Microfinance: Yesterday, Today, and Tomorrow: What is the Next Best Practices

Microﬁnance Yesterday, Today and  Tomorrow: What is the Next Best Prac;ce?  Pia Bernade=e Roman Tayag  Bangko Sentral ng Pilipinas  2010 RBAP‐MABS Na.onal Roundtable Conference  Hya= Hotel and Casino, Manila  June 2‐3, 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 Required banks to have clear microfinance the methodologies and technologies of methodology and clear underwriting standards microfinance Inadequate risk management system Required adequate risk management systems (i.e. attune to the peculiar characteristics daily monitoring of portfolio-at-risk and of microfinance corresponding provisioning requirements) Governance issues especially with Clear and comprehensive governance standards banks that were transformed from imposed NGOs

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/ More options of providers increased and diversified income Lower costs/ greater streams convenience Larger market beyond usual Wider range of products for all reach of brick and mortar offices financial service needs Lower costs of delivery Being reached, even those hard Access to commercial funding 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

Role of a Supportive Policy and Regulatory Environment  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

Thank you. PROMAN@BSP.GOV.PH WWW.BSP.GOV.PH

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Microfinance: Yesterday, Today, and Tomorrow: What is the Next Best Practices

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Microfinance: Yesterday, Today, and Tomorrow: What is the Next Best Practices — Presentation Transcript