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BSP scores macro for supporting microfinance

(Article published in the Nov 30,2005 issue of Manila Standard Today)

        It was a most unlikely champion for the poor.  After all, a bank is where the rich go to get richer.  And a central bank is the bank of banks.  So, how could the Bangko Sentral ng Pilipinas, the biggest player in the field of macro economics, be expected to concern itself with microfinance?  But miracles do happen sometimes, when the stars are rightly aligned.  

        Just recently, while we back home weep and wail that  as a people we could not put our act together, the United Nations International Forum to Build Inclusive Financial Sectors named our National Committee for the UN Year of Microcredit as one of twelve Excellent national committees.  In form, the award was to the composite committee of private sector, academe, and government individuals and institutions, chaired by BSP Governor Amando M. Tetangco, Jr.; in substance, it was to the whole country itself and its different sectors that pulled together to make the Philippines stand tall among 61 countries, one of only 3 in Asia, in promoting microfinance.  The citation, to be precise, was for active support and commitment to increasing national appreciation of microfinance and for rightfully stressing the role of microfinance in alleviating poverty.

         Microfinance, broadly understood as lending to the poor, has, like the poor themselves, been always with us.  However, the activity has until a few years back been confined, except for a handful of missionary NGOs, to the unorganized corps of motorcycle-riding and/or umbrella bearing individuals making their morning and afternoon visits to the vendors in the public markets.  Or to the ubiquitous salary lenders and paiyakan or “cry-cry” vendors, people to hide from on paydays. It had rules of its own and methods of enforcement and collection ranged from gentle persuasion to violent coercion.  It was beyond the pale of law and government.



 The welcome change was initiated structurally, believe it or not, by our legislators who we must always remind ourselves, despite evidence to the contrary,  sometimes think of the welfare of the country.  In 2000, they imposed on the new monetary authority, given the warmly local name Bangko Sentral ng Philipinas instead of the stiffly aloof Central Bank of the Philippines, the duty of recognizing, in its formulation of rules on bank lending, the peculiar characteristics of microfinance (Sec. 40, General Banking Law).  “Peculiar” because the grant of microcredit is founded, apart from willingness to repay, primarily on the cash-flow of the enterprise rather than the collateral offered by the borrower.

         In addition, they authorized the BSP, by way exception to the prevailing mood in this era of deregulation, to regulate the interest rate imposed on microfinance borrowers, particularly to avoid unconscionable interest rate charges (Sec. 43, Ibid.) Finally, it gave flexibility to the design of loan amortization schedules to take into account the projected cash flow of the business for which the micro loan was granted (Sec. 44, Ibid.).

         The game plan from the legislative coach was clear: microfinance ought to be brought into main stream banking; the BSP had to bring the ball across the yawning  gap between the potential supply of microfinance lenders estimated at about Php 8.8 billion and the roughly three times estimated potential demand of microfinance borrowers put at Php 26 billion.  It helped that the then quarterback at the BSP was Rafael B. Buenaventura, who way back in his time as President and CEO of the prestigious PCIBank was already pushing his colleagues to give support to microfinance institutions. It further helped that he had a team at the BSP who were undoubtedly fired up by the esteem enjoyed by their leader at home and abroad.

         Ten circulars directly impacting on the promotion of a regulatory environment friendly to microfinance, ranging from offering a rediscounting facility for small loans, to relaxing the moratorium on the establishment of new banks and the restrictions on branching, to providing greater elbow room for operational profitability and methods of measuring risk to the bank’s over-all portfolio, were issued by the BSP to its bank constituency.  And for those who were in microfinance but were not under its supervision, the BSP, as member of the National Credit Council established the regulatory framework for microfinance and the set the performance standards for all types of microfinance institutions.

         But simply opening the door to microfinance nor even rolling out the red carpet did not necessarily mean the banks would rush in.  The BSP thus engaged in a massive education program among the banks, putting microfinance in the Basic Rural and Thrift Banking Course of the BSP Institute and conducting seminars nationwide on sound microfinance operations.  It further went into an information campaign, region by region, raising the general public’s awareness of microfinance.

         Just as Ceasar made sure the Roman Empire knew who was boss by putting his image in the coins in circulation, the BSP informed the man in the street what its major thrust was by, in the UN declared International Year of Microcredit, issuing ten million 20 Piso banknotes with the year logo and the tagline “Sustainable Microfinance Services for the Filipino Entrepreneurial Poor.”

         Expecting the invitees to come in, as they did, the BSP had to make sure that they were properly served.  It re-invented part of itself and modified its Manual of Regulations, banking’s counterpart of the Ten Commandments, to specifically address the operations of banks in microfinance.  Three hundred of its own people received training specific to the activity.  To demonstrate that the thrust was not ningas cugon, a Microfinance Committee was formed to deal with policy direction, a Microfinance Unit was assembled to coordinate all program and projects of the BSP on microfinance, and a core group of examiners specializing in microfinance was commissioned to look at banks with considerable microfinance operations.

         All this activity did not fail to attract the notice of international observers.  In 2002, BSP was given early recognition during the 2002 Microcredit Summit in New York.  In the book, “Pathways out of Poverty”, launched during the summit, the Philippines was cited for its sound microfinance regulation and policy.  But more important than citations were the fruits of the BSP’s efforts, which came aplenty, that were harvested by our people.  By now, there are 195 banks with notable microfinance operations, reaching 600,000 microfinance clients. Before the passage of the General Banking Law in 2000, only about 50 banks claimed to have microfinance operations.

         The touchdown this month at the United Nations, however, does not mean, thankfully, that the game is over.  Present quarterback, Governor Say Tetangco promises: “We will remain unrelenting in our task to see this to its fruition and to make sure that our entrepreneurial poor will enjoy the benefits of a truly inclusive financial sector.”

        To Say’s team that is really playing for the rest of us, we, your unembarrassed rah-rah squadron, will likewise continue to give the thrust good old “FABILIOH!”