NAPC and Microfinance
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NAPC and Microfinance

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  • Banking at doorsteps – convenience and security provided by formal financial institutions brought to the level of households Demand-driven – the need for credit is determined by the client’s absorptive capacity and ability to repay
  • RA 8425 defines microfinance as a credit and savings mobilization program exclusively for the poor to improve the asset base of households and expand access to savings of the poor. It involves the use of viable alternative credit schemes and savings programs including the extension of small loans, simplified loan application procedures, collateral-free arrangements, alternative loan repayments and minimum requirements for savings.
  • 1. Why do poor people need to borrow and save? Poor people need to borrow and save for the same reasons as anybody else. These include: Opportunities - Financial & lifestyle opportunities can require large sums of money for starting or running businesses, acquiring productive assets including land and housing, or buying life-enhancing consumer durables such as fans, radios etc. Life cycle needs – Life cycle events that impose financial burdens include: births, deaths, marriages, education, home-making, widowhood, old age, and the need to leave something behind for one’s heirs. Emergencies - Impersonal emergencies are caused by floods, cyclones, and fires etc., while personal emergencies include illnesses, accidents, bereavement, desertion and divorce. Poor people need a wide range of financial services that are convenient, flexible, and reasonably priced. Depending on their circumstances, poor people need not only credit, but also savings, cash transfers, and insurance. Access to sustainable financial services enables the poor to increase incomes, build assets, and reduce their vulnerability to external shocks. Microfinance allows poor households to move from everyday survival to planning for the future, investing in better nutrition, improved living conditions, and children’s health and education. 2. Experience world-wide has shown that the poor can and do save in a variety of ways, including in cash, livestock, jewellery and other assets. Unfortunately these methods tend not to be safe (animals get sick, assets get damaged or stolen, and cannot readily be converted to cash when needed) and do not reinforce good savings behaviours. Microfinance provides these people with a safe place to save. Where people have the capacity to save, they also have the capacity to pay back loans - with interest. Research has consistently shown that the poor are willing and able to pay for financial services that meet their needs.  If microfinance activities are designed specifically for the poor, and tailored to the unique social, cultural, legal and economic environments in which they operate, the poor really can save and repay loans. 3. Microfinance is about building permanent local financial institutions. Building financial systems for the poor means building sound domestic financial intermediaries that can provide financial services to poor people on a permanent basis. Such institutions should be able to mobilize and recycle domestic savings, extend credit, and provide a range of services. Dependence on funding from donors and governments—including government-financed development banks—will gradually diminish as local financial institutions and private capital markets mature. Financial sustainability is necessary to reach significant numbers of poor people. Most poor people are not able to access financial services because of the lack of strong retail financial intermediaries. Building financially sustainable institutions is not an end in itself. It is the only way to reach significant scale and impact far beyond what donor agencies can fund. Sustainability is the ability of a microfinance provider to cover all of its costs. It allows the continued operation of the microfinance provider and the ongoing provision of financial services to the poor. Achieving financial sustainability means reducing transaction costs, offering better products and services that meet client needs, and finding new ways to reach the unbanked poor.
  • Usual microfinance clients include women, microentrepreneurs, small farmers, landless and resettled persons, indigenous peoples, persons in low-income groups especially those in remote or subsistence areas.
  • Microenterprise projects may range from start-up businesses or existing microenterprises in these areas: …
  • Because of the inherent objective of microfinance to reduce poverty, there is much pressure on MFIs to focus on the poorest segments of the population. In reality however, microfinance clients fall within the moderately poor and the vulnerable poor segments, or those nearing the poverty threshold. Research findings from around the world suggest that successful institutions contributing to poverty reduction are particularly effective in improving the status of the middle and upper segments of the poor. The impact of MF services on the client’s income seems to be directly related to the level of income, which reinforces the tendency of those MFIs wishing to preserve their viability and concentrate on the less-poor. Response: there should be more innovation and experimentation if the depth of microfinance outreach will be increased with specific products to be developed to specific unserved segments of the poor.
  • Microfinance is positioned within the government’s poverty reduction strategy within the employment and livelihood strategy.
