providing the competition that is moving MFIs to be more client-focused, providing appropriate services to a greater number of poor households/microenterprises in a sustainable manner.

Recommendations are given on the following issues identified as needing to be addressed and monitored if microfinance is to remain vibrant and responsive:

  • The threat of policy reversal (using well-targeted subsidies e.g., output-based assistance)
  • Emerging credit pollution (establishment of a credit information bureau)
  • Need for appropriate regulation and supervision (risk-based supervision)
  • Effective regulation of credit cooperatives / credit unions (capacity building for government authorities)
  • Use of performance standards (to increase the capacity of MFIs to access commercial sources of capital)
  • Building the capacity of microfinance institutions (to expand the outreach of MFIs down- and up-market)

The author asserts that if the government can effectively stay its course and continue the market orientation of financial and credit policies, and with the help of donors and other stakeholders, build specific capacities of government authorities and MFIs, the future of microfinance fulfilling its promises is bright.

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