Microfinance: Yesterday, Today, and Tomorrow: What is the Next Best Practices
Transcript of Microfinance: Yesterday, Today, and Tomorrow: What is the Next Best Practices
MicrofinanceYesterday,TodayandTomorrow:WhatistheNextBestPrac;ce?
PiaBernade=eRomanTayagBangkoSentralngPilipinas
2010RBAP‐MABSNa.onalRoundtableConferenceHya=HotelandCasino,ManilaJune2‐3,2010
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 the methodologies and technologies of microfinance
Required banks to have clear microfinance methodology and clear underwriting standards
Inadequate risk management system attune to the peculiar characteristics of microfinance
Required adequate risk management systems (i.e. daily monitoring of portfolio-at-risk and corresponding provisioning requirements)
Governance issues especially with banks that were transformed from NGOs
Clear and comprehensive governance standards imposed
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/ increased and diversified income streams Larger market beyond usual reach of brick and mortar offices Lower costs of delivery Access to commercial funding
More options of providers Lower costs/ greater convenience Wider range of products for all financial service needs Being reached, even those hard 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
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
Role of a Supportive Policy and Regulatory Environment
P R O M A N @ B S P . G O V . P H W W W . B S P . G O V . P H
Thank you.