Expanding Banking Services to Micro, Small and Medium Enterprises and Poor Households in the Philippines

This paper reviews policies and programs that encourage banks to expand their financial services to micro, small and medium enterprises, and poor households in the Philippines. It discusses constraints that banks face in further expanding their financial services to MSMEs and poor households and recommends measures to overcome these constraints.

The paper highlights the importance of policy environment in expanding banking services to MSMEs, and poor households. It states that the overall policy environment for promoting microfinance in the Philippines has considerably improved since 1990, and banks have responded favorably to it. For instance, number of offices of thrift and rural banks has increased from 2,685 in 1996 to 3,285 in 2001, despite the fact that many of them failed during the same period. Constraints that banks face to the expansion of their financial services to MSMEs and poor households include:

• Macroeconomic instability;
• Inadequate infrastructure;
• Regulation on deposit mobilization;
• Shortage of capital;
• Competition with government banks;
• Inadequate supervision;
• Loan portfolio regulations.