Philippine Credit Policy and Microfinance Institutions: Some Lessons from the Latin American Experience

The paper highlights Peru, Bolivia, and Guatemala's experiences with subsidized credit programs and presents ways in which these countries are moving towards a sustainable, private-led effort to address the credit needs of low-income clients:

• Subsidized credit programs failed in all the three countries and forced government banks to close;
• Liberalization and interest rate deregulation triggered the development of non-traditional lending institutions for low-income clients;
• Growing competition reduced interest rates;
• Governments took measures to promote an enabling microfinance environment;
• Low income people successfully repaid loans.

Some of the lessons learnt from the experiences in Peru, Bolivia, and Guatemala, are:

• Government subsidized programs provide incentives for non-repayment;
• Political patronage, bureaucratic inefficiency, and distorted incentives cause failures;
• Stable macroeconomic and financial policies are necessary for efficient financial markets;
• Interest rate deregulation and competition help to reduce interest rates.

Some of the recommendations for an enabling microfinance environment in the Philippines are:

• Central Bank of Philippines should review existing regulations, standards, and performance indicators to determine their relevance for microfinance services;
• Regulatory mandate of the cooperative development law should be strengthened;
• Appropriate microfinance regulatory environment should be promoted;
• Capacity building support should be provided to MFIs to strengthen their operations.