Informality, lack of financial acumen still obstacles for micro businesses
More Filipinos secured small-scale loans last year as the number of banks engaged in microfinance continued to increase, a success story which has seen the loan portfolio of microlenders more than triple since 2002, the head of the Bangko Sentral ng Pilipinas (BSP) said during the launching of the 14th Citi Microfinance Awards (CMA) on Tuesday.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said latest available figures showed that microfinance loans increased by 333 percent from P2.6 billion in 2002 to P11.3 billion in 2015.
The central bank defines microfinance loans as credit given to poor and low-income households to “raise their income levels and improve living standards,” marked by market-based interest rates and lower or no collateral requirements. Among the recipients of microfinance loans are farmers, fisherfolk, and micro- to medium-scale entrepreneurs.
Tetangco said the environment for the development of the microfinance sector continues to improve because of sustained coordination and cooperation with industry players and stakeholders.
As of end-2015, he noted that 170 banks were engaged in microfinance, 43 percent higher than the 119 banks that offered microfinance loans in December 2002.
The number of borrowers also increased by 277 percent to 1.47 million from 390,635 in 2002.
“If we base it on their savings, we can say that microfinance has improved the financial standing of these microentrepreneurs,” Tetangco said.
Microentrepreneurs had accumulated savings of about P4.5 billion as of December 2015, representing a 22 percent growth from 2011 since there are no comparative data for 2002 deposits.
Tetangco stressed the BSP’s committment to continue to find better ways to grow microfinance, noting that one strategy is through mentoring of microentrepreneurs under the CMA program.
The mentoring is aimed at improving enterprises by providing support suited to their specific business needs. It covers, among other things, helping products and services become more competitive in local and/or international markets; providing guidance in identifying critical processes and areas for improvement; offering technical advice on infusing innovation into enterprises; and facilitating the development of business competencies, he explained.
“The end goal is for microenterprises to eventually transition into small and even medium enterprises,” he said.
Moreover, he said the BSP plans to fully refine the program based on lessons learned from the engagement of the University of the Philippines Institute for Small-Scale Industries (UP ISSI), which mentored 13 past CMA winners for a period of seven to eight months.
Among the observations of UP ISSI were the challenges of informality or the informal status of microenterprises, which leaves them with a lack of legal personality to conduct business and limits their capability to expand and market their products. Another key observation was the limited capacity of microenterprises when it comes to financial recording and documentation, which makes them susceptible to poor accounting and planning.
“At the BSP, we recognize that informality and lack of capacity remain major hurdles that impede the growth of microenterprises,” he said.
In response, the BSP chief noted the regulator has issued guidelines on sound credit risk management practices or Circular 855 that provides an empowering approach to support small businesses.
For instance, microfinance loans and other credit accommodations not exceeding P3 million are exempt from the submission of financial documents such as Income Tax Returns (ITRs) and supporting financial statements. Similarly exempt are start-ups during their first three years of operations or banking relationships.
“The objective here is to encourage microenterprises to build banking relationships that will help them grow for the long term. Broader government initiatives converge with this way of thinking,” he concluded.
Against this backdrop, Tetangco expressed his confidence that the nomination process for CMA will generate an even better harvest for this year.
Now on its 14th year, the awards program has been successful in recognizing entrepreneurs who have overtaken poverty with support from microfinance institutions as partners in financial inclusion and enterprise development.
Funded by Citi Foundation, this nationwide search for outstanding Filipino microentrepreneurs is a partnership among BSP, Citi Philippines, and the Microfinance Council of the Philippines Inc. (MCPI).
The awards are open to microenterprises with assets worth P300,000 to P3 million. The award categories are Microentrepreneur of the Year Award, regional awardees from the three major island groups (Luzon, Visayas, and Mindanao) and special awards for agri-microbusiness and community leadership.
This year, the organizers are introducing two more award categories: Youth Microentrepreneur of the Year to be awarded to an outstanding microentrepreneur between 15 to 30 years of age, and a special award for green/sustainable business, which will be given to a microenterprise that operates and advocates for environment-friendly business processes.
The national winner of the Citi Microentrepreneurship Awards will receive P200,000 while the three regional awardees, the youth awardee, and special awardees will each get P100,000. The loan officers and MFI branches of each awardee are also entitled to a cash incentive of P10,000 while semi-finalists will receive a cash incentive of P10,000.
Beyond the award ceremonies, the CMA also ensures that awardees receive access to supplementary tools that can help them take their businesses to new heights. Aside from receiving microinsurance coverage and nine-day entrepreneurship training at the Citi Microenterprise Development Center, CMA winners will also be entitled to one laptop and basic computer training.
They also gain automatic membership to the CMA Alumni Network to build their market connections and participate in a mentoring program that will help them further improve their businesses.