ANALYSIS AND APPRAISAL OF MICROFINANCE SECTOR IN THE ...

ITALIAN AGRARIAN REFORM COMMUNITY DEVELOPMENT SUPPORT PROGRAM (IARCDSP)

ANALYSIS AND APPRAISAL OF MICROFINANCE SECTOR

IN THE PHILIPPINES

August 2020


Authors

Aldo Cera: Etimos Foundation IARCDSP Team Leader

Alberto Contarini: Etimos Foundation IACRDSP Microfinance Expert

Emiterio F. Sanson Jr.: Etimos Foundation IARCDSP Field Support Manager


Executive Summary

Philippine financial system is comprised of formal and informal sub systems. The formal system consists of banks and non-bank financial institutions (NBFIs) while the informal sub system is comprised of those that are not included in the published statistics of the Bangko Sentral ng Pilipinas-BSP (Central Bank of the Philippines) like credit and multi-purpose cooperatives and microfinance NGOs. Since these institutions perform functions that are similar with those performed by the other recognized financial institutions in the system, they are considered significant players under the Philippine financial system, especially in microfinance.

Lending to the poor in the agriculture sector remains a challenge to this day: the complexity of agriculture brought about by the risks associated with agricultural economic activities poses some challenges to microfinance. Low-income households face limited opportunity to acquire new technology and working capital for agricultural production. Lending to small farmers is risky and entails high transaction costs thus commercial banks are discouraged to lend to this sector. Traders and money lenders are often the only alternative source of financing and continue to lend to those excluded by the banking system.

Small farmer-borrowers are more concerned about accessibility and timeliness of loans releases particularly during the onset of the planting season that they are no longer conscious about the interest rate pegged on their loan. Aside from providing production inputs on credit, the


informal lenders also provide cash loan for emergencies, education, and even for special events live wedding of a member of the household.

The objective of this appraisal report is to present the most recent finding on the microfinance sector in Philippines and in Mindanao in particular. The report introduces the state of art of the Microfinance sector and highlights appropriate innovative solutions (main actors, microfinance products, technologies, intervention schemes) that could be adapted according to the local context and characteristics/needs of the IARCDSP project stakeholder (ARBOSs/FOs).

The primary data was collected through consultations with local stakeholders representatives : DAR Central Project Management Unit and Manila Liaison Office, Italian Embassy, potential local partners (Saving &Credit Cooperatives, Banks, Microfinance Institutions, Central Bank, DAR Regional/Provincial Project Management Units (R/PPMUs), and other public institutions engaged in microfinance operations like the representatives of the MMC (Mindanao Microfinance Council) and the Cooperative Development Authority.

Results of this report indicate Microfinance is dominating the industry of alternative lending in the Philippines that is usually backed up by the development of high-tech services operating both online and offline. BSP has acknowledge these developments but emphasizes the necessity of developing financial technologies for a better financial inclusion.

This process of funding in order to be accessible and efficient for small farmers need to be digital (i.e. to minimize transaction costs) and needs


to cover the whole value chain – from providers of inputs over farmers and collective farming organizations to distributers and sellers of agricultural products.

The best tool for digitalization of the funding process is an electronic wallet – application designed to serve as a storage of funds/value and execute transactions among all stakeholders in the process. Electronic wallet needs to be operated by trusted financial institution with good knowledge and understanding of agricultural business and should be able to start with minimum viable product functionality to support the process and add new functionalities gradually in order to support the whole agricultural funding process for small and individual farmers.

The electronic wallet should also be able to support non-traditional and innovative funding models that would better cater for risks involved in the agricultural production such as Islamic finance or similar micro equity funding instrument or microinsurance or community supported model (including micro saving and guarantee funds schemes).

The report results led out, particularly for BARMM areas and adhering to the concept of financial technology-driven operations and management, the importance to provide solutions which are Shari’ah-compliant as the key to accelerating financial inclusion in the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM).


List of Acronyms


AAIIBP – Al-Amanah Islamic Investment Bank of the Philippines

ADB – Asian Development Bank

ARB – Agrarian Reform Beneficiary

ARC – Agrarian Reform Community

ARBO – Agrarian Reform Beneficiary Organization

BARMM – Bangsamoro Autonomous Region in Muslim Mindanao

BSP – Bangko Sentral ng Pilipinas

CDA – Cooperative Development Authority

CSF – Credit Surety Fund

CARD – Center for Agriculture and Rural Development

CGFC – Credit Guarantee Fund for Cooperatives

DAR – Department of Agrarian Reform

DA – Department of Agriculture

DBP – Development Bank of the Philippines

DOF – Department of Finance

DCP – Directed Credit Program

DTI – Department of Trade and Industry

EU – European Union

FPSDC – Federation of People’s Sustainable Development Cooperative

GFI – Government Financial Institution

IC – Insurance Commission


IFAD – International Fund for Agricultural Development

IGLF – Industrial Guaranty Loan Fund

IARCDSP – Italian Assistance to the Agrarian Reform Community Development Support Program

ITA – Italian Technical Assistance

LBP – Landbank of the Philippines

LGU – Local Government Unit

MFI – Microfinance Institution

MABS – Microenterprise Access to Banking Services

MCPI – Microfinance Council of the Philippines Incorporated

MSME – Micro small and medium enterprises

NBFI – Non Bank Financial Institution

PDAP – Philippine Development Assistance Program

PhilHealth – Philippine Health Insurance Corporation

ROSCA – Rotating Savings and Credit Association

RBAP – Rural Bankers Association of the Philippines

SEC – Securities and Exchange Commission

SBC – Small Business Corporation

TSKI – Taytay sa Kauswagan Incorporated

USAID – United States Assistance for International Development

UNDP – United Nations Development Program


SZOPAD – Special Zone of Peace and Development in Mindanao


Table of Contents

Executive Summary……………………………………………………………. ………………………………2

List of Acronyms………………………………………………………………. ………………….............4

Table of Contents……………………………………………………………………………………………….5

I INTRODUCTION……………………………………………………………………………………… ……………7

II. OBJECTIVES OF THE APPRAISAL REPORT………………………………………….. ….9

III. STATE OF THE ART METHODOLOGY……………………………………………………… ….9

IV FINDINGS FROM THE APPRAISAL………………………………………………………….10

IV.1 The beginning and the development of the microfinance sector in the Philippines………………………………………………………………….. ……………………………….10

IV.2 Situation of the financial system in the Philippines…. …………………….14

IV.3 Providers of Microfinance Products and Services ………………………………17

IV.3.1 Wholesale Microfinance Institutions …………………………………………………18

IV.3.2 Microfinance Councils and Associations…………………………… ………….20

IV.3.3 Federation of Cooperatives…………………………………………………………………. .22

IV.3.4 Microfinance Technical Assistance

and Support Service Providers…………………………………………………………….. ………….23

IV.3.5 Donor support to the microfinance sector ……………………………………….25


IV.4 CURRENT SITUATION IN THE MICROFINANCE SECTOR IN MINDANAO………………………………………………………………………………………………………. 28

IV.4.1 Related DAR Programmes in the Agrarian Reform Communities of Mindanao……………………………………………………………………………………………………….. 33

V RECENT DEVELOPMENTS AND INNOVATIONS IN MICROFINANCE 34

V.1 Mobile Banking……………………………………………………………………………………….. 34

V.2 Microfinance Housing …………………………………………………………………………….35

V.3 Microfinance in Agriculture…………………………………………………………………… 35

V.4 Business Development Services (BDS)………………………………………………. 35

V.5 Microinsurance………………………………………………………………………………………… 36

V.6 The Credit Surety Fund (CSF)………………………………………………………………. 38

V.7 The Islamic Finance……………………………………………………………………………… 39

VI.7.1 Distinguishing modes of Islamic Finance……………………………………. 40

VI.7.2 Islamic Finance actors in Philippines: Al Amanah Bank…………. 42

V ANALYSIS OF FINDINGS ON FINANCIAL SERVICES AND IARCDSP INTERVENTION OPPORTUNITIES…………………………………………………………….. 43

V.1 National Baseline Survey On Financial Inclusion………………………….. 43

V.2 Challenges for the microfinance sector ……………………………………………….47

V.3 Analysis of findings related to DAR-IARCDSP Microfinance Implementation……………………………………………………………………………………………….. 50

V.3.1 Weaknesses, Gaps and Challenges………………………………………………… 50

V.3.2 Demand and Supply……………………………………………………………………………. 53


VI CONCLUSION AND RECOMMENDATIONS……………………………………………. 54

VI.1 The Italian technical assistance (IARCDSP program)…………………… 54

VI.2 Recommendations related to the findings of this report……………… 56

VI.2.1 Recommendations that will require interventions in a wider scope from the concerned government agencies………………………………………………. 56

VI.2.2 Recommendations on pathways to be designed within the framework of the pilot projects implementation……………………………………. 62

VII. ANNEXES………………………………………………………………………………………………….64


I INTRODUCTION

The present appraisal report on microfinance in Philippines has been realized in the framework of the ITALIAN ASSISTANCE TO THE AGRARIAN REFORM COMMUNITY DEVELOPMENT SUPPORT PROGRAM - IARCDSP sponsored by the Italian government (Italian Agency for Development Cooperation -AICS).

The above initiative aims at reducing poverty in the rural areas of Mindanao, through the support at the Agrarian Reform implemented by the Government of the Philippines. In synthesis, the program will focus on supporting integrated development for the Agrarian Reform Beneficiaries in order to increase their incomes and quality of life. The Program is also in line with the on‐going peace process in Mindanao, in particular within the Autonomous Region in Muslim Mindanao (ARMM).

This working paper is the combination of perspectives from professionals working in the microfinance sector and research done on published microfinance industry reports, papers and articles and authors that are mentioned in the present documents. Valuable information and relevant data were also obtained from government institutions and agencies such as the Bangko Sentral ng Pilipinas (BSP), Department of Finance (DOF) and Insurance Commission, and from the private sector, the Mindanao Microfinance Council and the Microfinance


Council of the Philippines Inc. (MCPI), the staunch supporters of the microfinance industry in the Philippines.

The present report has endeavoured to provide a clear insight into the state of affairs of the Microfinance industry in the Philippines starting from the development of the sector, to the regulatory framework, the actors and stakeholders, up to the challenges that the sector need to address in order to make real impact on the lives of the Poor Filipino households it is mandated to serve.

Lack of credit access is severe in low income and poor households in the country in general and in the Agricultural Reform Communities (ARCs) in particular. The low-income households are normally considered to have fewer opportunities to borrow from banks due to insufficient valuable assets for collateral security. These low-income households face limited opportunity to acquire new technology and working capital for agricultural production and thus tend to lag or fall behind. Providing access to financial capital in the ARCs through the Microfinance Scheme of the Italian Assistance to the Agrarian Reform Community Development Support Program (IARCDSP), being implemented by the Department of Agrarian Reform (DAR) is considered an important component of the government’s rural development strategy. Microfinance programmes have been gradually embedded in national strategies of many developing countries, including the Philippines as they are poverty-focused and aims to achieve livelihood sustainability in the long haul. The aim of the IARCDSP microfinance sub-component is to facilitate the access to financial services such as credit and microfinance products and services for the Agrarian Reform Beneficiary Organizations (ARBOs) who are usually disadvantaged in terms of access to conventional financial services from formal financial institutions.


Moreover, studies have shown that the growth of the microfinance sector, a good alternative source for rural credit, has been biased towards the urban areas. Majority of the MFIs are situated in the urban areas and have mostly been catering to the urban poor, who are engaged in retail or trading microenterprises. Considering that more than 50 percent of the poor reside in the rural areas, whose economic activities are mostly agriculture-based, the challenge is for microfinance institutions to meet the financial service needs of the rural, agriculture-based poor population .

Lending to the poor in the agriculture sector remains a challenge to this day. The complexity of agriculture brought about by the risks associated with agricultural economic activities poses some challenges to microfinance. While some MFIs have embarked on designing microfinance products for clients in the agriculture sector, evidence shows that the schemes were mostly saddled by high delinquencies after several cycles. The peculiarities of the agriculture sector make it difficult to design microfinance products that would fit all types of commodities in all localities. While market price fluctuations and systemic risks (e.g. climate change, pest and diseases) in agriculture are challenges beyond the microfinance sector, these are considered important factors on how the rural-agricultural based poor can be given continued access to financial services .

More recently, there is a growing interest on how microfinance can participate in value-chain financing. Given the importance of the input and the output market in ensuring profitability and sustainability of income from the agriculture sector, value-chain financing has long been recognized as an important concept in making agriculture profitable.


However, value-chain financing in recent past have mostly been focused on small and medium-sized agri-based enterprises. If there were small farmers receiving credit from “value-chain financing”, this has mostly been provided through either input-suppliers or trader-lenders. Given these facts and considering that MFIs, especially those operating in the rural areas, are looking at effective means of helping their clients increase their incomes from their agriculture-based economic activities, the challenge is on how MFIs can participate in value-chain financing .

Very low margins impede the accumulation of capital to reinvest in next farming cycles. Therefore, a long-term oriented strategy to relief small farmers from their dependence from informal lenders is to improve their income generation and the selling price of their product. Valid solutions to sustain this strategy are to provide Business Development Services to assist ARBOs and farmers to enhance their business skills and market access, as well as to develop product processing facilities to increase the quality and value of agri-products. These solutions can be provided thru clustered or federated ARBOs to guarantee cost effectiveness and volumes.

The government launched and issued the National Strategy and the Regulatory Framework for Microinsurance in January 2010. These documents provide the pillars for the development of the microfinance sector in the Philippines and generally they call for increased private sector participation in the provision of credit solutions as well as risk protection to the low-income sector.

In this perspective Etimos Foundation will introduce innovative products and processes to be tested in some ARBOS identified among the beneficiaries of the IARCDSP.


II. OBJECTIVES OF THE APPRAISAL REPORT

The present report have endeavoured to provide a clear insight into the state of affairs of the Microfinance industry in the Philippines starting from the development of the sector, to the regulatory framework, the actors and stakeholders, up to the challenges that the sector need to address in order to make real impact on the lives of the Poor Filipino households it is mandated to serve.

The scope of work also includes the analysis of many challenges and difficulties that faces the Agrarian Reform Beneficiary Organizations (ARBOs) in the Agrarian Reform Communities in order to identify gaps and weakness that have to be targeted during the project implementation.