  • As a poverty reduction strategy, microfinance will: increase opportunities for the development of viable and sustainable livelihood and employment for the poor Strengthen the capaicty of marginalized groups to engage in productive enterprises through the adoption of technologies, access to market and business development services, financial services provision and relevant training.
  • As NAPC exercises oversight functions in poverty reduction, part of its institutional role is to develop and promote microfinance as a tool for poverty reduction.
  • It is important to have a policy and regulatory environment favorable to the MF industry in order to have sustainable MFIs that would continue to provide the much needed financial services to poor households.
  • SRPAA calls for the rationalization of directed programs, giving emphasis on savings and mobilization, focusing government funds on capacity building, and the creation of the NAPC GBA gives recognition to the peculiar characteristics of microfinance and mandates the BSP Monetary Board to establish rules and regulations for its practice within the banking sector. BMBE – requires GFIs to set up a special wholesale window for accredited MFIs. In this Act, all loans granted to the microbusiness enterprises are considered as part of alternative compliance to the Agri-Agra Law (PD 717) and the Magna Carta for Small and Medium Enterprises (SME) (RA 6977). EO 138 – was issued directing the transfer of direct credit programs from government line agencies to government financial institutions, discontinuance of interest rate subsidies, and use of private microfinance institutions as vehicles for delivery of retail financial services.
  • This refers to the non-participation of government line agencies in the implementation of credit/guarantee programs which are then transferred to government finance institutions.
  • The National Strategy for Microfinance employs 4 credit principles for a viable and sustainable microfinancial market that will help provide poor households and microentrepreneurs with greater access to microfinancial services. It calls for a greater role of the private sector and the non-participation of government line agencies in the provision of credit and guarantee programs. Emphasis is on the adoption of market oriented financial and credit policies to ensure viability and sustainability.
  • It must be ensured that government financial institutions will provide wholesale funds to MFIs which do not have access to wholesale loans from private financial institutions.
  • This includes activities for capacity building of institutions and clients, documentation and replication of industry best practices.
  • The People’s Development Trust Fund (PDTF), created under the Social Reform and Poverty Alleviation Act (Republic Act No. 8425), was established primarily for development and strengthening of institutions involved in providing microfinance services to the poor, in extending necessary support services and in pursuing social and financial preparation for the marginalized sectors of society.
  • Development grants for capacity-building of microfinance institutions and beneficiaries shall be funded out of the earnings or income of the PDTF. The Corpus of the PDTF is the amount allotted by the RA 8425 in the total amount of Four Billion and Five Hundred Million Pesos (Php 4,500,000,000) over a span of ten years, but remains to be adequately funded with only Php 100 million in trust at present. The disbursable portion shall consist primarily of the earnings of the PDTF and may include additional amounts expressly donated, contributed or granted by local or foreign sources.

NAPC and Microfinance NAPC and Microfinance Presentation Transcript

  • NAPC and Microfinance Andrea S. Alforte Microfinance Unit, NAPC Secretariat
  • PRESENTATION OUTLINE
    • Basic Microfinance Concepts
    • Microfinance and Poverty Reduction
    • NAPC Mandates in Microfinance
  • Basic Microfinance Concepts View slide
  • Paradigms on credit
    • MODERN
    • Asset
    • poor are bankable
    • collateral free
    • banking at doorsteps
    • demand driven
    TRADITIONAL
    • liability
    • poor can’t pay
    • collateral req’t
    • bank as only source
    • of formal credit
    • subsidized credit/
    • supply driven
    View slide
  • RA 8425 defines Microfinance
    • Purpose
    • Improve HH’s asset base
    • expand access to savings
    Credit - savings mobilization program exclusive for the poor Characteristics - small loan - simple application - collateral free - alternative loan repayments - minimum savings
  • Core Principles
    • Low-income households need sustained access to financial services.
    • The poor have the capacity to repay their loans and to save.
    • Microfinance institutions can be operationally and financially self-sufficient.
