New Microfinance rules issued by BSP

New Microfinance rules issued by BSP

THE BANGKO Sentral ng Pilipinas (BSP) has tightened its rules on banks that have attached nongovernment organizations (NGOs) or foundations, which are engaged in microfinance, in a bid to protect the public.

It issued Circular 725 dated June 16 that amended the Manual of Regulations for Banks (MORB) that defined these NGOs or foundations as banks’ “related interests” and set the parameters on how banks and their officers should deal with these institutions.

The BSP also issued Memorandum 33 dated June 15 that addressed all banks engaged in retail microfinance and set the standards governing the business relationships between these banks and their related NGOs or foundations that are also engaged in retail microfinance.

In a statement on Friday, the central bank warned how the dealings between banks and their related foundations or NGOs could lead to abuse.

“Over the years, an increasing number of banks have tried to create synergy in having affiliated NGOs/foundations as their partners in providing complementary microfinance operations primarily to prepare low-income customers for formal banking relationships,” the BSP said, noting there are at least 18 such banks at present.

“This development replicates the early successes of several microfinance-oriented banks wherein related NGOs/foundations served as a “laboratory,” experimenting with new loan products, screening potential borrowers, and training new loan officers,” it added.

“Eventually, the banks acquire the NGOs/foundations’ seasoned loan receivables. This unique relationship has served both entities well as shown by their continued asset growth and sustainability.”

The abuse, the BSP pointed out, could arise from common board memberships, shared resources and loan transfers, resulting in higher operational, governance and repetitional risks to the banks.

NGOs and foundations are not supervised by the BSP.

In Circular 725, the central bank defined “related interests” as those NGOs and foundations that are incorporated by the stockholders, directors or officers of related banks and are engaged in retail microfinance operations.

The BSP also required banks to treat related NGOs and foundations in a business-like manner, such that agreements must be covered by contracts.

It also prohibited bank officers from holding any position in these NGOs or foundations that will allow them to get involved in daily microfinance operations.

In Memorandum 33, the central bank said the microfinance operations of banks and their related NGOs or foundations must be administered separately. Thus, banks and these related institutions must have a separate organizational structure, manual of operations, management information systems, etc.

The banks should avoid conflict of interest situations and not extend preferential treatment to their related NGOs or foundations.

“Any loan, other credit accommodation or guarantee in any form whatsoever granted to a related NGO/foundation is subject to existing rules on DOSRI loans,” the memorandum also read.

However, the BSP said the DOSRI rule is relaxed as long as the deposits of the clients of the related NGOs or foundations are maintained in the loan-granting banks.

“[T]he liberal interpretation of DOSRI rules [is meant] to encourage clients of NGOS/foundations to open formal micro-deposit accounts with the related banks in lieu of alternative savings mobilization schemes in NGOs/foundations such as ‘capital build-up’ schemes,” the BSP said in the statement.

“The BSP believes this will result in better protection of customer savings.”

As of Sept. 31, 2010, the central bank, in its “2010 Year End Report on Bangko Sentral ng Pilipinas Initiatives In Microfinance and Financial Inclusion,” recorded P6.5 billion in microfinance loans extended by a total of 202 thrift, rural and microfinance banks. The borrowers numbered 932,622.

--
---------------------------------------------
CARLOS ANI - SEEDFINANCE Corporation - http://www.seedfinance.net
Email: carlosani@seedfinance.net
Landline: +63495010127 Cellphone: +639152919580
DEVJOBS - http://www.devjobsmail.com
PHILDEVFINANCE - http://phildevfinance.posterous.com http://phildevfinance.wordpress.com
CONSULTING - http://www.carlosani.com
My Clippings - http://www.myclipps.posterous.com
------------------------------------------