III. STATE OF THE ART METHODOLOGY

This working paper is the combination of perspectives from professionals working in the microfinance sector and research done on published microfinance industry reports, papers and articles and authors that are mentioned in the present documents. Valuable information and relevant data were also obtained from government institutions and agencies such as the Bangko Sentral ng Pilipinas (BSP), Department of Finance (DOF) and Insurance Commission, and from the private sector, the Mindanao Microfinance Council and the Microfinance


Council of the Philippines Inc. (MCPI), the staunch supporters of the microfinance industry in the Philippines

The study on which this working paper is based includes data, reports and other considerations drawing from the financial system and practical field experiences for analyzing and appraising the Microfinance situation in the Philippines in general and in Mindanao in particular.

The findings and recommendations presented in this working paper are the product of extensive consultations in the field through individual and group meetings with a variety of stakeholders, including the ARBOs, microfinance institutions (MFIs), microfinance clients, government officials, rural and microfinance banks, credit cooperatives, nongovernment organizations (NGOs), microfinance organizations (MCPI, Mindanao microfinance council) and some expert microfinance practitioners. In addition, relevant domestic and international studies, as noted and acknowledged herein, have helped in the realization of this working paper.

The remainder of this working paper elaborates the results in detail. Chapter IV discusses the situation of microfinance in the Philippines, including Mindanao, and recent developments and innovations.

Chapter V reports on the findings related to the DAR-IARCDSP microfinance implementation and finally Chapter VI outlines the conclusion and recommendations, including the strategies to be adapted in the implementation of the six (6) pilot projects under the IARCDSP.


IV FINDINGS FROM THE APPRAISAL

IV.1 The beginning and the development of the microfinance sector in the Philippines

The Bangko Sentral ng Pilipinas (BSP) defines microfinance as the “provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products to the poor and low-income households and their microenterprises” . The financial service most commonly provided is microcredit which is typically issued and granted in the form of a specific business loan for microenterprise purposes. A key defining characteristic of a microfinance loan is the ability to secure credit without collateral. Microfinance loan providers in the Philippines often employ a group lending approach whereby each person within a small group is liable for any default by another group member. Other group lending-based methodologies being used in the Philippines include the ASA Model , whereby each group member is responsible only for his or her own loan.

The Philippines’ microfinance sector is credited by the Asian Development Bank as one of the oldest and most active in the world. While the roots of microfinance activity date back to the early 1900s through cooperatives, microfinance, as described today, surfaced in the 1980s and was codified into national law in 1997 with the signing of the Social Reform and Poverty Alleviation Act (R.A. 8425) and the establishment of both the National Anti-Poverty Commission and the National Strategy for Microfinance. The ultimate goal of the government’s National Strategy for Microfinance is to create a sustainable private microfinance market where the private sector drives market dynamics such as products and pricing and the government’s


role is limited to providing an environment which enables the market to thrive.

The low-income sector is perceived as a sector that do not have access to financial resources they need. With very low income, private formal financial institutions are reluctant to lend to the sector due to the perceived costs and risks associated with lending to the poor. Hence, from the 60s to the 80s, the government has mostly been providing financial services to the poor at subsidized interest rates.

Faced with this reality, the government implemented several credit programs targeted towards specific clientele groups. These credit programs were funded out of government resources and were implemented by government non-financial agencies, i.e. Department of Agriculture. For some credit programs, the government has tapped the private financial institutions to provide credit to the poor using government funds at subsidized interest rates. Perceived as government dole-outs, most of the credit programs suffered from very low repayment rates. This weakened the financial performance of several private financial institutions (rural banks in particular) which were used as conduits of cheap government funds. As a result, the flow of funds from most of the subsidized credit programs implemented during the period declined over time due mostly to high levels of default, disqualification of many borrowers and rural banks from program participation (due to massive default problems), the termination of major foreign-supported on-lending projects, and rediscounting restraints with the Bangko Sentral ng Pilipinas .


With the onset of financial reforms in the 80s, government terminated the implementation of subsidized credit programs in the agriculture sector. However, subsidized credit programs in the other sectors (industry, labor, science and technology) were continually implemented. In view of this, a strong lobby to bring back the implementation of subsidized credit programs was mounted resulting in the issuance of Cabinet Resolution No. 20 in 1986 which allowed the implementation of livelihood programs in all sectors, including agriculture. By the end of 1992, subsidized credit programs have once again mushroomed, undermining the government’s market-oriented credit and financial policy and the viability of the formal rural financial markets.

In view of this, the Social Pact on Credit was formed. This is an informal group comprised of representatives from various non-government organizations, people’s organizations, academe, concerned government agencies and government financial institutions. This informal group initiated discussions analysing the efficiency and the impact of the subsidized government Directed Credit Programs (DCPs) because the poor’s continued lack of access to credit despite the proliferation of government DCPs. These discussions led to the creation of the National Credit Council (NCC) under the Department of Finance (DOF) on 08 October 1999.

However, the development of the microfinance sector in the Philippines started to gain grounds only in the late 90s when the government realized the importance of providing viable, sustainable and realistic financial services to the poor. This bold move from the government was clearly mirrored in the National Strategy for Microfinance that was


launched in 1999 and issued by the National Credit Council under the Department of Finance as an offshoot of Executive Order No. 138, series of 1999. The National Strategy Framework is anchored on the following key policy principles:

I) Greater role of the private sector in the provision of financial services to the poor;

II) Establishment of an enabling environment that will facilitate increased participation of the

private sector in the provision of financial services to the poor;

III) Adoption of market-oriented financial and credit policies, and

IV) Non-participation of government non-financial agencies in the implementation of credit and guarantee program.

The adoption of the National Strategy led to the issuance and implementation of various policy measures that called for the non-participation of government in the delivery and implementation of subsidized credit programs and adoption of market-based credit and financial policies.

Realizing from past failures of government agencies in handling and managing credit delivery, the government veered away from directly intervening in the credit market. Several private financial institutions started to provide financial services to the poor. These are the rural banks and thrift banks, cooperatives engaged in savings and credit services and microfinance NGOs. Currently, a number of commercial banks like BPI, BDO, AlliedBank and UCPB, to name a few (mostly


engaged in wholesale microfinance operations) have also entered the market through the acquisition of smaller Thrift and rural banks and used these subsidiaries as vehicle to manage microfinance products and services.

The regulatory framework for microfinance developed by the National Credit Council recognizes the relevant regulatory authorities for each type of institution engaged in microfinance. Banks engaged in microfinance operations remain under the supervision of the Bangko Sentral ng Pilipinas. Cooperatives fall under the regulatory ambit of the Cooperative Development Authority (CDA) while microfinance NGOs, as non-deposit taking institutions are not subject to any prudential regulation. Microfinance NGOs, however, are required to register with and disclose to the Securities and Exchange Commission (SEC) that they are engaged in microfinance and related services.

The government have pursued market-oriented financial and credit policies that created incentives for greater private sector participation in the financial markets. It has then avoided costly, unsustainable and distorting credit subsidies.

The ensuing enabling policy and regulatory environment for MFIs ushered the growth and development of the Philippine Microfinance sector. From a few MFIs catering to a few thousands of clients in the early 90s, the microfinance sector has grown to several MFIs serving millions of clients starting in the middle of 2000.


Riding on the early success of microfinance lending activities, MFIs bonded themselves together and have organized both regional and national associations to provide technical support to members in terms of sharing knowledge, experience and information on the latest technology and developments in making MF operations more efficient and more responsive to MF clients’ needs. These associations also speak with one voice in advocating for relevant reforms to further develop the microfinance sector. Aside from the associations, several technical assistance and support service providers, some of which are funded internationally, also provide technical, and in some cases, financial support to MFIs. Most of these institutions cater to the MFI demand for training and capacity building services that would help them move towards greater outreach and efficiency .

The growth of the MF sector also welcomed innovations and developments. The advancement in technology as well as the popularity for mobile phones in the country led to the recognition of the huge potential of mobile banking particularly in the countryside. For instance in 2010, the MABS Program which was funded by the USAID pioneered some rural banks on innovative mobile phone banking in partnership with Globe Telecoms. Microfinance loan borrowers were able to transact loans and deposits through mobile phones. Other innovations in the sector include the development of additional products and services needed by microfinance clients. These are:

i) micro-agri loans to meet the funding requirement of farmers for farm inputs using the 60/40 formula ;


ii) microfinance housing to meet the housing improvement and repair needs of MF clients;

iii) microfinance that caters to the credit needs of clients in the rural areas;

iv) microloan product that finances water connection in some low-income households allowing them to have access to safe water supply;

v) partnership with PhilHealth in providing PhilHealth coverage to the MFI clients .

The poor, particularly the rural poor are vulnerable to risks such as illness, physical injury, accident or death, basic business risks, loss of property, and loss of job. MFIs realised the need to assist their microfinance clients with financial products that will help them manage these risks and/or provide financial relief when contingent events occur, hence the birth of microinsurance.

To realize the provision of microinsurance, the government through the Department of Finance (DOF)-National Credit Council (NCC) and Insurance Commission (IC) have developed the National Strategy and the Regulatory Framework for Microinsurance by calling on and enjoining the private insurance service providers to provide risk protection to the low-income sector.

Considering that most of the poor households are in the rural areas, there is also a need to design and innovate for the right MF product design for clients engaged in agricultural activities.


As businesses of MF clients grow as years pass by, bigger amount of working capital is required which more often than not are beyond what MFIs can afford to lend due to limitation in the MFIs policy guidelines as well as in compliance with the Bangko Sentral ng Pilipinas’ Rules and Regulations (BSP Circular No. 272, 39 January 2001). The need for higher working capital, therefore, has to be addressed by formal financial institutions such as Rural and Thrift Banks.

Cooperatives engaged in savings and credit operations comprise a sizable number of MFIs. Latest figures (as of December 2018 from the CDA) show that there are 3,180 credit cooperatives and 14,885 multi-purpose cooperatives, about 80 percent of which are engaged in savings and credit operations. These cooperatives are significant players in microfinance. However, at present, these cooperatives are not regulated and supervised as it should be desired. According to Ms. Ma. Piedad Geron, an Industry Analyst who wrote the Microfinance Industry Report of 2010, the CDA seemed to have focused mainly on its developmental functions rather than on its regulatory functions. In part because the CDA Charter is ambiguous and does not grant the CDA the necessary authority to regulate cooperatives. The thrusts of the CDA need to be refocused and its policy and regulatory functions need to be enhanced so that it can help strengthen cooperatives in the areas of governance, management and operations, among others.

To sustain the development and growth of the Philippine microfinance sector, it is important that challenges such as those highlighted below


are looked into and addressed properly so that appropriate measures are instituted and adopted by the concerned stakeholders .

rationalization and optimization of government credit programs;

development of a credit delivery system that incorporates capability upgrading and institutional strengthening mechanisms;

encouraging greater private sector participation in the delivery of credit;

defining and rationalizing the role of guarantee programs and guarantee agencies.

IV.2 Situation of the financial system in the Philippines

Philippine financial system is comprised of formal and informal sub systems. The formal system consists of banks and non-bank financial institutions (NBFIs) while the informal sub system is comprised of those that are not included in the published statistics of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines).

Banks are financial institutions regulated and supervised by the Bangko Sentral ng Pilipinas. They are categorized into universal and commercial banks, thrift banks, and rural and cooperative banks and are classified according to the amount of capitalization required and the type of services allowed. Universal Banks have the highest capital requirement. Together with commercial banks, they are authorized to


provide a wide range of financial services such as underwriting of investment houses and investments in equities of non-allied undertakings. Universal banks usually operate in cities and major urban areas. Thrift banks, on the other hand, are mostly engaged in providing short-term working capital and long-term financing to businesses. Meanwhile rural and cooperative banks have relatively lower capital requirements and are limited to only provide savings and credit services. They operate mostly in the rural and poor areas and provide the much needed financial services to rural communities such as farmers, fisher folks and micro and small enterprises.

At present, rural and cooperative banks are engaged in the provision of microfinance services (savings, loans, payment and money transfer for the low-income sector). The Bangko Sentral classifies these banks into two categories: microfinance banks are those whose total loan portfolios are 100 percent microfinance while microfinance-oriented banks are those that have at least 50 percent of microfinance loans in their gross loan portfolio.

Non-bank financial institutions (NBFIs), on the other hand, are entities that are engaged in financial services but may or may not have quasi-banking functions. These include the investment houses, financing companies, investment companies, securities dealers/brokers, fund managers, lending investors, pension funds, pawnshops, credit card companies, venture capital corporations and non-stock savings and loan associations.


Aside from the banks, there are credit and multi-purpose cooperatives and microfinance NGOs that are not considered part of the statistics in the Philippine financial system. Since these institutions perform functions that are similar with those performed by the other recognized financial institutions in the system, they are considered significant players under the Philippine financial system, especially in microfinance. For instance, the credit cooperatives while not licensed as banks, are legally permitted to offer loans and take deposits from its members. Microfinance NGOs, on the other hand, provide credit services to their client members. They are, however, not allowed to take deposits from the public nor from its members. While these institutions are not regulated and supervised by the Bangko Sentral ng Pilipinas, they are also subject to regulation. The credit cooperatives are registered and legally under the regulation and supervision of the Cooperative Development Authority (CDA) while the microfinance NGOs are registered with the Securities and Exchange Commission (SEC) .


The informal finance system is composed of money lenders, trader lenders, input suppliers, and savings clubs and associations. These are entities providing credit services that are not registered with any authorized registering agency or entity.

Informal finance remains a valuable and significant source of funds among the low-income and marginalized sector. Among small farmers, for instance, majority still rely on informal credit sources such as traders, private money lenders, and relatives/friends for their working capital needs.

IV.3 Providers of Microfinance Products and Services

As the government veered away from directly intervening in the credit market, several private financial institutions started to provide financial services to the poor. There are:

Non-Government Organizations (NGOs)

Registered as non-stock, non-profit organizations, these are entities whose initial main objective is to provide developmental services to specific clientele in various geographical locations. As they provide developmental support services, a number of them realized and recognized that most of their target clientele are unable to engage in livelihood or entrepreneurial activities due to the lack of access to financial service.