  • Who are the MF Players? MICROFINANCE CLIENTS (3.1 million as of March 2006) MICROFINANCE INSTITUTIONS Rural/Thrift/MF Banks, NGOs, Cooperatives (about 1,817 MFIs) Capacity Building Support Agencies/ Institutions Policy/Regulatory/ Supervisory Agencies GFIs/ Wholesalers DONOR COMMUNITY Capacity Building Support Agencies/ Institutions
  • Target Clients of MF
    • Economically active and entrepreneurial low-income households
    • Those who have a stable economic activity and will be able to sustain and enhance that activity
  • Types of Projects Financed
    • Consumer trading/marketing
    • Home-based micro-enterprises
    • Food processing/services
    • Agri-based
  • Microfinance Clients Situation Microfinance Clients Situation Classification of the poor as target for microfinance services ( Adapted from the JBIC Study on Sustainable MF for Poverty Reduction in the Philippines, Sept. 2004)
  • How can MF Assist the Poor?
    • If provided on a sustainable basis, microfinance can:
      • Build viable businesses,
      • Help increase income,
      • Build assets, future investments and savings,
      • Generate employment,
      • Reduce vulnerability to external shocks
  • Microfinance and Poverty Reduction
  • Gov’t Poverty Reduction Program
    • Asset Reform
    • Human Development Services
    • Employment and Livelihood
    • Security and Social Protection
    • Participation in Governance
    MICROFINANCE/ MICRO-ENTERPRISE
  • MF in Poverty Reduction Strategy
    • Increased livelihood and employment opportunities
    • Strengthening the capacity of marginalized groups to engage in productive enterprises
  • NAPC Mandates in MF
  • NAPC Institutional Mandates
    • Coordinate with different national and local government bodies and private sector to assure full implementation of social reform and poverty alleviation programs
    • Oversee, monitor and recommend policies to ensure effective formulation, implementation and evaluation of policies, programs and resource allocation
    • Ensure meaningful participation of the basic sectors
    • Develop and promote microfinance
  • NAPC’s Thrusts/Functions on MF
    • Development of a policy environment, especially in the area of savings generation
    • Rationalization of existing government programs for credit/guarantee
    • Utilization of existing government financial entities for provision of MF products and services for the poor
    • Promotion of mechanisms necessary for implementation of MF services, including indigenous MF practices
  • Policy Environment for MF
    • RA 8425 – directs creation of NAPC, organization of PDTF and PCFC privatization and capitalization (1998)
    • General Banking Act of 2000 – Section 13-(i) and 13- (iv) encourages application for microfinance-oriented banks
    • RA 9178 promoting establishment of Barangay Micro Business Enterprises (Nov 2002)
    • Administrative Order 86 – organizes National Credit Council to rationalize directed credit programs of government (1996)
    • Executive Order 138 – directs non-GFIs to stop retailing credit (1998)
    • Executive Order 110 – Directing the PCFC as the Administrator of the People’s Development Trust Fund (2002)
    • New regulations for credit cooperatives (2002)
  • NAPC’s Thrusts/Functions on MF
    • Development of a policy environment, especially in the area of savings generation
    • Rationalization of existing government programs for credit/guarantee
    • Utilization of existing government financial entities for provision of MF products and services for the poor
    • Promotion of mechanisms necessary for implementation of MF services, including indigenous MF practices
  • Credit Policy Principles
    • Greater role of the private sector (MFI) in financial services provision
    • Enabling policy environment to facilitate increased participation of MFI
    • Market-oriented financial and credit policies (interest on loans and deposits)
    • Non participation of the gov’t in the implementation of credit and guarantee programs
    viable/sustainable private (micro) financial market
  • NAPC’s Thrusts/Functions on MF
    • Development of a policy environment, especially in the area of savings generation
    • Rationalization of existing government programs for credit/guarantee
    • Utilization of existing government financial entities for provision of MF products and services for the poor
