My Observations about
the Microfinance
Industry in the
Philippines
By Carlos Ani
Observations
• My own personal observations of
developments, trends, opportunities,
challenges and issues within the
microfinance (MF) industry of the country.
14 items of observations
• Some of my observations are from the
cooperative sector, and may not apply to
other sectors of the MF industry.
1 - environment
• The policy environment is one of the most
conducive and friendly in the world, which
encourages the proliferation, and
development of MFIs, that serve the
grassroots people.
• There are hundreds of MFIs in the country,
95% of which are small.
1 - environment
• While it is a free environment and
generally vibrant, there have been many
fly-by-night operators, that fool and scam
poor people.
• The cooperative sector and the informal
lender sector (mostly underground) have
the greatest number of microlenders.
2 - regulation
• The coops are poorly and weakly
supervised and regulated by the CDA,
which results to poor performance of many
small coops.
• The CDA has developed rules and
regulations (MORR) but many coops are
still unaware of it. There is an urgent need
to educate coops about those new rules.
2 - regulation
• There are now more than 220 rural banks
doing microfinance, but only a handful are
so-called Microfinance Oriented Banks.
• The most popular ones are those operated
by former NGOs – like Kauswagan Bank,
CARD Bank, Vision Bank, etc.
2 - regulation
• The BSP has clear rules and policies on
banks doing microfinance. It has
supervision personnel and enforcement
powers unlike the CDA.
• The cooperative sector and the informal
lender sector (mostly underground) have
greatest number of lenders.
2 - regulation
• The least regulated are NGO MFIs. But
they are also the most creative, and
innovative.
• There is a clear trend of commercialization
of microfinance, including the conversion
of unregulated MFIs into formal, regulated
entities (such as a rural bank or a
development bank).
3 - outreach
• The NGO-bank MFIs like CARD, OK
Bank, etc. have the highest client
outreach. Followed by coops.
• The collective outreach of all MFIs is quite
high already (maybe more than 2M by
now).
3 - outreach
• While outreach is high, there is still vast
potentials because still millions of poor
people have no access to MF services.
• MFIs can not grow as fast as Bangladeshi
MFIs because 1) massive product
standardization is not feasible given the
diverse financial needs, 2) labor cost is
higher in Phils than in Bangladesh.
3 - outreach
• One limiting factor also is language. There
are many local dialects. Field officers must
speak local dialects.
• Another factor is geographic dispersion
(islands, mountainous, remote).
• Then, some areas have serious law and
order problems (rebels, kidnappers,
hoodlums)
4 – savings
• All banks are aggressively mobilizing
savings and MFIs compete with large and
medium banks for those savings.
• The banking sector is awash with savings
money (high liquidity).
• A few coops are successful in savings
mob but majority of them are dependent
on outside borrowings.
4 – savings
• The bank-like approach to savings mob is
a proven technology. Some coops have
used that approach (MSO) to increase
their savings portfolio substantially.
• Many coops are unaware or not ready to
implement a serious MSO plan.
• Coops and NGOs are subsidy-dependent
(relies on cheap loans from donors).
4 – savings
• MFIs, especially coops, rely on short-term
savings of members, and many have not
yet developed products that tap long-term
savings.
• More than 85% of coops’ savings are
short-term.
• Coops can not lend medium term or longterm because of the short-term nature of
its financing.
4 – savings
• Treasury management amongst coops is
still very poor.
• It is not uncommon for coops to fall into
dangerous, risky and failed investments.
• Some coops failed due to corruption and
fund diversion by its own leaders, directors
and managers.
• Penalties on abusive leaders and
managers are absent and/or weak.
4 – savings
• Due to weak treasury and internal control,
many coops have failed due to corruption
and fund diversion by its own leaders,
directors and managers.
• Penalties on abusive leaders and
managers are absent and/or weak.
• This situation is still true today given the
weak supervision of the coop sector.
5 – governance
• Many of the large and medium MFIs have
very good directors plus committed
talented leaders / managers.
• Tiny small coops have not yet attain
quality leadership and management,
although a few have good leaders (but
have remained unnoticed).
• Governance as a whole need to be
strengthened.
6 – management
• Majority of all MFIs need to improve the
quality and skills of their managers, so
they can better manage their MFIs.
• Financial management, financial ratios,
credit risk management, marketing,
product design, delinquency management,
etc.
6 – management
• Large MFIs can afford to pay for high
quality manager and staff training, plus
some have donor funding. But vast
majority of coops need some subsidies in
training their managers and key staff.
They don’t have enough money to pay for
full costs of such training.
6 – management
• Training and provision of TA on “Best
Practice MFI management” have the
greatest potentials for success and have
been proven success stories:
SEEDFINANCE, CUES, MABS, etc.
• Local people are highly trainable and
teachable.
6 – management
• Blind Replication of Grameen, ASA, or
foreign-made technologies have not been
really successful. Adaptation is needed.
• Local MFIs are good in copying, adapting
and modifying foreign technologies to suit
local tastes and needs.
6 – management
• A subsidized and serious training program
for MFIs can bring greatest impact. But it
should not be 100% subsidized, to avoid a
supply-driven situation. Counterpart
contributions should be and could be
required.
7 – ratings
• There is no independent rating system yet
inside the country, but there are now
standards: MCPI, PESO, etc.
• Each of the major wholesalers have their
own MFI evaluation criteria and tools, and
they don’t have a common tool.
• They utilize the industry performance
standards as part of their evaluations.
7 – ratings
• If not adopted by the major microfinance
wholesalers in the country, the use of
ratings will not flourish much.
• The best incentive for wide adoption and
use is when MFIs get money (or loans)
when their ratings is high.
8 – credit management
• The credit management systems and
policies of most cooperatives need review
and improvement.
• If going to bigger loans (bigger than
50,000 pesos), it is very important that an
MFI tighten its credit systems and risk
management.
9 – mergers
• Mergers are happening between MFIs
especially if one or two of them are
suffering and in the edge of collapse. A
merger is the better option instead of
closure or failure.
• But there are pitfalls and dangers in
mergers.
• More mergers should happen.
10 – financial indicators
• Many small MFIs are not yet familiar with
industry standard financial ratios.
• There is no one collecting financial and
operational information indicators from the
whole industry, but there are some subsector data being collected already.
11 – MIS
• Many small MFIs do not have robust MIS
systems. This is a special technical need
that is common to large numbers of small
and medium size MFIs.
• The bigger coops are linking with the
banking sector’s ATM system.
• There are new emerging technologies that
can increase or improve client services:
SMART Money, G-Cash, etc.
12 – micro-insurance
• Many MFIs offer micro-insurance products
but they are poorly designed, risky,
unwieldy, and not actuarially sound.
• Need to improve this product, and
organize more, network-wide, and
collaborate more, because insurance is a
“numbers game”.
13 – new products
• MFIs are now starting to develop new
products: SME loans (especially for the
graduating micros), salary loans, housing
loans, etc.
• Potential products: micro-housing, microleasing, and vehicle financing for larger
micro-enterprises and GMs.
14 – collaboration
• Local MFIs like to work and collaborate
together. Holding annual conferences
where MFIs learn from each other, and
help each other will benefit many MFIs
with little costs.
• THANK YOU!