As a result, a number of these NGOs started to pioneer the provision of financial services to the poor through the use of the Grameen technology.

Cooperatives

Cooperatives engaged in the provision of savings and credit services are one of the low-income sector’s earliest sources of credit resources. Community-based and open-type cooperatives are registered institutions that can only provide services and transact with their members who usually belong to the lower middle-income sector and those living below the poverty line. While considered to be lending to the poor, most of these cooperatives use the member’s share capital as basis in determining the amount of the member’s loan.

Banks

Prior to the issuance of the National Strategy for Microfinance, most of the banks were reluctant to lend to the poor due to the perceived risks and transaction costs associated with lending to this sector. Their experience with government subsidized directed credit programs in lending to this sector have also contributed to this indifference. With the adoption of the market-based credit policies and the termination of the participation of government non-financial agencies, i.e. DA in the implementation of credit programs, an increasing number of private financial institutions (rural banks in particular) have ventured into microfinance. In 2001, the Bangko Sentral issued several circulars recognizing non-collateralized cash-flow based lending. Also, the moratorium on establishing bank branches was lifted for those banks


that will engage in microfinance operations. These regulatory policies coupled with some technical assistance encouraged an increasing number of rural banks to engage in microfinance operations.

Performance Standards for Microfinance Operations in the Philippines

As provided for in the regulatory framework and to ensure greater transparency in microfinance operations, the NCC in collaboration with concerned regulatory authorities and private sector representatives, developed the performance standards for microfinance operations in 2004. The Performance Standards focus on the following key areas of microfinance operations: Portfolio quality (40 percent), Efficiency (30 percent), Sustainability (15 percent) and Outreach (15 percent), otherwise known as the PESO standards.

Various stakeholders use the Performance Standards for varying purposes. For instance, in addition to the existing regulatory tools, the benchmarks are being used by the different regulators in assessing the financial institutions with microfinance operations that are under their supervision. Private and government wholesale financial institutions also use these standards, as complement to their existing guidelines, for evaluating the credit worthiness of a microfinance retail institution.

The managers of MFIs, on the other hand, use the indicators and standards to identify weak areas of operations that need specific or immediate management attention.


Domestic and international private investors use these standards as guideposts to decide whether to invest in a certain MFI. Donor agencies, for their part, are guided by these standards to more appropriately identify the type or area of assistance that is needed by a specific MFI.

Key government financial institutions such as the People’s Credit and Finance Corporation (PCFC), Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) have adopted the various PESO indicators in evaluating and assessing the performance of retail microfinance institutions. Some wholesale commercial banks (e.g. Bank of the Philippine Islands, United Coconut Planters Bank) have also adopted the PESO in assessing and evaluating MFIs that would like to access their wholesale funds.

IV.3.1 Wholesale Microfinance Institutions

Lending funds of private retail financial institutions are sourced either from deposits in the case of banks and cooperatives, or external borrowings and donor funds. With the development of the microfinance sector in the Philippines and an increasing need for donor funds in transition economies, MFIs in the Philippines resort to either deposit mobilization (in the case of banks and cooperatives) and external borrowings as source of loanable funds. Government financial institutions (GFIs), which includes People’s Credit and Finance Corporation (PCFC), the Land Bank of the Philippines (LBP), the Development Bank of the Philippines (DBP) and the Small Business Corporation (SBC) are considered one of the important sources of external funds for MFIs. Credit policy reforms implemented by the government have limited the involvement of GFIs to the provision of wholesale funds for retail microfinance institutions.


Aside from GFIs that are allowed and mandated to provide wholesale lending funds at market rates, an increasing number of commercial banks are now engaged in providing wholesale lending funds to the microfinance sector (e.g. Bank of the Philippine Islands, Allied Bank, United Coconut Planters Bank and BDO) .

People’s Credit and Finance Corporation (PCFC)

PCFC is a government-owned and controlled corporation (GOCC) registered with the Securities and Exchange Commission authorized to operate as a financing company. It is tasked to provide microfinance services to poor households in the Philippines and to act as the lead government entity specifically tasked to mobilize financial resources from both local and international funding sources for microfinance.

As a wholesaler of microfinance funds, PCFC provides lending funds to its conduits comprised of cooperatives, rural and thrift banks, and non-government organizations – collectively called microfinance institutions (MFIs). PCFC provides MFIs any of the following :

• Investment Credit Facility – revolving wholesale credit to MFIs to support their relending activities to end-clients

• Institutional Credit Facility – for strengthening the MFIs capability to implement, manage and viably operate a microfinance project


• Capacity building – conduct of training, dialogues and conferences, assistance in setting up MIS and internal control systems

Land Bank of the Philippines (LBP)

The LBP is a government financial institution that was created under the Agrarian Reform Law in 1963. It was specifically created to provide financing support to agrarian reform beneficiaries. Today, it has evolved into a full-service commercial bank. However, it continues to fulfil its social mandate of promoting countryside development while remaining financially viable.

As one of the GFIs mandated by law to provide support to the microfinance sector, the LBP has provided guarantees to the loans obtained by PCFC from International Funders such as the ADB and the World Bank .

Development Bank of the Philippines (DBP)

The DBP was established by an act of congress in 1949 to provide banking services to SMEs. In support to the microfinance sector, DBP launched its Financing Program for Microfinance Enterprises (FPME) in 2001 where it allocated PhP500 Million pesos from its Window III facility for wholesale lending to retail MFIs .


Small Business Corporation (SBC)

The SBC is the result of a merger between the Small Business Guarantee and Finance Corporation (SBGFC) and the Guarantee Fund for SMEs (GFSME) under Executive Order No. 98 in November 2001. The corporation is mandated to offer a range of financial services for small and medium enterprises engaged in manufacturing, processing, agribusiness (except crop level production) and services (except trading). These financial services include among other things, guarantee, direct and indirect lending, financial leasing, secondary mortgage, venture capital operations and the issuance of debt instruments for compliance with the mandatory allocation provision .

IV.3.2 Microfinance Councils and Associations

Microfinance Council of the Philippines (MCPI)

MCPI started in 1996 as a tactical coalition of NGOs engaged in microfinance – an offshoot of the USAID-funded Developing Standards for Microfinance Project. The coalition was initially comprised of 69 institutions and represented by the key stakeholders in microfinance in the Philippines. Aside from developing standards for microfinance, the coalition also conducted advocacy to key policymakers and concerned government agencies for the establishment of an appropriate policy environment for the growth and development of the microfinance sector.

The Microfinance Council of the Philippines, Inc. (MCPI) evolved out of a USAID-funded project entitled “Developing Standards for Microfinance Project” (DSMP) that started in mid-1996 and continued until the end of


1999. The MFIs that were part of the DSMP decided to form an association or network and the resulting organization, MCPI, was registered with the Securities and Exchange Commission (SEC) as a non-stock corporation in June 1999.

In 2004, MCPI merged with the Philippine Network for Helping the Hardcore Poor (PHILNET), a microfinance association focused on Grameen replicators in the Philippines. Since then, MCPI has grown to comprise 59 institutions, including 46 practitioners, 2 regional councils and 11 support institutions. It is estimated that MCPI members account for at least 75 percent of the total active outreach of the microfinance sector in the Philippines.

As a major industry player, MCPI serves as the voice of the microfinance community in advocating for policies that will promote a more inclusive, gender responsive, and client-friendly environment for microfinance. MCPI also promotes consciousness on the social value of a holistic approach to poverty eradication.

MCPI works closely with the Bangko Sentral ng Pilipinas on matters relating to the regulation of microfinance institutions, particularly banks and NGOs. MCPI also spearheaded the formulation of a Code of Practice for MFIs, initiated the drafting of the Standard Chart of Accounts for NGOs and promoted the MF Performance Standards for all types of institutions.

Currently, MCPI’s advocacy agenda is focused on tax issues, client protection and social performance.


Mindanao Microfinance Council Inc. (MMCI)

In the 1990s, the microfinance industry landscape in Mindanao was changing and confronted with challenges such as escalating competition among microfinance practitioners; an unprecedented demand for quality and value on the part of clients; and growing pressure from government regulation. Microfinance practitioners in Mindanao agreed to work together and establish an organization that will support the common interests of microfinance institutions in Mindanao; become their voice in the microfinance industry; and promote growth of and cooperation among MFIs to achieve desired results of poverty alleviation efforts of the Mindanao microfinance industry.

The Mindanao Microfinance Council (MMC) was formally registered with the Philippine Securities and Exchange Commission on March 25, 2004 and its first officers were elected and sworn in on March 30, 2004 during the 2004 Mindanao Microfinance Summit in Davao City.

True to its mission “to strengthen member institutions in delivering effective financial and capability development services to the poor and to develop them into effective catalysts of economic and social development of Mindanao”, MMC regularly provides training and education, and technical assistance to its member organizations in


Western, Northern, Eastern, and Southern Mindanao. It also organizes conferences and meeting of MFIs and does research on and dissemination of best practices in the industry.

Rural Bankers Association of the Philippines (RBAP)

The RBAP is an organization comprised of rural bank owners and operating officers. The organization was formed to support and enable its members to offer quality banking services, comply with regulatory requirements and promote the welfare of the communities. RBAP provides various training programs on corporate governance, risk management, financial management, credit and fund management and other relevant areas that will help rural banks improve their operation.

In 1998, RBAP received a technical assistance from the USAID to implement the Microenterprise Access to Banking Services (MABS) Program. The program is an initiative to encourage the Philippine rural


banking industry to provide microenterprises access to microfinance services. In this regard, the MABS Program provides technical assistance and training to rural banks in the area of microfinance operations. Trained banks in turn offer microfinance loan and deposit services specifically tailored to microenterprise clients .

IV.3.3 Federation of Cooperatives

As of December 2018, there are 18,065 operating cooperatives, 2,596 are involved in credit and 637 are in agrarian reform. It would also be noted that 853 out of total coops are in Region 12 while no data of operations was reported for BARMM (ARMM).

Based on CDA definition, a cooperative is a duly registered association of persons with a common bond of interest, who have voluntarily joined together to achieve a lawful common social or economic end, making equitable to contribution to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principle.

Based on CDA categories, there are different kinds of cooperatives. In general, these are: (1) Credit cooperative, which promotes thrift and savings among its members and creates funds in order to grant loans for productivity; (2) Consumer cooperative, the primary purpose of which is to procure and distribute commodities to member and non-members; (3) Producers cooperative, which undertakes joint production whether


agricultural or industrial; (4) Service cooperative, which engages in medical, and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication and other services; and (5) Multi- purpose cooperative, which combines two or more of the business activities of these different types of cooperatives. In terms of membership, cooperatives are classified as: (a) Primary, wherein the members are natural persons of legal age; (2) Secondary, the members of which are primaries; and (3) Tertiary, the member of which are secondaries upward to one or more apex organizations. Cooperatives whose members are cooperatives are called federations or unions

Under the Cooperative Code and based on international cooperative principles, primary cooperatives are enjoined to form or join cooperative federations. Cooperative federations are organized to provide assistance to its member cooperatives in the areas of education, business and advocacy. At present, there are a number of cooperative federations formed and organized in various parts of the country. The following are the big cooperative federations whose primary cooperative members are mostly engaged in microfinance operations.

National Confederation of Cooperatives

The National Confederation of Cooperatives (NATCCO) is a national federation of cooperatives that provides continuous capacity building services to its members in the following areas: good governance, financial management, accounting and bookkeeping, human resource management, and management information system. It also provides ancillary services such as the federation’s liquidity fund.38 NATCCO is also engaged in advocacy work related to the establishment of an appropriate regulatory environment for cooperatives. The federation also


participates in various legislative hearings on proposed bills involving cooperatives.

In 2006, NATCCO launched the Microfinance Innovations in Cooperatives (MICOOP) Project. The MICOOP Project seeks to help cooperatives in providing microfinance services to individuals who are engaged or wish to engage in microenterprises but have no access to financial services. The MICOOP Project provides capacity building assistance in the following areas: i) financial intermediation (savings and credit) operations and ii) microfinance operations. The MICOOP Project also provides assistance in improving the total savings and credit operations of the participating cooperative. NATCCO implements various models and schemes in helping its member-cooperatives become sustainable and viable microfinance providers.

As of June 2008, the MICOOP has established 59 branches strategically located all over the country and has garnered a total outreach of 79,550. Thirty-two of the branches operate according to the Build, Operate, Adopt, Transfer (BOAT) partnership arrangement while six branches have opted for the 50/50 investment partnership .

IV.3.4 Microfinance Technical Assistance and Support Service Providers

As MFIs expand their operations and as new institutions enter the microfinance market, demand for training and capacity building on microfinance increase.


The following are institutions that provide these services.

PinoyME Foundation

PinoyMe Foundation is a private sector, multi-stakeholder, social consortium and movement whose main objective is to bring multiple sectors together to widen access of the poor to financial services. It aims to contribute to reducing poverty by providing five million poor people with financial and nonfinancial services and mobilizing PhP 5 billion in new capital for microfinance by 2021. It aims to achieve its goal through capacity building, resource mobilization, business development services, and knowledge management. The PinoyMe consortium consists of different institutions from the academe, MFIs, corporations, foundations, and NGOs .

MICRA Philippines

MICRA Philippines is a consulting and advisory firm that provides technical inputs and support to various stakeholders in the microfinance sector. As an independent resource center, MICRA is committed to promoting innovations, transparency, improved outreach to the poor and ever improving performance in the microfinance sector through the following services: i) training and technical assistance; and ii) research and innovations. MICRA provides these services on a fee-for-service basis .


Oikocredit

Oikocredit is an international organization that provide support to the microfinance sector in the Philippines. It is a cooperative financial institution that finances and invests in microfinance institutions, cooperatives and small and medium- sized enterprises in developing countries, aimed at social impact. Oikocredit started to support projects in the Philippines in 1983 and has since approved loans amounting to PhP3.07 billion (€52.65 million). It has 44 active partners in the Philippines at present (17 in Luzon, 13 in the Visayas, and 14 in Mindanao) benefiting over 2.9 million economically active poor Filipinos, the majority of whom are women. At present, Oikocredit Southeast Asia offers the following types of products to its partner MFIs: loans, credit line, equity investment, and technical assistance .

