Financial inclusion to boost microfinance – BSP

MANILA, Philippines — Stronger financial inclusion through the recently launched strategy is seen further boosting the microfinance sector as the economy recovers from the impact of the COVID-19 pandemic.

In his weekly virtual press briefing, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diok­no said the National Strategy for Financial Inclusion (NSFI) 2022-2028 increases focus and support to the microfinance sector as part of a whole of government approach toward a more financially included and empowered citizenry.

“Supporting the digital transformation and capacity building of microfinance institutions (MFIs) are priorities under the new NSFI. A strong and technology-driven microfinance sector can provide safe and innovative financial products to its microentrepreneur clients,” Diokno said.

According to Diokno,  micro­finance has long served the entrepreneurial poor, serving as a better alternative to “five-six” lending, with its uncollateralized loans, simple requirements, fast processing and frequent amortization.

According to the BSP chief, MFIs are among the principal drivers of last-mile financial inclusion as it is present in more than half or 57 percent of the unbanked local government units (LGUs) nationwide.

MFIs are present in 84 percent of LGUs in the country while only 69 percent is reached by banks.

“This has made MFIs ideal as payout centers of banks and e-money issuers that partnered with the government for the distribution of financial assistance or ayuda in far-flung areas,” Diokno said.

A  total of 144 banks are engaged in microfinance, providing safe and affordable financial services to around two million borrowers, with a total microfinance loan portfolio of P26 billion, the BSP chief said.

On the other hand, non-bank MFIs such as cooperatives assist 8.8 million members, with total outstanding loans of P288 billion.

Likewise, microfinance non-government organization (NGOs) serve 6.2 million clients, with total outstanding loans amounting to P50 billion.

The central bank, Diokno said, recognizes the potential of digital technology as a game changer for microfinance.

According to the BSP governor, interest in digital loan disbursement and collection, and online payment gateways is gaining traction – with mobile apps providing seamless experience, giving clients self-service options for access of account information and availment of online financial services.

“MFIs are also pursuing innovations in back-end operations. These include automated financial management system, as well as credit scoring and decisioning models,” he said.

Under the new NSFI, the central bank reiterates its support for microfinance as a viable source of sustainable financing for rural communities and microenterprises, promoting greater financial inclusion.

The NSFI 2022-2028 builds on the gains of the first strategy launched in 2015 and takes into consideration the COVID-19 pandemic and rapidly evolving developments in financial services.