Philippines Financial Sector Assessment

This paper reviews strengths and weaknesses of the microfinance sector in the Philippines. The potential microfinance market in the Philippines comprises 2.9 million families. Key features of the microfinance sector include:

• Lack of access due to high interest rates, lack of collateral and information;
• Reliance on self-finance or informal sources of microfinance;
• Provision of microfinance by NGOs, rural banks and cooperatives;
• Limited outreach with some improvement in recent years;
• Costly and unsustainable government-directed programs, leading to financial sector distortions and weakening of private sector incentives;
• Increasing competition resulting in credit pollution among MFI clients;
• Lack of commercial banks’ participation.

The paper makes recommendations for improving the Filipino microfinance sector. They include:

• Government should continue market orientation of financial and credit policies;
• Government supervisory and regulatory authority should increase its capacity;
• Cooperative Development Authority (CDA) should build capacity for effective regulation and supervision;
• Government and donors should provide technical assistance to MFIs;
• Microfinance practitioners should use the latest innovations in communications and technology;
• MFIs should expand operations into areas with a high number of poor families.