Oikocredit is also one of the Pioneers that launched the first Social Performance Management (SPM) Peer Learning Community in collaboration with MCPI and Grameen Foundation.

Grameen Foundation

Grameen Foundation (GF) is a global foundation that helps the world’s poorest, especially women, improve their lives through access to microfinance and technology. In the Philippines, GF has provided support to some of the largest and most progressive MFIs since 2003. These MFIs are now considered the leaders in the Philippine MF sector. Realizing that smaller MFIs, are mostly found in the areas where most of the poor resides, GF started in 2009 to work with more MFIs and other stakeholders to bring the benefits of microfinance and technology to the rural areas where most of the three million poor and still unserved families reside.


At present, GF provides assistance to the MFIs through a combination of catalytic capital, systems, automation, and social performance metrics. Grameen Foundation also works with other microfinance intermediaries to build a better infrastructure for collective action and encourage greater accountability, efficiency and transparency across the sector. Aside from providing access to capital (either through advisory services to assist MFIs in accessing commercial capital or direct lending capital) and help MFIs to automate and manage business information, GF also works with MCPI and Oikocredit in creating a peer learning community where local MFIs can develop a robust SPM strategy, implement a concrete SPM initiative, and share the critical lessons of implementation with each other .

Federation of People’s Sustainable Development Cooperative (FPSDC)

FPSDC is an organization comprised of non-government organizations, cooperatives and people’s organizations. FPSDC started from the Central Loan Fund (CLF) under the Philippine Development Assistance Program (PDAP) and has metamorphosed into a network of PDAP’s affiliate organizations that provide both financial and non-financial assistance to its member-organizations. At present, FPSDC has a credit facility and a social investment facility for its members. The former provides credit funds to its member organizations while the latter is designed to provide alternative investment opportunities to organizations to earn better returns for their money and at the same time support development initiatives of the disadvantaged communities. Aside from these, FPSDC also provides institutional support to beef up the capability of its members and partners to deliver financial and non-financial products and services, and to implement community enterprises to their respective clientele .


SEEDFINANCE Corporation

Founded in 2002, SEEDFINANCE Corporation is a nongovernmental organization that provides savings and loans products, as well as technical and implementation assistance, to poor and low-income individuals and small businesses in the Philippines. On 30 April 2007, SEEDFINANCE Corporation was registered as a financing company that will continue the work of CARE-USA (Cooperative for Assistance and Relief Everywhere-USA) and SEAD, Inc. (Sustainable Economic Activity Development, Inc.–Philippines). Both institutions were initially involved in providing microfinance services to the poor and low-income households through a network of partner organizations. As of April 2010, SEEDFINANCE and its 70 partner organizations work with approximately 1.2 million clients across the Philippines .

Other service providers

Other service providers in the Philippines are the following: Asian Institute of Management (AIM), Center for Development Management, Punla sa Tao Foundation, and the CARD Mutually Reinforcing Institutions Development Institute (CMDI). All of these institutions have various training modules on the different aspects of microfinance operations. CMDI, for its part, provides training in the following areas: microfinance management, social performance management, micro-insurance, basic financial management training, internal auditing and financial controls, training of trainers on micro-enterprise management, various lending methodologies, leadership and governance.


At present, there are also various universities that are offering management courses, e.g., the Ateneo de Manila University and De la Salle University. In Ateneo, for instance, they are offering some courses that are focused on management of microfinance operations.

Aside from the foregoing there are other international development organization such as PlaNet Finance that has recently set-up local offices in the country. Likewise, international microfinance rating agencies such as Planet Rating and MicroFinanza Rating have also set up offices in the country indicating support and recognition of the robust and vibrant microfinance sector in the Philippines .

IV.3.5 Donor support to the microfinance sector

Foreign donors continue to support the development of the Philippine microfinance sector. Technical and funding assistance were and still are provided by the United States Agency for International Development (USAID), the United Nations Development Programme (UNDP), the Asian Development Bank (ADB), and the European Union (EU) and International Fund for Agriculture Development (IFAD).

United States Agency for International Development (USAID)

USAID has provided a three-pronged support to microfinance development in the Philippines. The first is the implementation of the Credit Policy Improvement Program (CPIP), a technical assistance to the National Credit Council (NCC) under the Department of Finance. CPIP provided technical assistance to the government (DOF-NCC in particular)


in establishing a policy and regulatory environment that encouraged the private sector to participate in the provision of microfinance services. CPIP was implemented from November 1996 to February 2006. This assistance resulted in the adoption of key policy reforms that provided commercialization impetus to the sector.

In addition to the policy level support, USAID also provided assistance to rural banks through the Microenterprise Access to Banking Services (MABS) Project. The MABS program is an initiative that supports the Philippine rural banking industry to significantly expand microenterprise access to bank-microfinance services. Specifically, the program provides technical assistance and training in various areas of microfinance operations to partner rural banks. Partner rural banks offer microfinance loans and deposit services specially tailored to microenterprise clients. Since its inception in 1998, the MABS Program has helped more than 230 rural banks and branches in the Philippines.

Aside from rural banks, USAID also provided assistance to cooperatives engaged in savings and credit operations through the Credit Union Enhancement and Strengthening (CUES) Program (ended in 2018). The main objective of CUES was to identify and transform credit cooperatives into safe and sound institutions. Aside from enjoining partner-cooperatives to adopt the model credit union approach in their operations, CUES also implemented a microfinance component (the Savings and Credit with Education -SCWE- component). Under the SCWE, women in the rural areas are organized into village centers and are provided microfinance services through the partner- cooperatives. Upon project completion, the partner-cooperatives had organized the


Model Cooperative Network (MCN), which continued to provide similar technical assistance to its members.

Asian Development Bank (ADB)

In 2006, the ADB provided a US$150 million Microfinance Development Program loan to the Philippine government. The assistance focused on the following: strengthening the regulatory and supervisory capacities of concerned institutions for a sound microfinance sector; building the capacities of MFIs to provide cost-efficient microfinance services to the poor; and improving financial literacy and increasing consumer protection for the poor. Accompanying the program loan is a technical assistance and two grants that assisted concerned government agencies in implementing the needed reforms. The technical assistance focused on the following areas: i) development of consumer protection and business development services guidebook for MFIs; ii) development and implementation of training modules for various types of MFIs on the use of the PESO (Profitability, Efficiency, Sustainability and Outreach) performance standards; iii) development of the National Microfinance Literacy Program Framework and conduct of relevant training courses; and iv) provision of technical assistance to the National Credit Council (NCC) and the National Anti-Poverty Commission (NAPC) in implementing the relevant reforms to strengthen the regulatory environment for the microfinance sector.

United Nations Development Programme (UNDP)

In 1998, the Philippines became one of the recipients of the “Microfinance Support Project” (MSP) under UNDP’s Global MicroStart


Programme. The MSP assists partner MFIs to have efficient and sustainable microfinance operations using the ASA methodology. The MSP ended in 2001.

International Fund for Agricultural Development (IFAD)

Apart from financing projects related to agricultural development, IFAD also founded in 2011 a program for microfinance in the Philippines—the Rural Micro-Enterprise Promotion Program (RUMEPP). The program ended in 2018 and was focused in two main components: micro-credit and support component and the microenterprise promotion and development component. The first component provided loan funds and capacity building assistance to MFIs. Loan funds are provided at market rates through the Small Business Corporation (SBC) while capacity building includes training, systems development, and provision of institutional loans and matching grants to enable MFIs to open new microfinance windows in the program target areas. The second component provided efficient, cost-effective and demand-responsive business development services to rural micro-enterprises.

European Union (EU)

The EU provided assistance to specific area-based development programs. In addition to the development components of the programs, the EU also provided capacity building funds for partner-MFIs in the project area. For some projects, microfinance loanable funds were deposited as trust funds in and administered by the PCFC. The funds are then provided to their partner MFIs at market rates using the eligibility


and creditworthiness criteria of the wholesale lending institution. The partner-MFIs then lend to the program participants in the area.

Aside from these, the EU has also provided funding to improve financial inclusion and build social impact towards food security in Southeast Asia. The Philippines is one of the countries in the region that was given financial assistance. The program aims to build the capacity of MFIs and their networks to increase financial inclusiveness in rural areas in order to help farm households improve their food security. The program is being implemented in partnership with the Microfinance Council of the Philippines, Inc. (MCPI). It has the following components: i) strengthening MCPI’s capacity to serve its members & stakeholders; ii) strengthening MFI operations through customized on-site coaching and mentoring of MFI staff using the social performance management (SPM) approach; iii) providing support for the development and testing of new or improved financial services for farm households; and iv) training rural households on their rights and responsibilities as microfinance clients.

International NGOs and Foundations.

Aside from the Official Development Assistance (ODA) provided by foreign donors through the government, a number of international NGOs also provided assistance to the Philippine microfinance sector. Assistance is usually coursed directly to MFIs or network of MFIs (e.g., MCPI, cooperative federations, and regional microfinance councils). These include, among others, the following: Interchurch Organisation for Development Cooperation (ICCO), CORDAID, Small Enterprise Education and Promotion Network (SEEP), ECLOF, and Oikocredit.


IV.4 CURRENT SITUATION IN THE MICROFINANCE SECTOR IN MINDANAO

In spite of the goals achieved in the microfinance sector, the current situation in Mindanao as well in all the country shows that there is still a long way to go towards financial inclusion, which can be estimated in terms of the following: (a) access – supply and availability of different microfinance products and services; (b) usage – use of different financial products and services; (c) quality –experience of the consumer, measured in terms of attitudes and opinions towards those currently available products (d) welfare – impact of a financial product or service on the lives of consumers, including changes in consumption, business activity and wellness.

The on-going policy of the Republic of Philippines aims to address the sources of grievance of previously conflict-affected communities and prioritise its interventions to accelerate barangay-focused rehabilitation and development. Along with the peace process, the government’s approach to eradication of poverty is focused on “creating ten million jobs by supporting the development of three million entrepreneurs and on developing at least two (2) million hectares of new lands for agribusiness”. Under this strategy, the government set to make “super region” Mindanao as the country’s main agro-fishery export zone”. With regards to micro-finance, one of the main challenges is that formal financial providers cannot reach those who have effective demand for outside financing in the target area due to established stringent banking requirements. The Return on Investment (ROI) pursued by enterprising individual borrowers are thus reduced as they are forced to avail of loans


from the unregistered sources, mostly traders and money lenders, who usually charge much higher interest rates than the formal sources.

In addition, empirical evidence shows that microfinance services thrive in areas with relatively better infrastructure, and that there is “a severe lack of microfinance services in areas with poor physical infrastructure since this means unacceptably high risks and transaction costs”.

In Mindanao, the large commercial farms (pineapple, cavendish bananas, rubber and palm oil plantations) have access to loans from both government and private commercial banks. Large agribusiness companies that operate commercial farms, particularly cavendish bananas have entered into contract-growing schemes with farmers to grow this crop. The Davao Region and parts of Bukidnon Province is the dominant producers of cavendish bananas in the country. These firms are highly capitalized and can use their internal funds to finance commercial operations. Even farms that have shifted and diversified into livestock and poultry were also able to borrow from private and government banks. The large demand for chicken and pork particularly in urban and commercial areas has made livestock and poultry business a profitable venture for commercial growers. Government and Private commercial banks have lent and are still lending to these borrowers without having to depend on government credit funds. However, Smallholder agriculture engaged in rice and corn production could not have access to funding from private commercial and government banks. The main sources of formal loans are the Land Bank of the Philippines (LBP) and rural banks. The credit programs of the Land Bank of the Philippines currently supporting agriculture are mainly for primary production of rice and corn. However, in reality, most of the small farmer borrowers continue to depend on informal lenders mainly traders,


money lenders and even relatives for their production financing. Also, the traditional banks have failed to innovate and develop credit products nor have simplified their lending procedures that would allow small farmers access to their loan facilities.

Access to loans is more visible among large agribusiness corporations who have the 5Cs – Capital, Character, Collateral, Capability and Conditions which makes for a good risk management on the part of the formal lenders. While small farmers on the other hand are limited to informal lenders. Lending to small farmers is risky and entails high transaction costs thus commercial banks are discouraged to lend to this sector. Traders and money lenders are the only alternative source of financing and continue to lend to those excluded by the banking system. Small farmer-borrowers are more concerned about accessibility and timeliness of loans releases particularly during the onset of the planting season that they are no longer conscious about the interest rate pegged on their loan. Informal credit also offer products that are specifically designed to meet the needs of small farmer-borrowers. Aside from providing production inputs on credit, the informal lenders also provide cash loan for emergencies, education, and even for special events live wedding of a member of the household.

The collection of data to draw a clear picture of the microfinance situation in Mindano resulted quite difficult. Etimos F. met representatives of the Mindanao Microfinance Council but no significant data can be extracted from their office because members have not submitted statistics and financial statements since 2015.


The data available are mainly coming from formal sector according to the following tables:


The major provider of Microfinance services in IARCDSP covered areas are reported in the following table:


IV.4.1 Related DAR Programmes in the Agrarian Reform Communities of Mindanao

DAR’s on-going microfinance programs are implementing schemes consistent with existing policies which can be adapted to the IARCDSP Microfinance component. Specifically, under the Microfinance Capacity Development in Agrarian Reform Areas, DAR has helped develop the capacity of 50 farmers’ cooperatives to manage microfinance operations in partnership with the National Confederation of Cooperatives, Inc. (NATCCO) through the Microfinance Innovations in Cooperatives in Agrarian Reform Areas (MICOOP@ARAS) program. Under this Program, DAR signed a Memorandum of Agreement with NATCCO wherein DAR provides funds only for capacity building for farmer’s cooperatives and NATCCO implements the training, coaching and mentoring to the cooperatives using a proven microfinance approach. Working capital for microfinance operations are directly infused by NATCCO to the cooperatives using the Confederation’s own lending portfolio, hence, DAR does not have to provide funds for lending operations. As a result of this program, several cooperatives have increased their assets and expanded their microfinance operations. Another program is DAR’s partnership with the Center for Agriculture and Rural Development Bank (CARD Bank, Inc.), with the same objectives but using the modified Grameen Technology and focusing on the development of smaller cooperatives. Under these two programs, 102 Agrarian Reform Beneficiaries’ Organizations (ARBOs) have been assisted and developed into viable financial intermediaries effectively providing microfinance to about 184,000 Agrarian Reform Beneficiaries (ARBs), ARB households, rural women, farmers and other entrepreneurs in the Agrarian Reform Communities (ARCs) .


