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Money Talk- Microfinance for Microenterprises Financial_Innovations1

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									          Money Talk:
          Microfinance for
          Microenterprises
         Mr. Eduardo C. Jimenez
         Microfinance Consultant
        Bangko Sentral ng Pilipinas

    Business World Entrepreneurs Forum
August 25, 2006 - Century Park Sheraton, Manila
Outline of Presentation
   Microenterprises in the Philippines
   Definition/ Background Information of
    Microfinance
   Myths, Misconceptions and Barriers to
    Microfinance Development
   Principles and Success Factors of Microfinance
   Best Practices and Leading Methodologies
   Institutions that Provide Microfinance
   BSP Initiatives For Microfinance
Importance of Micro-enterprises
in the Philippines
   Small and medium enterprises (SMEs) comprise
    99.6% of all registered business in the Philippines
    and employ 70% of the workforce

   Of total, micro-enterprises account for 743,949
    (97.1%), small enterprises 61,759 (7.6%),
    medium enterprises 2, 923 (.4%), and large
    enterprises only 2,958 (0.3%).

   Micro/ cottage enterprises make up about 91% of
    total establishments surveyed by the National
    Statistics Office
Invigorating MICROENTERPRISES through
access to MICROFINANCE can lead to
economic growth and development on the
local and national level.
What is Microfinance?
It is a 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
Important Features of the Definition

 It is not just credit
 It has a target market - the poor and low
  income households
 It is linked to the microenterprise
What Microfinance is NOT
   Subsidized Credit
   Dole-out
   Consumption/ Salary Loan
   Cure-all for poverty
Who are the Clients?


                   Near Poor
                                        E-poor
                Laboring
                           Ultra Poor
Features of Microfinance Loans
   Fit for those who can not access “traditional”
    sources of financing
   Innovative Product Designs
     Use  of collateral substitutes
     Short term loans
     Frequent amortizations
     Inclusion of savings
     Enterprise lending
     Simple Documentation Requirements
Benefits of Microfinance for
Microenterprises
 Increase economic activity and income
 Generate employment
 Save and invest in the future
 Guard against emergencies and shocks
 Better invest in health, nutrition and
  education
Myths, Misconceptions and
Barriers
 Poor people can not pay market interest
  rates and can not save
 Microfinance institutions are primarily
  civic-oriented, non-profit organizations that
  can not be sustainable and viable
 Microfinance institutions can not access
  commercial funds
Myths, Misconceptions and
Barriers
   High transaction costs of serving the poor
   Regulatory barriers
   Implementation of government directed
    credit programs
   Poor are intimidated by formal institutions
   Lack of infrastructure and physical access to
    formal institutions
New Paradigm of Microfinance
   From beneficiaries to clients
   From directed credit to market approach
   From evolving programs to evolving
    institutions
   From donor dependence to financially self
    sufficient institutions with access to
    commercial funding
Key Success Factors for
Microfinance – 4 “C”s
   Clearly identified market
   Capable and committed staff
   Creative methodologies and technologies
   Commitment to standards and best
    practices
Best Practices for Microfinance
   Appropriate Products for Clients (flexible,
    accessible, simple in process and
    documentation, appropriately priced, and
    permanent)
   Appropriate Delivery
   Clear Organizational/ Institutional Structure
    (Governance)
    Adequate Risk Management (Use of Portfolio-
    at-Risk, Zero Tolerance for Delinquency)
   Subscription to Performance Standards
Leading Microfinance
Methodologies
 Group  Methodology - Microfinance
  services are provided in the context
  of a group.
Some Examples of Group
Methodolgy
   Grameen Methodology
     7-8 groups of 5 women forming 1 center
     Disbursement and collection through center
     Loans are provided on a rotation basis (2-2-1)
     Collateral substitute (i.e. JSS, peer
      support/pressure)
ASA (Association for Social
Advancement)
  7-8 groups of 5 women forming 1 center
  Disbursement and collection through center
  Simultaneous disbursement of loans
  Collateral substitute (i.e. peer
   support/pressure)
Leading Microfinance
Methodologies
 Individual Methodology - single
  client lending where repayment and
  schedules rely solely on the
  individual (cash-flow, character
  based lending)
Some Examples of Individual
Methodology
   MABS approach (Microenterprise Access
    to Banking Service)
     USAID   funded technical assistance to rural
      banks that want to engage in microfinance
     Individual loans are granted based on the
      character and household cashflow
     Culture of zero tolerance for delinquency
Where Can I Access
Microfinance?
   Banks (Rural, Thrift, Some Commercial
   NGOs
   Cooperatives
BSP Initiatives

     Anchored on the General Banking Law
      of 2000, Sections 40, 43 and 44
      Recognizes the peculiar characteristics
      of microfinance in the requirements,
      terms and amortization of loans and
      other credit accommodations.
Three-Pronged Approach
   Microfinance “Friendly” Policy and
    Regulatory Environment
   Training and Capacity Building within BSP
    and banking sector
   Promotion and Advocacy
Policy and Regulatory
Environment
   Issuance of 13 Circulars governing the practice
    of microfinance in the banking sector – provides
    incentives like rediscounting, recognize
    microfinance loans (no collateral, loan
    documentations, etc), allow for branching,
    promote best practices

   Modification of Manual of Examination to include
    microfinance operations

   Member of the Technical Working Group that
    established the regulatory framework and
    performance standards for all types of MFIs
Ways How a Bank can Engage in
Microfinance
 Establishment of a microfinance-oriented
  bank
 Establishment of a microfinance-oriented
  branch
 Establishment of a microfinance unit within
  an existing bank
Training And Capacity Building

   Creation of a Microfinance Committee and
    Microfinance Unit
   Establishment of a Core Group of BSP
    Microfinance Examiners
   Inclusion of microfinance in the Basic Rural
    and Thrift Banking Courses
   Conduct of training for banks on microfinance
    best practices
Promotion And Advocacy

    Regional tour to promote microfinance best
     practices to practitioners and potential
     players
    BSP as Chair of the Philippine Celebration of
     the UN International Year of Microcredit
    Microentrepreneur of the Year Awards
Banking Sector Exposure to Microfinance
          As of March 31, 2006
          (in millions)

                                 Micro Loans Portfolio
                                               No. of
                                 Amount      Borrowers
 Microfinance-oriented Banks:
    Thrift Banks (5 banks)        212.400       50,187
    Rural Banks (4 banks)         230.992       34,984

 Traditional Banks:

   Thrift Banks (9 banks)          144.666
   Rural Banks (159 banks)       2,373.291     410,110

    Cooperative Banks (27 banks) 696.803      97,899

 Total   (204 banks)             3,658.052     593.180
              Thank you.

http://www.bsp.gov.ph/about/advocacies_micro.asp
     Microfinance Unit – (02) 523-6130

								
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