Microfinance sector needs flexible schemes

BY ANTONIO SIEGFRID O. ALEGADO

Microfinance sector needs flexible schemes

PHILIPPINE-based microfinance institutions may have to tailor fit their products to clients’ needs in order to keep high repayment rates and further tap prospective customers.

Microfinance institutions should personalize products based on their clients. -- JONATHAN L. CELLONA

The country’s microfinance sector remains buoyant with a high repayment rate -- proof that the poor make good debtors.

Nongovernmental organizations (NGOs) who engage in microfinancing posted a repayment rate of 95% as of last year, while rural banks reported 85%.

But microfinance institutions may need to do more than just comply with set regulations to keep the sector in tip-top shape.

“Microfinance institutions should have flexible schemes and should personalize their products depending on the type of businesses of their clients,” Rizal Commercial Banking Corp. senior vice president and microfinance head Maria Lourdes S. Pineda told BusinessWorld at the sidelines the Regional Forum on Supporting Micro, Small and Medium-scale Enterprises (MSME) Access to Finance organized jointly by the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) and the Australian APEC Study Center.

Ms. Pineda encouraged the use of a “cash-flow based” collection scheme, where clients repay loans depending on how their businesses operate and earn.

“The sari-sari store (mom and pop shop) vendor earns on a daily basis so you collect their payments more often than a tailor who earns seasonally depending on orders,” she said.

Ms. Pineda added that microfinance institutions have to “talk the language of their clients” when marketing financial products.

“It is important to make a distinction between microfinance institutions and larger banks and financial institutions,” University of Melbourne economist Peter Bardsley said in his presentation. “You have to treat the two sectors and its borrowers differently.”

Moreover, the country has made significant inroads in adhering to key Basel proposals for microfinance institutions which summarize principles to the supervision of microfinance activities. The proposals were to define microfinance carefully, allocate supervisory resources efficiently, develop specialized knowledge within the institutions’ supervisors, and note that control practices for microfinance are different from that of other financial institutions, University of Sydney Professor Ros Grady said in her presentation during the forum.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla, Jr., speaking at the event, said “We are at par to these standards.”

In fact, the BSP was part of the committee that helped draft the proposals, he added.

The two-day forum, which ends today, was held to evaluate regulatory and policy impediments that impact on the flows of finance to MSMEs and discuss measures and best practice regulatory principles that would enhance access to finance of the sector. The output would be proposals submitted for consideration by APEC Finance Ministers and best practice regulatory principles to further enhance best practice regulatory approaches.

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