At the Agricultural Reform Community (ARC) level, it is observed that farmers prefer to deal with local traders and input suppliers rather than deal with formal lenders. This is due to the stringent loan requirements of the latter. In the case of traders and input suppliers, credit extended to farmers are not only limited to production inputs but also to cover educational expenses, hospitalization, special occasions like wedding, and for emergency needs.

During the rounds of consultation with the ARBOs/FOs in Sarangani Province, Etimos Foundation observed that aside from the local traders and input suppliers, some MFIs and NGOs are also actively involved and engaged in microfinance. Card Inc., ASA Philippines, KMBI, 1-Puhunan and Pag-Asa Foundation are the notable ones to name a few. Two ARBOs, the TARBC in Gen. Santos City and SMTPC in the Municipality of Malapatan are already actively engaged in microfinance.

V RECENT DEVELOPMENTS AND INNOVATIONS IN MICROFINANCE

V.1 Mobile Banking

With the advancement in technology and with the popularity of mobile phones, mobile banking is recognized to have a huge potential to provide access to the unbanked. The Consultative Group to Assist the Poorest (CGAP) reported in December 2009 that based on a survey conducted by GSMA and McKinsey, “…one billion people do not have a bank account but do have a mobile phone”.


Findings from the Philippines show that one-half of the active mobile money users are unbanked. Of these, 26 percent are poor, living on less than US$5 per day (the poverty line in the Philippines) and that 1 in 10 unbanked users saves an average of US$31 (one-quarter of their family savings) in a mobile wallet.

Even before the results of the study “Measuring the global market for financial services delivered via mobile phones”, the Microenterprise Access to Banking Services (MABS) Project, already saw mobile phone banking as a technology solution to extend low-cost banking services to existing clients and un-banked individuals especially in rural areas. MABSs partnered with Globe Telecom, a leading mobile phone operator in the Philippines that developed the G-Cash platform in 2004. In partnership with Globe, MABS developed various products and services using the G-Cash platform. Among which are: using SMS to deposit, to pay bills, to remit and transfer funds, to pay loans, and to withdraw. They have also developed a product wherein the salaries of rural banks employees are received through text or SMS. As of June 2007, there are 37 accredited rural banks and 87 accredited bank branches with cumulative G-Cash transactions of 110,000, totallingPhP380 million or US$7.6 million.


V.2 Microfinance Housing

Aside from enterprise loans, some MFIs have started to offer microfinance housing loans, which are small, incremental loans at market interest rates and amortized over shorter terms. Microfinance housing loans cater to the low-income households and are usually used to improve or repair existing homes, construct and purchase new homes, buy land, or install or improve utilities and other basic services.

To enable banks engaged in microfinance to provide this type of loan, the Bangko Sentral ng Pilipinas issued Circular 678 on 6 January 2010 recognizing loans for housing to microfinance clients as part of a wide range of financial services to the sector. Since the risk profile of the new product may be different from regular microfinance loans, banks are required to carefully study the ability of clients to repay the loan, especially the new customers.


V.3 Microfinance in Agriculture

More than 50 percent of the poor who are considered clients of microfinance live in the rural areas where agriculture is one of the main economic activities. In view of this, a number of microfinance institutions and rural banks have developed loan products for clients engaged in agriculture.

Some rural banks engaged in microfinance operations have also started to provide agricultural microfinance. In 2010, RBAP-MABS developed the Micro Agri loan Product (MAP) where the amount of loan is determined through a cash flow analysis of the household income and expenses and not on pre-determined financial requirements of an agricultural commodity. A MAP client has an option to pay the loan by means of a straight amortization scheme or through a payment scheme that combines regular amortization and a balloon payment at the time of harvest (60/40 Model). A micro-agri loan using the MABS approach finance a variety of farm and fishing activities that include grains, fruits, vegetables, livestock and marine products.

V.4 Business Development Services (BDS)

Aside from providing financial services, there is a growing number of MFIs that support the business endeavors of their clients and their microenterprises. MFIs also facilitate client’s access to Business Development Services (BDS). These refer to the wide array of non-financial services critical to the entry, survival, productivity, competitiveness, and growth of enterprises. BDS are provided to assist individuals and entrepreneurs to enhance their business skills and


market access to improve their income generation and asset-building capacity. These services include training, consultancy and advisory services, marketing assistance, market information, technology development and transfer, and business linkage promotion.

BDS are provided by MFIs using any of the following modalities: i) direct provision; ii) forming strategic alliance with existing BDS providers; or iii) establishing specialized, subsidiary or “spin-off” firms to handle the BDS requirements of clients.

When there are no other organizations that offer the services to the microfinance clients, the MFI usually considers developing a complementary BDS program. The following are MFIs that provide BDS to their clients: the Center for Agriculture and Rural Development (CARD); Alalay Sa Kaunlaran, Inc. (ASKI); and Taytay Sa Kauswagan, Inc. (TSKI). All of them have used the third option in providing BDS .

V.5 Microinsurance

The term “microinsurance” is referred to the insurance business activity of providing specific insurance products that meet the needs of the disadvantaged for risk protection and relief against distress or misfortune.

A “microinsurance product”, on the other hand is an insurance policy whereby the monthly premium does not exceed PhP1,050 and the maximum amount of life insurance coverage is not more than PhP175,000.00 .


MFIs have realized that gains resulting from continued access to savings and credit services are usually eroded when contingent events arise. The poor are vulnerable to risks such as illness, physical injury, accident, or death, basic business risks, loss of property, loss of job, theft and abrupt swings in the economy. Those belonging to the low-income sector have inadequate, or in some cases, no access to risk protection services. Most of the times, they are financially unprepared to cope with and mitigate these risks. Because of this, MFIs realized the need to assist their clients with financial products that will help them manage these risks and/or provide financial relief when contingent events occur.

Below are the most common insurance products available in the market:

• Life insurance. A typical microlife insurance product would start with a coverage of P5,000, with a premium payment of about P40 pesos, covering a period of less than six months. You could go for a coverage of as much as P250,000 under microinsurance.

• Accident insurance. A typical plan could start with a coverage of P20,000, with premiums starting at less than P100.

• Property insurance. Coverage for disaster-related losses to your home could go from P100,000 to P200,000, with premiums at around P100 for a year of coverage.

• Personal property insurance for small businesses. This can include protection against damage to property, as well as losses from burglary and robbery. Typical coverage is P100,000 with premiums of around P1,500-P2,000.

Microinsurance plans are designed to be straightforward, making it easy for plan holders to understand how to use these. Documentary


requirements are also minimal and easy to comply with. Restrictions are minimal. It is almost always paid for in cash, but it can also be paid through other ways such as through mobile payments, as well as salary deductions.

The National Strategy and the Regulatory Framework for Microinsurance

Recognizing that the poor need to be protected against risks and having learned that the private sector has the technical and financial expertise in providing the poor sustained access to financial services, the government launched and issued the National Strategy and the Regulatory Framework for Microinsurance in January 2010. These documents provide the pillars for the development of the microinsurance market in the Philippines. Both documents were crafted in partnership with the private sector and generally call for increased private sector participation in the provision of risk protection to the low-income sector.

The National Strategy for Microinsurance highlights the distinct roles of the government and the private sector in protecting the poor against risks. Under the strategy, government’s role is limited to the provision of an enabling policy and regulatory environment for greater private sector participation in the provision of microinsurance products and services. In line with this, the Insurance Commission has recently issued several circulars providing a regulatory space for the provision of microinsurance.


While micro-insurance products are provided by licensed insurance companies, and cooperative insurance societies and mutual benefit associations (MBAs), they are marketed through pawnshops, cooperatives, rural banks, mutual benefit associations, NGOs, and other microfinance providers that have taken advantage of the changing economic conditions and diversified their product mix. The unique context of microinsurance in the Philippines casts a wider net for financial inclusion, with more avenues opening greater access to finance for more vulnerable Filipinos.

Since the launch of the Strategy, there has been more than 50 licensed insurance entities such as banks, cooperatives, and microfinance NGOs that provide microinsurance products, 89 Insurance Commission-approved microinsurance products, and 28 million Filipinos covered. Developments in disaster risk insurance, micro health products and agricultural risk insurance are also being made to further increase the penetration rate in the country .

The Insurance Commission notes that there are 23 micro mutual benefit associations, 18 life insurance companies, 24 non-life insurance companies, 42 rural/cooperative bank agents and around 100 microinsurance agents engaged in the provision of microinsurance products. Thus far, there are 122 microinsurance products approved by the Insurance Commission.

Partnership between Microfinance Institutions and PhilHealth (KaSAPI)

To enable the Philippine Health Insurance Corporation (PhilHealth) to reach its goal of universal coverage, it has to reach out to both those employed formally and those within the informal sector. Thus, in 2005, PhilHealth launched the Kalusugang Sigurado at Abot-Kaya sa PhilHealth Insurance or KaSAPI Program. KaSAPI is an innovative


scheme of PhilHealth that enables it to reach out and enroll the informal sector under the National Health Insurance Program (NHIP) by partnering with big MFIs, such as cooperatives, rural banks and other organized groups. Organized groups with more than 1,000 members and with strong operational, management and financial capacities were invited to become KaSAPI partners.

Under the scheme, the collection mechanism of the MFIs (e.g., the weekly Center meetings held to collect loans) is used to implement the flexible alternative payment scheme. This payment scheme made the PhilHealth premium contributions affordable to the informal sector.

The importance of microinsurance, specially for the informal sector, was highlighted in the aftermath of Typhoon Haiyan. Microinsurance providers were able to infuse PhP0.5 billion (around US$11 million) in typhoon-affected areas after paying out damage claims within the required 10-day period. In addition, 129,786 families reportedly took out new microinsurance policies after the typhoon.

V.6 The Credit Surety Fund (CSF)

The Credit Surety Fund (CSF), created under Republic Act No. 10744, is a fund generated from the contributions of well-capitalized and well-managed cooperatives/nongovernment organizations (NGOs), local government units (LGUs) and other institutions/government agencies (GAs) which shall serve as security for the loans that will be obtained by qualified member-borrowers from lending banks by way of a surety cover issued by the Board of Directors (BOD) of the CSF Cooperative. Banks generally require collaterals when extending loans, a requirement


that some micro, small and medium enterprises often find difficult to comply.

Administration of the Fund. The Fund is administered by the CSF Cooperative which is governed by the BOD consisting of representatives from member-cooperatives/NGOs elected by all members of the CSF cooperative and authorized representatives from the LGU and partner institutions, to ensure its growth through sound management and investment practices.

CSF Cooperative. CSF Cooperative is an LGU-partnered cooperative comprised of well-capitalized and well-managed cooperatives/NGOs, LGU, GFIs, IGLF and Gas, which will enable MSME, cooperatives and NGOs to have easier access to credit from banks despite lack of collaterals. Republic Act (RA) No. 10744 or the CSF Cooperative Act of 2015 provides for the creation and organization of CDF Cooperatives in the country.

LGU’s Role . A CSF Cooperative cannot be established without the LGU commitment to support the CSF Cooperative by contributing to the Fund and providing other assistance for the growth of MSMEs. The initial contribution of the LGU must be equal to or more than the aggregate contributions of the participating cooperatives/NGOs, as approved and authorized through a resolution by the Sanguniang Panlalawigan or Panlungsod, as the case may be. The Cooperative Development Authority (CDA) is the government entity in charge of registration, regulation, monitoring and supervision of CSF Cooperatives.


V.7 The Islamic Finance

The term Islamic finance is used to refer to financial activities conforming to Islamic Law (Shari‘ah).

Islam, far from being only a religious system, covers a substantial area of almost every aspect of life. Obedience and adherence to Divine guidance is required also in economic activities “even though it is at the price of some apparent benefits, because these apparent benefits may go against the collective interest of the society”. The final result of an Islamic system is, then, the welfare of the whole society, a balanced approach to life. The Muslim community all over the world is often referred to as the “Ummah”, the community of believers.

Islam does not refuse market economy, though there are fundamental differences between capitalist and Islamic economy. Capitalist economy is a secular one, no divine injunction is accepted and followed. Islamic economy, instead, far from being free, has to avoid all those behaviours that hurt moral teachings and the wellbeing of the society. Gambling, interest and speculative transactions allow injustice and lead to exploitation; this unfair practice concentrate wealth in the hands of a few. Islam accepts profit (at a certain extent), private property and market forces, but they are not given unbridled opportunities. They are, instead, subject to Divine restrictions .

Shari’ah rules and principles require an Islamic financial transaction to be supported by an underlying economic activity. This characteristic shows that Islamic economics and finance is an


asset-backed financing: on the other way round, capitalistic conventional system is based on paper, and money produces money.

In the Islamic context, money is only a mean of exchange:

➢ It cannot be used as an asset;

➢ Has no intrinsic utility

➢ May not generate a profit;

➢ Currency trade is not accepted;

➢ At the same time, it cannot be left unproductive, since hoarding is not allowed under Shari’ah.

One of the main principles of the Islamic finance system is therefore the prohibition of the payment and the receipt of ribā (interest) in a financial transaction. The term ribā covers all forms of interest and is not limited to usury or excessive interest only. The most critical and significant implication of banning interest is the indirect prohibition of a “pure” or unsecured debt security. This is based on Islamic law which doesn’t recognize money and money instruments as a commodity but merely as a medium of exchange. Hence any return on financing must be tied to an asset, or participation and risk-taking in a joint enterprise such as partnerships. A pure debt security is replaced with an “asset-based” security, direct financing of a real asset, and different forms of partnerships of which equity financing is the most desirable.


The main features of Islamic finance derives from Shari’ah mu’amalat :

➢ Prohibition of riba

➢ Prohibition of gharar

➢ Suggestion of the profit and loss sharing schemes as the only way to earn legitimate money

All the prohibitions combined have the ultimate and cumulative effect of preserving balance, distributive justice, and equal opportunity and must always be honoured in any Islamic transaction.

