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BY DIANE CLAIRE J. JIAO, Senior Reporter

ADB cites weaknesses of microfinance sector

Posted on October 18, 2012

THE PHILIPPINES is one of the leading countries in microfinance policy and regulation in Asia but it still lags in terms of scale and reach to the poor, the Asian Development Bank (ADB) said.

“Of the 21 countries with ADB support during 2000-2010, ADB’s efforts were effective in Cambodia, Pakistan, Philippines and Tajikistan, where notable improvements in the policy, legal, regulatory and supervisory frameworks were achieved,” ADB said in a report released yesterday.

Other countries were unable to achieve this since key constraints weren’t addressed, frameworks weren’t completed and there was no focus on developing the overall microfinance environment, the regional lender said in its repport.

“In the Philippines, ADB support enhanced the policy and regulatory environment by removing regulatory impediments and policy distortions, which in turn contributed to the growth of the sector,” it said.

The country follows a market approach to microfinance, with the private banking sector offering financial products and services to the poor, supervised by the Bangko Sentral ng Pilipinas.

The government’s role is centered on regulating and providing an enabling environment for the sector’s growth and development.

The Philippines, along with Pakistan, topped the Economist Intelligence Unit’s 2011 survey of microfinance regulatory framework and practices in 55 countries.

“This suggests strong regulatory regimes and good prospects for microfinance in these countries,” the ADB said.

The Philippines had 14,935 microfinance providers as of 2011, the ADB said, consisting of rural, thrift and cooperative banks, credit cooperatives and nongovernment organizations. This dwarfs those of other countries such as Uzbekistan with 182 microfinance providers, Cambodia with 55, Vietnam with 54, Pakistan with 35 and Papua New Guinea, 25.

However, the country lags in scale and outreach. ADB data showed that the Philippines’ microfinance assets totaled $920 million from 2000 to 2010, while Cambodia had $1.653 billion and Vietnam, $4.798 billion.

The Philippines’ gross loan portfolio totaled $632 million in that period, well below Cambodia’s $1.184 billion and Vietnam’s $4.651 billion.

The country also had 2.965 million active microfinance borrowers from 2000 to 2010, a third of Vietnam’s 8.463 million.

“Cambodia, Pakistan and the Philippines, despite their well-established policy and regulatory frameworks, were far from the scale and outreach of Vietnam,” the ADB said.

The bank noted, though, that growth in microfinance in Vietnam was “driven to a large extent” by the government’s participation in the delivery of financial services. Subsidies were extended to the Vietnam Bank for Social Policy, which dominated the local market.

“In contrast, Cambodia, Pakistan and the Philippines experienced rapid growth in assets, loan portfolio and borrowers, mainly due to more conducive policy and regulatory environments that promote the development of the sector,” it said.