The Bangko Sentral ng Pilipinas and Microfinance: Recent Regulations and Issuances Pia Bernadette Roman Tayag Inclusive Finance Advocacy Bangko Sentral ng Pilipinas RBAP-MABS Regional Roundtable Pan Pacific Hotel, Manila 23 November 2010
Outline of Presentation Microfinance and Financial Inclusion: Policy Framework Summary of 2010 Regulations Microfinance Products Microfinance Industry/ Infrastructure Microfinance Delivery Channels Regulation in Focus: Establishment of Micro-Banking Offices (MBOs)
Microfinance and Financial Inclusion Microfinance has proven market-based solutions to address financial access issues are feasible. Building on this success, the goal of financial inclusion aims to expand a wide range of services to more people who need them. Such financial services include savings, credit, insurance, payment services, remittances. These products must be appropriately designed and priced for the particular market and delivered by duly authorized institutions. Bank and non-bank products and delivery channels can combine to reach the financially excluded.
Microfinance and Financial Inclusion Financial inclusion is a worthy policy objective, alongside the promotion of stability and efficiency in the financial system Financial inclusion and financial stability may be mutually reinforcing Supervisory concerns and risks are real and valid but can be adequately managed Policy approach is to promote an enabling environment based on proportionate application of sound and generally accepted regulatory and supervisory principles
Recent BSP Issuances (2010) MICROFINANCE PRODUCTS – characterized by the increasing appreciation that the microfinance market need a wide range of products. Innovation in the delivery of such services is important. Housing Microfinance Micro-Agri Microinsurance Micro-deposit Accounts
Recent BSP Issuances (2010)Circular 678 - HOUSING MICROFINANCE Purpose House construction House and/or lot acquisition Home improvements/repairs Loan Amount Up to P300T for house construction/house and lot acquisition Up to P150T for home improvements/repairs Loan Value Up to 90% of the appraised value of REM Acceptable valuation in cases of usufruct, leases, etc. Capacity to pay based on cash flow analysis
Recent BSP Issuances (2010)Circular 678 - HOUSING MICROFINANCE Loan Payment Loan payments not exceed reasonable percentage of clients income Terms Up to 15 years – house construction/house and lot acquisition Up to 5 years – home improvement/repairs
Recent BSP Issuances (2010)Circular 680 – MICRO-AGRI LOANS Purpose For farming activities, agri business and agri-related fixed assets, among others, utilizing microfinance principles and methodologies in accordance with existing BSP regulations Eligibility Multiple income (farm and off-farm) Farm activity at least 2 years in operation Existing borrowers with good track record Loan Amount Up to PhP 150,000
Recent BSP Issuances (2010)Circular 680 – MICRO-AGRI LOANS Payment Frequent amortization Lump sum may be considered up to 40% of the loan amount Other requirements Loan product included in manual Criteria/characteristics of MF loans must be present
Recent BSP Issuances (2010)Circular 683 - MICROINSURANCE Definition activity providing specific insurance, insurance-like and other similar products and services that meet the needs of the low- income sector for risk protection and relief against distress, misfortune and other contingent events Authority for banks Allows thrift, rural and cooperative banks to market, sell and service microinsurance products to their microfinance clients These banks can now collect premiums and pay claims for microinsurance products duly approved by the Insurance Commission
Recent BSP Issuances (2010)Circular 683 - MICROINSURANCE Features of Microinsurance The amount of premiums, contributions, fees or charges, computed on a daily basis, does not exceed five (5) percent of the current daily minimum wage rate for non-agricultural workers in Metro Manila; and The maximum sum of guaranteed benefits is not more than 500 times the daily minimum wage rate for non-agricultural workers in Metro Manila.