VI.7.1 Distinguishing modes of Islamic Finance

The main modes of Islamic Finance can be summarized as follow :

• MUDARABAH (Profit Sharing)

• MUSHARAKAH (Partnership Financing)

• MURABAHA (Mark-Up Financing)

• IJARA (Leasing)

• ISTISNAA’ (Manufacturing Contract)

• ISLAMIC SECURITIZATION (Sukuk/Shari’ah Compliant Securites/Bonds)

• QARD HASAN (Benevolent Loan)


Mudarabah or Profit Sharing

100 percent capital from one party and 100 percent management/labor from the other party

Mudarib manages without interference by capitalist, except in the monitoring aspect

Financial loss borne by capitalist/investor

Does not provide guaranteed amount as return

Musharakah or Partnership Financing

A joint enterprise or partnership with profit- loss sharing implications that is used in Islamic finance instead of interest-bearing loans.

Partnership to carry out specific project, usually for a limited period

All parties contribute to financing and profits and losses are shared according to equity

Murabaha or Mark-up Financing

A popular financing product in the nature of a contract of sale, where an intermediary (usually the bank or creditor) buys a property, and then the intermediary and prospective buyer agree upon a sale price (with an agreed profit for the intermediary), and payment is made through instalment or by lump sum payment.

In short, the bank purchases goods on behalf of clients and later sells them at a marked up price


Murabaha is not an interest-bearing loan, but an acceptable form of credit sale where the financier retains ownership of property until the loan is paid in full.

Ijara or Lease

Ijara means to give something on rent. The client selects the asset to be financed by the financial institution, and the financial institution purchases the asset and leases it to the client for a fixed period.

Applies to costly assets or things, which the borrower cannot afford. The bank buys the asset and leases it to the borrower for monthly payments totalling cost of purchase plus profit.

Istisna or Manufacturing Contract

A pre-production financing tool where a manufacturer is ordered to produce a specific commodity

Price and specifications are fixed

Payment is usually deferred

In Istisna the subject matter is always something that needs to be manufactured, in salam, it is anything that can be specified

In Istisna, the manufacturer obtains the material and does the work to produce the item, in Ijarah, the customer provides the material and the manufacturer employs labor and skill only.

Istisna is for manufactured good and labor to manufacture it, while ju’ala is for labor only or for a specific work.


Islamic Securitization

Done by converting illiquid assets into marketable securities, and is an ideal financing tool for emerging markets (Sukuk)

Securitization has to be Shari’ah compliant

Shari’ah compliance for stocks/bonds is based on:

Qard Hasan

Means “Good Loan” and is based on the Qur’anic verse which says: “If you lend to ALLAH a good loan, He will multiply it for you.” [64:17]

An interest-free loan for financing welfare projects or fulfilling short-term requirements. Borrower only pays the principal amount, but he may pay an additional amount, as a token of appreciation, if he may so desire.

Islamic Banking

• A banking system that is based on the principles of Islamic law and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and loss, and the prohibition of payment of interest.

• All undertakings of the Islamic bank follow Islamic morals or Islamic business ethics, making it a form of ethical investing.

Islamic Insurance

• Islamic insurance or Takaful according to the website Investopedia is “a type of Islamic insurance where members contribute money into a pooling system in order to guarantee each other against loss or damage.


• Takaful is an alternative to commercial insurance, and goes against riba (interest), al- maisir (gambling) and al-gharar (uncertainty).

The Shari’ah Advisory Council

• There is a need for a National Shari’ah Advisory Council to, among others, formulate fatwa on questions and issues in Islamic finance.

• The Shari’a Advisory Council is also mentioned in R.A. 6848 [Sec. 4] as composed of five (5) members selected from among Islamic scholars and jurists of comparative law “to offer advice and undertake reviews pertaining to the application of the principles and rulings of the Islamic Shari’a to the Islamic Bank’s transactions, but it shall not directly involve itself in the operations of the bank”.

Strides in Philippine Shari’ah Compliant Bonds

• There are now more than sixty (60) Shari’ah compliant bonds being traded in the Philippine Stocks Exchange.

• The evaluation is being done by IdealRatings which offers services in Shari’ah screening, purification, fund and index management, and identify and manage Shari’ah compliant equities, funds and sukuk.

VI.7.2 Islamic Finance actors in Philippines: Al Amanah Bank

The Amanah Bank was established in the early days of Martial Law in the early 1970s . It was created to provide credit, commercial, development and savings banking facilities at reasonable terms to the people of the primarily Muslim provinces of Mindanao, principally, the provinces of Cotabato, South Cotabato, Lanao del Sur, Lanao del Norte, Sulu, Basilan, Zamboanga del Norte, Zamboanga del Sur and Palawan for the establishment, acquisition, development and expansion of


agricultural, commercial and industrial enterprises. The Philippine Amanah Bank was to have its principal places of business at Marawi City and to exist for a period of fifty years.

Just a year later, on September 16, 1974, Presidential Decree (PD) No. 542 amended PD 264 in order to render more effective the foregoing intentions and objectives of the previous Decree, it was necessary that the religious beliefs and practices of the Muslim citizens of the Philippines, be followed and respected, unless otherwise it is contrary to law, good morals and public policy .

Therefore, Islamic Banking and Finance in the Philippines is yet to take real roots. The many challenges and failures that faced Amanah Bank since its creation (in terms of legal, regulatory, marketable instruments, institutional support, Shari’ah expertise and target market) reflect fundamental weaknesses for Islamic finance in the Philippines and thus require overhauling and reforming the overall regulatory framework and approach.

Most recently, in the Seventeenth Congress of the House of Representatives , the State recognizes the vital role of Islamic banking and finance in creating opportunities for greater financial inclusion especially for the underserved Muslim population, in expanding the funding base for small and medium-sized enterprises as well as large government infrastructure through financial arrangements with risk-sharing as their core element, and in contributing to financial stability through the use of financial contracts and services that are founded on risk-sharing rather than speculation in compliance with Shari’ah principles.


Under the House Bill, the Monetary Board, may authorize the establishment of Islamic banks, including authorizing conventional banks to engage in Islamic banking arrangements, including structures and transactions – through a designated Islamic banking unit within the bank, provided that the bank shall have a system for segregating the transactions of the Islamic banking unit from its conventional banking business.

The Monetary Board, under such rules and regulations as it may prescribe, may authorize foreign Islamic banks to establish banking operations in the Philippines under any of the modes of entry provided for under Republic Act No. 7721, as amended, otherwise known as “The liberalization of Entry & Operations of Foreign Banks”. The Monetary Board may regulate the number of participants in the Islamic banking system taking into account the requirements of the economy, the preservation of the stability of the system, and the maintenance of healthy competition.

The Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP), other Islamic banks, designated Islamic banking units of conventional banks and foreign banks that are authorized to conduct business in accordance with the principles of Shari’ah shall collectively be referred to as “Islamic Banks” or “Islamic banking system” .


V ANALYSIS OF FINDINGS ON FINANCIAL SERVICES AND IARCDSP INTERVENTION OPPORTUNITIES.

V.1 National Baseline Survey On Financial Inclusion

The Bangko Sentral ng Pilipinas (BSP) defines financial inclusion as a state wherein there is effective access to a wide range of financial products and services by all. “Effective access” does not only mean that there are financial products and services that are available but also encompasses four broader components namely Access, Usage, Welfare and Quality. Aside from physical access to financial products and services, these products and services must be appropriately designed, of good quality and relevant to lead to actual usage that can benefit the person accessing the said service. “Wide range of financial products and services” refers to a full suite of basic products and services such as savings, credit, payments and remittance, insurance, and investments for different market segments, particularly those that are traditionally unserved and underserved. Crucial to the work in advancing financial inclusion is a comprehensive and robust data framework. This is important in monitoring progress, identifying gaps, establishing priorities and crafting evidence-based financial inclusion policies. At present, there are available information coming from financial service providers (i.e., supply-side) but these do not present a complete picture of financial inclusion in the country. The National Baseline Survey on Financial Inclusion (NBSFI) is the first nationally representative survey of Filipino adults dedicated to collect financial inclusion data from the perspective of the actual and potential users of financial products and services (i.e., demand side).


It aims to provide a more holistic picture of financial inclusion in the Philippines in terms of access, usage, quality and perceived welfare.

Highlights of the NBSFI Survey

Access

• Filipino adults are most aware of banks (98.3%), pawnshops (95.7%) and automated teller machines or ATMs (93.5%). There is relatively low awareness of other access points such as microfinance NGOs (30.5%), e-money agents (25.6%) and non-stock savings and loan associations or NSSLAs (13.6%).

• Among those who are aware of access points, 7 out of 10 adults said that banks are accessible. However, other access points such as pawnshops, ATMs, payment centers, money changers and remittance agents are perceived to be nearer and easier to reach. The least accessible financial service providers (FSPs) are NSSLAs and insurance agents/companies.

• The most typical means of reaching an access point is through public transportation, either via three- or four-wheeled vehicle. Some access points such as cooperatives and e-money agents are most commonly reached by walking only. On the average, it takes 21 minutes to go to the nearest access point. In terms of cost, the average roundtrip fare to reach an access point is PhP 43.00

• The average length of time to reach the nearest bank and ATM is 26 and 22 minutes, respectively. A two-way trip to the nearest bank and ATM costs PhP 52 and PhP 47, respectively. Length of travel time and


cost of travel is lower for other access points such as remittance agents and< payments centers.

Usage

• Financial transactions - For those who are aware of access points, majority (71%) have transacted with payment centers, remittance agents (58.6%) and pawnshops (51.6%). Among adults who have performed financial transactions, the most commonly experienced transaction is paying bills (72.3%), followed by sending/receiving money (62.5%) and withdrawing cash (56.4%).

• 5 out of 10 Filipino adults have experienced transacting with banks. In Metro Manila and Balance Luzon, more than half of the adult population have performed banking transactions, 35% of adults in Visayas and 43% of adults in Mindanao. 55% of adults in urban areas have done banking transactions compared with 45% in rural areas. The percentage of adults who have experienced transacting with a bank decrease with levels of income and education. The percentage is higher for females and older adults.

• There are geographic peculiarities in financial transactions. For instance, many adults in Mindanao have transacted with cooperatives and microfinance NGOs. The percentage of adults who have performed transactions in NSSLAs and pawnshops is relatively high in Visayas compared with other regions. While the percentage of those who have experienced transacting with access points is often higher in urban areas, more clients transact with cooperatives, microfinance NGOs and e-money agents in rural areas.

• There are also disparities in terms of socio-economic class. The percentage of adults who have transacted with access points is usually higher in class ABC except for NSSLAs, cooperatives, lending/financing


companies and payment centers where more adults are coming from class D. Adults who experienced transacting with microfinance NGOs are mostly coming from class E.

• Savings - 4 out of 10 Filipino adults (43.2%) currently have savings, 32.3% used to save in the past but have stopped saving money, while the remaining 24.5% have never experienced saving money.

• 7 out of 10 adults (68.3%) who are saving money keep their savings at home. 32.7% of adults with savings put their money in banks while others save through cooperatives .

• 6 out of 10 adults (62.8%) with bank account indicated that the bank’s reputation is their number one consideration in opening a deposit account. Around 50% mentioned interest rate as another major consideration, followed by minimum maintaining balance (45.9%), proximity of the banking office (39.8%) and treatment by bank employees of their clients (34.8%).

• 65% of adults who save but are not saving in banks cited lack of money as the main reason for not having a bank account. The other reasons include the lack of need for a bank account (16.9%), limited knowledge and capability to manage an account (16.8%), cost (11.2%), distance of the bank (7.6%), failure to meet documentary requirements (4.6%), among others.

• Loans - Most Filipinos have or had debt – 47.1% of adults borrow money, while 33.8% did so in the past and do not borrow anymore. Only 19.1% of adults do not borrow at all.

• For those who borrow money, the main source of borrowing is mainly informal – from family, relatives or friends (61.9%) and informal lenders (10.1%). Bank as a source of borrowing stood only at 4.4%, lower


than the percentage of adults who borrow from lending/financing companies (12%), cooperatives (10.5%), microfinance NGOs (9.9%) and government entities (6.1%).4 The main purpose for borrowing money is to buy food (59.5%), school related expenses (38%), and to finance emergencies (32.7%).

• Half of the adult population with outstanding loan in a formal financial institution have a personal loan which was reported to be commonly sourced from lending/financing companies. Other common types of loan among adults with outstanding credit are microfinance (20.2%), salary (19.5%) and business (12.9%).

• The primary considerations in borrowing money are interest rate (57.5%), loan amount (41.7%), period to pay for the loans (35%), and ease of loan application (33.1%). Reputation of the credit institution or lender (24.5%), amortization (14.9%), collateral (14.3%) fees and other charges (11.4%), and processing time (11%) are also considered.

• Insurance - Filipino adults see illness and medical expenses as major threats that can significantly impact their livelihood (87.5%) and would like to have insurance coverage (48.6%). Next in rank among the perceived threats are death or loss of income from main income earner (75.6%) and natural disasters (59.1%).

• Filipino adults are most aware of health insurance (77.7%), life insurance (67.3%) and accident insurance (60.3%). There is low awareness of microinsurance (14.5%), lower than other non-life insurance products like vehicle (47.4%), fire (39.1%) and building (32.2%) insurance, but slightly higher than cellphone insurance (9.5%).

• In terms of coverage, 21.7% of those who are aware of microinsurance have coverage either as directly insured or as beneficiary. This level is second only to health insurance, wherein 39.8%


of those who are aware have coverage. The next highest coverage includes life insurance (20.8%), vehicle insurance (19.2%) and accident insurance (19.2%).

• The most common reason given for not having life, health or accident insurance is lack of money. The second most common reason is the perception of high cost. The most common reason for not having vehicle insurance, building insurance, cell phone insurance and microinsurance is the perceived lack of need for these types of insurance products.

Quality

• Satisfaction with financial transactions - More than 50% of adults who have transacted with banks and ATMs are just somewhat satisfied with their transactions. The same is true for other access points, except for NSSLAs and cooperatives where there are more clients who indicated that they are very satisfied. The percentage of adults who are dissatisfied with financial transactions are highest among insurance agents (7.9%), payment centers (8.1%) and lending companies (9.2%).

• Experiencing problems is most common in ATMs (21.9%), followed by cooperatives (17.1%) and microfinance NGOs (16.5%). Clients are just somewhat satisfied with how the issues were resolved in most access points, except in pawnshops where they are very satisfied and in insurance agents where they are dissatisfied.

