Microfinance in Philippines
COUNTRY ANALYSIS UNIT
FEDERAL RESERVE BANK OF SAN FRANCISCO
JANUARY 2010
Microfinance in the Philippines uring the last few years, the volume of microfinance activity has grown considerably in the Philippines and an increasing number of financial institutions have engaged in retail microfinance operations. While this sector has been traditionally dominated by rural banks, non-governmental organizations (NGOs) and finance cooperatives, in 2009 a number of commercial banks sought entrance into the retail microfinance market. This Asia Focus report reviews the growth of the Philippines microfinance industry and discusses the implications of commercial banks entering this market. What is Microfinance? The Philippines central bank, Bangko Sentral ng Pilipinas (BSP), defines microfinance as the provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products to the poor and low-income households and their microenterprises.i The financial service most commonly provided is microcredit, which is typically issued in the form of a specific business loan for microenterprise purposes. A key defining characteristic of a microfinance loan is the ability to secure credit without collateral. In the Philippines, microfinance loans cannot exceed PhP 150,000 (US$3,218).ii Microfinance providers in the Philippines often employ a group lending approach, whereby each person within a small group is liable for any default by another group member. Other group lending-based methodologies being used in the Philippines include the ASA model, whereby each group member is responsible only for his or her own loan, and the Alliance of Philippine Partners in Enterprise Development (APPEND) Scale-Up Branch Model, which is based on the Trust Bank model.iii,iv Development of Microfinance in the Philippines The Philippines’ microfinance sector is credited as one of the oldest and most active in the world.v While the roots of
FEDERAL RESERVE BANK OF SAN FRANCISCO
JANUARY 2010
Microfinance in the Philippines uring the last few years, the volume of microfinance activity has grown considerably in the Philippines and an increasing number of financial institutions have engaged in retail microfinance operations. While this sector has been traditionally dominated by rural banks, non-governmental organizations (NGOs) and finance cooperatives, in 2009 a number of commercial banks sought entrance into the retail microfinance market. This Asia Focus report reviews the growth of the Philippines microfinance industry and discusses the implications of commercial banks entering this market. What is Microfinance? The Philippines central bank, Bangko Sentral ng Pilipinas (BSP), defines microfinance as the provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products to the poor and low-income households and their microenterprises.i The financial service most commonly provided is microcredit, which is typically issued in the form of a specific business loan for microenterprise purposes. A key defining characteristic of a microfinance loan is the ability to secure credit without collateral. In the Philippines, microfinance loans cannot exceed PhP 150,000 (US$3,218).ii Microfinance providers in the Philippines often employ a group lending approach, whereby each person within a small group is liable for any default by another group member. Other group lending-based methodologies being used in the Philippines include the ASA model, whereby each group member is responsible only for his or her own loan, and the Alliance of Philippine Partners in Enterprise Development (APPEND) Scale-Up Branch Model, which is based on the Trust Bank model.iii,iv Development of Microfinance in the Philippines The Philippines’ microfinance sector is credited as one of the oldest and most active in the world.v While the roots of