    • Promotion of mechanisms necessary for implementation of MF services, including indigenous MF practices
  • GFI Credit Windows for MF
    • MF Banks
    • MF-oriented banks
    • MF NGOs
    • Savings & Credit Coops
    • Cooperatives
    • Countryside Financial Institutions (CFIs)
    • MF NGOs
    • Countryside Lending Conduits (CLC)
    • Agri-Cooperatives
    • Accredited MFIs
    TARGET AVAILERS
    • Agri-fishery/forestry projects
    • Rural/urban microentrepreneurs
    FOCUS GROUPS
    • Wholesale lending to retailers
    • Business development loans
    • Capacity-building loans
    Development Bank of the Philippines (DBP)
    • Wholesale lending to wholesalers
    • Wholesale lending to retailers
    Land Bank of the Philippines (LBP)
    • Wholesale lending to retailers
    Quedan and Rural Credit Guarantee Corporation (QUEDANCOR)  Wholesale lending to retailers  Capacity-building loans People’s Credit and Finance Corporation (PCFC) PROGRAM INSTITUTION
    • Farmer-based/owned coops and organizations
    • Rural Finance Institutions (RFIs)
    • MFIs
    • Coops
    • NGOs
    • Banks
    TARGET AVAILERS
    • Coconut farmers
    • Manufacturing
    • Processing
    • Trading
    • Services
    • Agrarian Reform Communities (ARCs)
    FOCUS GROUPS
    • Wholesale lending to retailers
    UCPB-CIIF Finance and Development Corporation (UCFDC)
    • Wholesale lending to retailers
    Small Business Guarantee and Finance Corporation (SBGFC)  Wholesale lending to retailers  Capacity-building loans National Livelihood Support Fund (NLSF) PROGRAM INSTITUTION
  • NAPC’s Thrusts/Functions on MF
    • Development of a policy environment, especially in the area of savings generation
    • Rationalization of existing government programs for credit/guarantee
    • Utilization of existing government financial entities for provision of MF products and services for the poor
    • Promotion of mechanisms necessary for implementation of MF services, including indigenous MF practices
  • ADB Technical Assistance
    • Conduct nationwide survey of 53 MFIs and 424 MFI clients in frontier areas
    • 3 FGDs with 39 BS Representatives
    • On-site Training and Mentoring of 29 MFI units in frontier areas
    • 20 Microfinance education seminars in frontier areas (3,300+ participants)
  • MF Sector Strengthening Project
    • Provision of technical assistance to MFIs on ASA methodology
    • Trained local practitioner-trainers on ASA
    • Documentation of successful MF practices
    • Development of ASA Instructional Manual
  • NAPC Executive Mandate on MF
    • Monitor the July 2001 & 2004 SONA target on MF:
      • make MF as a cornerstone in the fight against poverty
      • 300k new women borrowers per year (2001-2004); 3 million clients (2004-2010)
    • E.O. No. 110 (PCFC as PDTF Adm.)
      • reiteration of Section 10 of RA on NAPC’s function over PDTF
    • NAPC as the main policy body over microfinance (6th NAPC EB -2/36/03)
  •  
  •  
  •  
  • MF/ME Database
    • Local policies
    • Map of areas with MF services
    • Directory of Microfinance Institutions
    • Credit Windows of Wholesale Microfinance Providers
  • NAPC’s Mandate on PDTF
    • Source funds for the establishment of/and augmentation of PDTF
    • Recommend the accreditation of organizations/institutions acting as resource partners for institutional development
    • Ensure that validation/monitoring activities are conducted for PDTF-funded projects
    • Promote research and development work on livelihood & MF technology, publications/communications programs for poor beneficiaries
  • People’s Dev’t Trust Fund (PDTF) Php 4.5 Billion Fund (accumulated in 10 yrs) only the interest earnings can be used as grant Capacity building/ institutional strengthening of MFIs
  • PDTF
    • PDTF ExeCom
    • Identify strategic activities to augment PDTF
    • Recommend to PCFC projects, organizations and institutions for PDTF accreditation
  • PDTF
    • Strategic Activities for PDTF Financing:
    • Donor’s forum
    • Floatation of bonds
    • Tapping of government agencies with funds for capacity-building to contribute to PDTF
    • Proposal to ACEF for Php250 million contribution to PDTF for SFF
  • Other Activities
    • Conducted Regional Training on Gender Issues in Microfinance (Luzon, Visayas, Mindanao)
    • Membership to Microfinance Program Committee