• Fees and charges - Most Filipino adults perceived charges in financial transactions as just right except for some transactions such as performing money transfer between bank accounts which is perceived to be expensive.


• Fees on deposit accounts are perceived as just right with some exceptions – most of the holders of payroll accounts and time deposit think that the fees involved in their accounts are expensive.

• Interest rates and fees on loans are assessed as just right, except for the fees in housing loans and credit cards which are perceived to be too expensive. Interest rate, loan amount, net proceeds and period of the loan are the common elements of the loan transaction which were explained to the borrowers.

• There is a positive perception on the transparency of rates and fees for payment and remittance. For payments, remittance agents, ATMs and computer (i.e., online transactions) are perceived to be very transparent. For remittance, pawnshops are perceived to be the most transparent in rates and fees at 55%, followed by banks - over the counter (45.3%) and ATMs (41.7%).

• Experience in getting a financial product - Around 10% of bank account holders indicated that they were offered other financial products during account opening. The most common products presented to them are investments and loans.

• Nearly 8% of those with outstanding loans stated that they were offered other financial products, mostly insurance and savings, by the financial institution during loan application. Most adults indicated that the amount of loan they received is the amount they requested. In cases when the requested amount was not approved, the amount granted was lower than the amount originally requested.


Welfare

• 86% of Filipino adults believe that access to financial products and services is important, while 88% state that it is beneficial to them. 85.7% of the adult population indicate that they want to have access to financial products and services coming from formal financial institutions.

• 97% of adults believe that it is important to save money and to have the means to save money. 80% of the adult population expressed desire to save in formal financial institutions.

• Filipino adults generally maintain a positive perception on the importance of borrowing (77.1%) and believe that benefits may be derived from borrowing (84.4%) to smoothen their own and their families’ consumption needs. However, despite these positive perceptions, only 56.3% indicated that they would want to borrow from formal financial institutions.

• Filipino adults have a high positive perception of insurance. About 90% agree that insurance is important to them and that it benefits their families. Around 80% believe that insurance will provide financial aid when unexpected circumstances happen, and they want to get insurance through formal financial service providers like insurance companies, cooperatives or banks. Majority of adults (76.6%) disagree that insurance is for the rich.


V.2 Challenges for the microfinance sector

The growth of microfinance in the Philippines has largely been demonstrated by the profitability of the sector enabling MFIs to expand their operations. As profitability is demonstrated, an increased number of financial institutions have become interested in microfinance. This resulted in competition among MFIs and more recently, a growing concern for multiple borrowings, or worse, credit pollution.

Considering that there is already an enabling law that established a central credit information system, this concern should be given importance not just by the government but also by the network of MFIs looking after the viability of the sector and the welfare of the MFI clients .

Protecting Microfinance Clients

Clients of microfinance are considered vulnerable groups. They are considered vulnerable in two ways: first, the income from entrepreneurial activities that were financed by microfinance are usually eroded when they are affected by contingent events such as death, illness, fire, earthquake, typhoons and other natural disasters; and second, they are prone to being taken advantage of by unfair and unscrupulous lenders. Oftentimes, they are not prepared to handle contingent events and are at a loss, or worse, not aware when taken advantage of.

Vulnerability to contingent events is now being addressed through microinsurance. Convincing the poor households of their need for insurance and prompting them to buy insurance is still a challenge.


Client vulnerability concerns emphasizes the importance of financial literacy for microfinance clients. Providing financial literacy for microfinance clients is a major and priority agenda that should not be overlooked as the microfinance sector moves forward.

Graduating Microfinance Clients The Missing Middle

As businesses of microentrepreneurs grow from micro to small enterprises, higher amount of working capital is needed. Oftentimes, the amounts required are beyond what some MFIs can afford to lend. The bigger financial institutions that can afford their working capital requirement, however, are not inclined to extend the needed resources inasmuch as the graduating microentrepreneur often cannot comply with or does not have the requirements imposed by big financial institutions. This is where the Credit Surety Fund Cooperative should come into place.

Regulating and Supervising Cooperatives engaged in Savings&Credit Operations and the need for Market Regulations

Cooperatives engaged in savings and credit services perform a significant role in providing financial services to the poor. Cooperative members comprise a sizable portion of the microfinance borrowers in the country, with majority belonging to the low-income sector.

As of June 2010, there are 1,444 credit cooperatives and more than 13,000 multi-purpose cooperatives. About 80 percent of the multi-purpose


cooperatives are engaged in savings and credit operations and therefore provide some form of financial services to the poor. At present, there is yet no systematic set of data that provides an accurate set of information on the financial performance of cooperatives engaged in savings and credit operations. Pieces of information indicate though that there are already a few cooperatives that compares with rural banks in terms of resources. Nonetheless, institutional hurdles have hampered the full maximization of the potentials of cooperatives.

The current state of the cooperative sector can be traced primarily to a poor regulatory environment and the lack of effectiveness of the CDA as a regulator. For almost two decades, CDA has focused mainly on its developmental functions rather than on its regulatory functions, in part because the CDA Charter is ambiguous and does not grant the CDA the necessary authority to regulate cooperatives. Considering the potential of cooperatives as vehicles for promoting social and economic empowerment in the rural areas, the thrusts of the CDA need to be refocused and its policy and regulatory functions need to be enhanced so that it can help strengthen cooperatives in the areas of governance, management and operations, among others.

An amendment to the CDA Charter, the restructuring of its organization, and the professionalization of its staff (following the BSP as a possible model) will create a strong cooperatives sector that can help deliver microfinance services in the rural areas.

The Philippine Senate have sought congressional approval of a bill “Bill 2231 - An Act Providing For The Regulation and The Organization of Islamic Banks” seeking the establishment of a sound legal and regulatory framework for the development of Islamic banks in the country .


The measure would pave the way for the creation of a framework that would allow Filipino Muslim entrepreneurs, especially those involved in micro, small, and medium enterprises, to effectively access responsive banking and financial services that are compliant with the principles of Shari’ah or Islamic law.

This would enable the country to tap into the growing pool of Islamic investors across the Middle East and Southeast Asia.

Even more important, the bill would complement the Bangsamoro Organic Law (BOL), which mandates the Bangsamoro Government to promote the development of an Islamic banking and finance system in the country.

At present, the Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP), created through R.A. 6848 or the Charter of the Al-Amanah Islamic Bank of the Philippines of 1990, is the only bank in the Philippines authorized to offer Islamic banking services.

The AAIIBP has eight branches in Mindanao, namely Zamboanga, Jolo, Cagayan de Oro, Iligan, Marawi, Davao, General Santos, and Cotabato. The bank’s Executive Office is located in Makati.

To ensure compliance with Shari’ah principles, the bill mandates Islamic banks to constitute a Shari’ah Advisory Council, composed of persons qualified in Shari’ah law or who have knowledge or experience in Shari’ah law and banking, finance, law, or other related disciplines.

The Bangsamoro Organic Law (BOL): the first step toward the the Islamic Finance development


The recent passage of Republic Act No. 11054, known as the Bangsamoro Organic Law (BOL), which is the legislative charter of the Bangsamoro Autonomous Region in southern Philippines, augurs well for the development of Islamic banking and finance in the Philippines, as there are a number of provisions in the BOL that deal with this matter.

The BOL mandates the Bangsamoro Parliament to “promote the development of an Islamic banking and finance system” in coordination with the Bangko Sentral ng Pilipinas (BSP), the Department of Finance, and the National Commission on Muslim Filipinos. Moreover, the Bangsamoro Government is “to encourage the establishment of (a) banks and financial institutions and their branches including an Islamic window in domestic and foreign conventional banks; and (b) offshore banking units of foreign banks within the Bangsamoro Autonomous Region, and in accordance with the principles of the Islamic banking system”.

Although the proposed Philippine Islamic Financing Act has not yet been passed by the Congress of the Philippines and, therefore, there is currently no general legislative framework for Islamic banking and finance in the country, the enactment of the BOL is expected to prod the BSP to be more pro-active in accelerating the development of Islamic banking and finance not only within the Bangsamoro Autonomous Region but also in the rest of the Philippines . Indeed, under the BOL, the BSP is tasked to establish, within the BSP’s organizational structure, an Islamic banking unit “headed and staffed by qualified Islamic banking experts”. The fact that the BSP remains as the primary regulator of all Philippine banks (whether Islamic or conventional) is an assurance that


Islamic banking rules will be uniform and harmonious inside and outside the Autonomous Bangsamoro Region.

V.3 Analysis of findings related to DAR-IARCDSP Microfinance Implementation

V.3.1 Weaknesses, Gaps and Challenges

At ARC Level, the actors (ARBOs and FO) that will benefit of the IARCDSP program are characterized by the following weaknesses:

ARBOs do not have sufficient working capital

ARBOs lack access to long term loans for expansion programs

MFIs loan products do not match cropping cycle resulting to higher loan default rate

Farmers prefer to access credit from Traders due to liberal terms, multi-purpose utilization and with refinancing when crop failure occurs

Farmer organizations depend heavily on government subsistence programs and grants in order to survive

Some ARBOs do not have specific strategy despite being named as Lead ARBOs

Most ARBOs need strategic partner, i.e. established MFI in the area of operation to help manage the MF activity

Most if not all ARBOs need to participate in value-chains to address the problem of market


All ARBOs need training and capacity building in managing a microfinance enterprise

Few ARBOs, though, appear to be eligible to access credit from formal Lenders, i.e. banks

Majority of ARBO members are aged 45-65 and succession should be seriously considered as an on-going concern

Muslim-dominated ARBOs are accessing credit from MFIs at market-oriented interest rates in the absence of Islamic financing in the area

Almost all the income from farming is plowed back for the next crop leaving nothing to bank savings

Only few ARBOs tried diversifying to high-value crops like vegetables. Majority of them stick to monocrop (especially rice).

Some ARBOs do not have a Credit Policy Manual.

ARBOs look at the IARCDSP MF project as an opportunity to start a serious business enterprise. The challenges that the microfinance component of the IARCDSP program should respond are including:

a. Protecting MF Clients: they are considered very vulnerable groups (income gets easily eroded due to contingent events such as sickness or death. They are Also easily exploited by unscrupulous lenders);

b. Graduating MF Clients : to support them accessing to capitals in order to expand business activities but they are lacking in collateral;

c. Sustaining the regulating and supervising environment of the Cooperatives engaged in Savings and Credit Operations (CDA);


d. Coaching farmer organization in financial literacy and management;

e. Purchase prices for farm products upon harvest are established by the Trader (no negotiation power of farmers). There is a need to adapt the value-chain concept and approach;

f. Diversifying to high-value crops like vegetables.

During Etimos Foundation consultation meetings with some selected Agrarian Reform Beneficiary Organization (ARBO) that were designated as Lead ARBO to carry out the microfinance activity of the DAR-IARCDSP, interviews have been focused on some critical elements in order to better analyse the above weaknesses, the gaps and the challenges that faced the Lead ARBOs in order to recommend the necessary measures to capacitate them. A total of 8 Lead ARBOs in the province of Sarangani have been interviewed and 5 Lead ARBOs in Sultan Kudarat.

• Strategy. The risk that the ARBO will fail to develop and adapt business models which make them relevant and competitive in a changing marketplace or environment where they operate. Most of the ARBOs do not have any strategy particularly where and how to market their farm produce in order to make better profit and rely purely on local traders in the locality. Only 2 ARBOs have developed strategic partners to ensure a stable market.

• Risk Management. The risk that the ARBO will fail to identify and manage the risks in their microfinance business. Only 2 ARBOs are presently employing risk management measures. One ARBO is using a


Calendar of Planting and securing an insurance cover to avert the effects of dry season while the other ARBO have diversified by planting high value crop. The rest of the ARBO do not have a clear understanding on how to identify and manage risks.

• Change Management. The risk that the ARBO will fail to keep up with the pace and scale of change and its impact on their microfinance business. Almost all, except 2, of the ARBOs have anticipated drastic changes coming their way once the microfinance inputs are delivered to their doorsteps. With potential profit-generating activities from the DAR microfinance inputs, majority of the ARBOs are planning to invest extra funds into high value crops such as cacao, coffee and organic vegetables as part of diversification efforts to lessen the dependency on the traditional monocrop, being rice and corn.

• Technology. The risk that the ARBO will fail to capitalise on new developments in Information Technology coming their way to enhance and computerize their microfinance operation. All, except 1, of the ARBOs are highly anticipating the arrival of their IT equipment and have already intimated the hiring of children of ARBO members who are graduates or graduating students of Information Technology.

• Repayment Capacity - The risk that the ARBO members will fail to settle or repay their microfinance loan because they have borrowed too much from outside sources or are just unwilling to pay justifying that the inputs passed on to them are government dole-out. Only 2 ARBOs have shown to us records of their successful microfinance activity and


this confirms that their members are well informed of the importance of maintaining good credit reputation.

• Governance - The risk that the Board of Directors of the ARBO will fail to provide necessary oversight and strategic direction in managing the DAR microfinance inputs. Four ARBOs have demonstrated that their BOD are competent enough to provide oversight and strategic direction to ensure the success of the microfinance activity. Already, these 4 ARBOs have provided social impact to their membership such as enrolling their members in the Philippine Health Corporation and Social Security System (SSS). Moreover these ARBO have members of the Board who are college graduates or have reach college level.

• Management - The risk that poor management in the ARBO will damage or ruin the microfinance business activity. All, except 2 ARBOs, appear to have a stable management team with a President or Gen. Manager serving more than 10 years in their current capacities. These officers are also recipient and beneficiary of several training workshop and seminar conducted by the DAR.

• Financial Capability - The risk that the ARBO management will not be able to make informed decisions because of lack of financial knowledge. All the ARBOs including those with existing microfinance lending activity have declared the need for them to be trained on how to read and understand financial statements due to lack of financial knowledge.


• Political Interference - The risk that intervention or interference by politicians who are either officers or members of the ARBO will harm the microfinance operation for their personal gains. This critical element is not an issue on all the ARBOs interviewed. While 2 ARBOs have Barangay officials among their rooster of membership, these ARBOs claim that these Barangay officials have brought to the ARBO more benefits due to their connections inside the government bureaucracy.