Recent BSP Issuances (2010)Circular 694 – MICRO-DEPOSITS Definition Savings accounts that cater to the needs of the basic sectors, low-income clients and those that are unserved or underserved by the financial system. They are appropriately designed and priced to fit the needs and capacity of this particular market. Features of a Micro-deposit Minimum maintaining balance not exceeding One Hundred Pesos (P100.00) Not subject to dormancy charges Only for individual microfinance clients whose average daily savings account balance does not exceed Fifteen Thousand Pesos (P15,000.00)
Recent BSP Issuances (2010) MICROFINANCE INDUSTRY INFRASTRUCTURE – supports the development of a vibrant, robust and professional microfinance industry
Recent BSP Issuances (2010)Circular 685 – MICROFINANCE INSTITUTION RATING AGENCIES (MIRA) Create enabling environment for appropriate use of objective, credible and competent third-party ratings of MFIs, particularly those that provide ratings for banks with MF operations Rules include pre-qualification and minimum eligibility criteria Ensure that MIRAs: Demonstrate commitment to comply with relevant rules and regulations Possess technical capability, experience and organizational resources to provide objective and transparent ratings Use a rating framework that reflects all material facets of microfinance operations, its attendant risks and operational challenges.
Recent BSP Issuances (2010) DELIVERY CHANNELS/ ACCESS POINTS – recognizes the need to create a wide network of access points for financial services
Recent BSP Issuances (2010)Circular 694 – OTHER BANKING OFFICES : REGULATION IN FOCUS Highlights No longer need to be attached to a microfinance-oriented bank or branch to perform microfinance operations Fully expanded the suite of services available for microfinance clients and OF beneficiaries Can be applied in batches based on a specific strategy presented by the banks
Recent BSP Issuances (2010)Circular 694 – OTHER BANKING OFFICES : REGULATION IN FOCUS Recognizes two types of other banking offices (OBOs) Regular OBOs – non transactional services Microfinance OBOs or Micro-banking Offices (MBOs) Possible activities of an MBO Accept micro-deposits including initial deposit Accept check deposits of microfinance clients for collection and credit to own deposit accounts Disburse/release proceeds of micro-loans and collect loan amortization payments and related charges Present, market, sell and service microinsurance products
Recent BSP Issuances (2010)Circular 694 – OTHER BANKING OFFICES : REGULATION IN FOCUS Possible activities of an MBO Receive/pay-out funds in connection with authorized remittance transactions Act as a cash/money in and cash/money out for electronic money (e-money) transactions Collect premiums/pay out benefits from/to members of social security institutions such as the Government Service Insurance System (GSIS) (GSIS), Social Security System (SSS), other government authorized pension and benefit systems, Philippine Health Insurance Corporation (PhilHealth) and Employees Compensation Commission (ECC)
Recent BSP Issuances (2010)Circular 694 – OTHER BANKING OFFICES : REGULATION IN FOCUS Possible activities of an MBO Pay out benefits under government-sponsored conditional cash transfer schemes Accept utilities payments Purchase foreign currencies up to the maximum equivalent of USD300 per client per day for credit to micro-deposit accounts
Recent BSP Issuances (2010)Circular 694 – OTHER BANKING OFFICES : REGULATION IN FOCUS General Pre-Qualifying Requirements Safety and Soundness Considerations Capacity/ Capability Considerations Presence of a coherent strategy in utilizing MBOs
Recent BSP Issuances (2010)Circular 694 – OTHER BANKING OFFICES : REGULATION IN FOCUS Additional Requirements for MBO At least fifty percent (50%)of total transactions generated are with microfinance clients Maximum on-site cash limit not exceeding PhP 500,000 per day, commensurate to its level of banking activities Adequate physical facilities and security arrangements as well as information and transaction support systems appropriate to the level of banking activities undertaken and services offered Managed by a responsible officer with adequate experience or training in microfinancing activities Manual of operations
Recent BSP Issuances (2010)Circular 694 – OTHER BANKING OFFICES : REGULATION IN FOCUS Transitory Provision The bank shall declare to the BSP the desired classification (regular or MF-OBO/ MBO) of its existing OBOs within 30 calendar days from the effectivity of the revised Guidelines; provided that all existing OBOs shall conform to the revised Guidelines or phase out non-conforming activities within six months from its effectivity; provided further that the president of a bank with an existing OBO covered by this transitory provision shall certify under oath to the BSP within 30 days from the end of the transition period that all existing OBOs conform to the revised Guidelines.