The policy environment for NGOs engaged in microfinance in the Philippines is very liberal compared to other countries. NGOs have significant freedom but are responsible to register as non-profit organizations with the Securities and Exchange Commission and state their intention to engage in microfinance. They must also file annual audited financial statements. However, NGO microfinance institutions are not subject to prudential regulation or supervision by any government authority. The liberal policies allow NGOs to collect compulsory savings from borrowers and open offices anywhere, but this lack of oversight raises questions about client protection and responsible use of savings.

1. Policy Environment for NGOs Engaged in Microfinance Microfinance Development Forum January 29, 2009 Presented by Edgardo F. Garcia Microfinance Council of the Philippines, Inc.

2. VERY LIBERAL compared to other countries NGOs have a huge space to exercise freedom responsibly Policy Environment in the Philippines for NGOs engaged in microfinance is

3. Register with the Securities and Exchange Commission (SEC) as a non-stock, non-profit organization State in the incorporation papers that you intend to engage in microfinance operations Registration Requirements

4. If previously registered with the SEC, NGOs are required to state in the filing of the annual General Information Sheet (GIS) that the NGO is engaged in microfinance operations.

5. File annually audited financial statements Another requirement of the SEC and the BIR:

6. NGO MFIs are not subject to prudential regulation and supervision by any government regulatory authority. As such, there is no single government agency that has a complete set of relevant information on the financial performance of NGOs engaged in microfinance.

7. PCFC and Land Bank may have some financial information on NGO MFIs that borrow from them. The Microfinance Council collects and compiles relevant financial information from NGO MFIs using the MiX Market platform. MCPI collects information from members and non-members on a voluntary basis.

8. The liberal policy environment allows NGOs to Collect compulsory savings from borrowers as compensating balance for a loan. Open offices or branches anywhere in the country.

9. Ideally, the total amount of compulsory savings collected by each NGO MFI should not exceed the total amount of the loans outstanding at any given time.

10. Unregulated, unsupervised NGO MFIs could raise questions like: Is there adequate protection for the compulsory savings of clients? In group lending methodologies, is it fair to use client savings of good paying clients to answer for the unpaid debt of delinquent co-members of a group? When a client resigns from a program and wants to withdraw accumulated savings, why does it take too long to get back one’s savings?

11. How can the MF sector promote ethical behavior on the part of NGO MFIs towards clients? Promoting and ensuring Good Corporate Governance Practices among NGO MFIs Formulate a Code of Practice on Client Protection among NGO MFIs

12. Promoting Ethical Behavior Promoting and installing a Social Performance Management system Promoting Financial Literacy among clients

13. How do NGO MFIs become regulated and supervised financial institutions? They either establish or transform into financial institutions such as rural banks, thrift banks or development banks.