• Staffing - The risk that the ARBO will fail to recruit suitably qualified staff and opting to run the operation themselves. Considering the magnitude and impact of the microfinance activity on the organization, all the ARBOs have already made decisions to hire an Accounting graduate as Bookkeeper, an IT graduate as Computer staff and other professionals when the need arises.

The above-cited results only reinforced the notion that there is a wider gap in terms of readiness of the ARBO to manage the microfinance activity and the big challenge is to continue the capacity building efforts as an on-going concern. More particularly, the focus of intervention to the Lead ARBOs must include among others, the following areas:

Conduct a session on Strategic Planning for all Lead ARBOs to make them competitive in the market; find institutional buyers and partners.

Provide the Lead ARBOs an orientation in Business Management where risks are identified, anticipated and managed.


Encourage the ARBOs to diversify into high value crops and consolidate as part of change to bring significant impact to the organization.

Provide the Lead ARBOs a Training session on Credit Management to ensure that the microfinance funds coming from the DAR inputs will be sustained for the long haul.

Provide the Lead ARBOs a Training session on Financial Management to train them in planning, organizing, directing and controlling the funds of the microfinance as a business enterprise.

V.3.2 Demand and Supply

While there are big players in both the formal and non-formal financial system operating in the IARCDSP covered areas, the access of ARBOs to formal credit is very limited to government sponsored credit support program like the LBP-ACEF yet not all ARBOs are qualified to avail of this financial services. The ARBOs are in dire need of affordable financial backing to obtain profitable operation and to free themselves from usurious input suppliers, Traders and Money Lenders.

The credit needs of the ARBOs in the Agrarian Reform Communities (ARCs) are generic and almost common to all with the objective of providing services to its farmer-members and other farmers in the ARCs. The needs finds out specifically in IARCDSP covered areas can be summarized according to priority and importance to the ARBO, viz:

Agricultural Input Financing. The objective is for farmer-members to have access to cheaper and readily available farm inputs


Hauling Services. The need for the ARBO to possess a hauling truck is to address the high cost of transportation in hauling farm products to the market

Trading of Agricultural Products. To consolidate and sell the produce of members at a better price

Farm Equipment Rental Services. This is to provide ARBO members and other farmers in the ARC readily available equipment services at affordable rental rates

Agricultural Support Financing. A mode of financial support to members to cover the cost of farm labour and other expenses

VI CONCLUSION AND RECOMMENDATIONS

VI.1 The Italian technical assistance (IARCDSP program)

To bridge the gap and to address the weaknesses of the ARBOs/FOs in the ARCs, the Italian Technical Assistance (ITA), will focus on the following Key Result Areas (KRAs):

1. Improved capacity of the DAR in dealing and networking with microfinance services, local business development and to efficiently monitor and evaluate both components;


2. Strengthened capacity of MFI together with other financial service organizations (OFSOs), for the implementation of the pilot-innovative micro-finance products, including Islamic finance;

3. Improved capacity for the MFI of introducing innovative services and of efficiently endowing ARBOs/FOs with revolving funds and/or implementing stable improvements according to the social finance principles;

To achieve the above Key Results Areas, the Italian Technical Assistance will carry out the following tasks:

1. To advise, support and train DAR in the implementation of the microfinance and business development component of the IARCDSP project as well as create a comprehensive monitoring and evaluation system;

2. To innovate, implement, test and ultimately improve local microfinance services through pilot projects involving local stakeholders to be engaged by the Italian Technical Assistance;

3. To enable and assist the MFI (referring to MFI/consortium of MFIs contracted by the DAR, with the DAR as Contracting Authority through local procurement), to deliver appropriate training and tools to other financial service organizations (OFSO), ARBOs and other cooperatives, on different innovative products (e.g. microfinance products and services)


and help these ARBOs/FOs in the endowment of revolving funds and social finance instruments aimed at improving credit access.

The scope of work of the Italian Technical Assistance (ITA) will cover the entire microfinance value-chain providing guidelines and advices on the whole process starting from the assessment of the project proposals and business plan of cooperatives and other ARBOs up to the coordinated implementation of pilot projects identified in the field of:

a. Islamic finance (as a base to the subsequent credit delivery according to Sharia principles);

b. Credit Guarantee Funds for cooperatives (CGFCs);

c. Entrepreneurial start-ups based on innovative and sustainable ideas;

d. Micro-Insurances

e. Micro-savings

f. Internet & mobile phone microfinance in remote areas

The ITA will create a system of monitoring and evaluation of the microfinance activities to be adopted by the DAR, MFI partner and by the target beneficiaries (Arbos/FO) thus allowing the fair and effective monitoring of the microfinance revolving fund generated by the resources provided by the IARCDSP Microfinance component.


The following table summarize the expected outputs of Etimos Foundation Technical Assistance and Key Players in the IARCDSP covered areas.


VI.2 Recommendations related to the findings of this report

To help overcome the main challenges underlined in this report, the following recommendations can be pursued in two fronts:

Recommendations that will require interventions in a wider scope from the concerned government agencies;

Recommendations on pathways to be designed within the framework of the pilot projects implementation.


VI.2.1 Recommendations that will require interventions in a wider scope from the concerned government agencies.

a) Small Farm-holders financial education and behaviour

Finding: The poor, particularly the rural poor are vulnerable to risks such as illness, physical injury, accident or death, basic business risks, loss of property, and loss of job. Microfinance Financial Institutions (MFIs) realized the need to assist their microfinance clients with financial products that will help them manage these risks and/or provide financial relief when contingent events occur.

Recommendation: Microfinance target clients are considered vulnerable groups: first, the income from entrepreneurial activities that were financed by microfinance are usually eroded when they are affected by contingent events such as death, illness, and natural disasters; and second, they are prone to being taken advantage of by unfair and unscrupulous lenders.

Client vulnerability concerns emphasizes the importance of financial literacy for microfinance clients. Providing financial literacy for microfinance clients is a major and priority agenda that should not be overlooked as the microfinance sector moves forward. Support programs to raise awareness on savings and microinsurance are needed. Information and education to the use of mobile technology would help unbanked to have access to formal financial services. Microsaving and microinsurance programs, where an educational component is included, may be implemented to fill the gaps in financial education, providing at the same time solutions for a change in farmers financial behaviours. Similarly, mobile banking solutions, with an educational component – i.e. apps with tips about saving targets and self-monitoring feedbacks-


might be extremely beneficial for improving financial skills of the unbanked.

To prevent risky financial behaviours, solutions can be targeted to microfinance service providers. Considering that there is already an enabling law that established a central credit information system, a stronger support for centralizing information on clients’ character and hazardous behaviours, i.e. multiple contemporary open loans is needed to avoid the consequences of over-indebtedness. MFI might be involved in the design and implementation of the system.

b) Access to working capital through guaranty fund or suretyship

Finding: One of the main challenges is that formal financial providers cannot reach those who have effective demand for outside financing in the target area due to established stringent banking requirements. The Return on Investment (ROI) pursued by the enterprising individual borrowers are thus reduced as they are forced to avail of loans from the unregistered sources, mostly traders and money lenders, who usually charge much higher interest rates than the formal sources.

In addition, empirical evidence shows that microfinance services thrive in areas with relatively better infrastructure, and that there is “a severe lack of microfinance services in areas with poor physical infrastructure since this means unacceptably high risks and transaction costs”.

Recommendation: For low-income farmers, alternatives to seasonal working capital loan facility at higher than market price by informal lenders needs to be promoted. ARBOs and FOs can be key touchpoints for small farm-holders’ request for microloans, and a federative structure for ARBOs might be effective both in terms of cost for money reduction and


for ensuring the presence of microfinance technical skills when managing microfinance services.

Federating ARBOs would also help them to accumulate collaterals for matching requirements to have access to bank loans and/or to guarantee funds to invest in farming technology.

A second strategy to limit or reduce the usurious interest charged by informal lenders is to promote, in the long term, the implementation of fair trade systems where value chain finance is provided by traders in a sustainable way, and the selling price of the produce is higher owing the benefit from the certification standards and marked quality of the product.

c) Suitable Long -Term Rural Credit from GFIs to support Small Farmers

Finding: In Mindanao, the large commercial farms have access to loans from both government and private commercial banks. Large agribusiness companies that operate commercial farms, particularly cavendish bananas have entered into contract-growing schemes with farmers to grow this crop. The Davao Region and parts of Bukidnon Province is the dominant producers of cavendish bananas in the country. These firms are highly capitalized and can use their internal funds to finance commercial operations. Even farms that have shifted and diversified into livestock and poultry were also able to borrow from private and government banks. The large demand for chicken and pork particularly in urban and commercial areas has made livestock and poultry business a profitable venture for commercial growers. Government and Private commercial banks have lent and are still lending to these borrowers without having to depend on government credit funds. However, Smallholder agriculture engaged in rice and corn production could not have access to funding from private commercial


and government banks. The main sources of formal loans are the Land Bank of the Philippines (LBP) and rural banks. The credit programs of the Land Bank of the Philippines currently supporting agriculture are mainly for primary production of rice and corn. However, in reality, most of the small farmer borrowers continue to depend on informal lenders mainly traders, money lenders and even relatives for their production financing. Also, the traditional banks have failed to innovate and develop credit products nor have simplified their lending procedures that would allow small farmers access to their loan facilities. Access to loans is more visible among large agribusiness corporations who have the 5Cs – Capital, Character, Collateral, Capability and Conditions which makes for a good risk management on the part of the formal lenders. While small farmers on the other hand are limited to informal lenders. Lending to small farmers is risky and entails high transaction costs thus commercial banks are discouraged to lend to this sector. Traders and money lenders are the only alternative source of financing and continue to lend to those excluded by the banking system. Small farmer-borrowers are more concerned about accessibility and timeliness of loans releases particularly during the onset of the planting season that they are no longer conscious about the interest rate pegged on their loan. Informal credit also offer products that are specifically designed to meet the needs of small farmer-borrowers. Aside from providing production inputs on credit, the informal lenders also provide cash loan for emergencies, education, and even for special events like wedding of a member of the household.

At the Agricultural Reform Community (ARC) level, it is observed that farmers prefer to deal with local traders and input suppliers rather than deal with formal lenders. This is due to the stringent loan requirements of the latter. In the case of traders and input suppliers, credit extended to farmers are not only limited to production inputs but also to cover


educational expenses, hospitalization, food special and for emergency needs.

During the rounds of consultation with the ARBOs/FOs in Sarangani Province, Etimos F. observed that aside from the local traders and input suppliers, some MFIs and NGOs are also actively involved and engaged in microfinance. Card Inc., ASA Philippines, KMBI, 1-Puhunan and Pag-Asa Foundation are the notable ones to name a few. Two ARBOs, the TARBC in Gen. Santos City and SMTPC in the Municipality of Malapatan are already actively engaged in microfinance.

Recommendation: Majority of the MFIs are situated in the urban areas and have mostly been catering to the urban poor, who are engaged in retail or trading microenterprises. Considering that more than 50 percent of the poor reside in the rural areas, whose economic activities are mostly agriculture-based, the challenge is for microfinance institutions to meet the financial service needs of the rural, agriculture-based poor population. The government, through GFIs like LBP and DBP should provide long term equity in MFIs to increase and sustain the lending capacity in terms of higher amount of loan and longer repayment term of these MFIs.

d) Encouraging greater private sector participation in the delivery of credit

Finding: The low-income sector is perceived as a sector that do not have access to financial resources they need. With very low income, private formal financial institutions are reluctant to lend to the sector due to the perceived costs and risks associated with lending to the poor. Hence,


from the 60s to the 80s, the government has mostly been providing financial services to the poor at subsidized interest rates.

Faced with this reality, the government implemented several credit programs targeted towards specific clientele groups. These credit programs were funded out of government resources and were implemented by government non-financial agencies, i.e. Department of Agriculture. For some credit programs, the government had tapped the private financial institutions to provide credit to the poor using government funds at subsidized interest rates. Perceived as government dole-outs, most of the credit programs suffered from very low repayment rates. This weakened the financial performance of several private financial institutions (rural banks in particular) which were used as conduits of cheap government funds. As a result, the flow of funds from most of the subsidized credit programs implemented during the period declined over time due mostly to high levels of default, disqualification of many borrowers and rural banks from program participation (due to massive default problems), the termination of major foreign-supported on-lending projects, and rediscounting restraints with the Bangko Sentral ng Pilipinas. Realizing from past failures of government agencies in handling and managing credit delivery, the government in the recent past veered away from directly intervening in the credit market. As businesses of Microfinance clients grow as years pass by, bigger amount of working capital is required which more often than not are beyond what MFIs can afford to lend due to limitation in the MFIs policy guidelines as well as in compliance with the Bangko Sentral ng Pilipinas’ Rules and Regulations (BSP Circular No. 272, 39 January 2001). The need for higher working capital, therefore, has to be addressed by formal financial institutions such as Rural and Thrift Banks.


Recommendation: Several private financial institutions started to provide financial services to the poor. These are the rural banks and thrift banks, cooperatives engaged in savings and credit services and microfinance NGOs. Currently, a number of commercial banks like BPI, BDO, AlliedBank and UCPB, to name a few (mostly engaged in wholesale microfinance operations) have also entered the market through the acquisition of smaller Thrift and rural banks and used these subsidiaries as vehicle to manage microfinance products and services.

To encourage these financial institutions to pour in significant loan investments in farming communities, the government could provide up to 5 years of tax incentives to these banks and other MFIs providing credit and loans to farmers. Example of incentives is tax credits where estimated tax due can be earmarked to lend to poor rural communities.

An additional channel for financing rural areas in the region can be opened through Islamic finance. Capacitating ARBOs, FOs and MFIs in designing and using sharia-compliant financial products will create the preconditions for the rural communities to be eligible targets for investment capitals or rural development funds coming from Islamic funders.

e) Enhancement of Policy and Regulatory Functions of the Cooperative Development Authority (CDA)

Finding: Cooperatives engaged in savings and credit operations comprise a sizable number of MFIs. Latest figures as of December 30, 2018 from the CDA show that there are 3,180 credit cooperatives and 14,885 multi-purpose cooperatives nationwide, about 80 percent of which


are engaged in savings and credit operations. These cooperatives are significant players in microfinance. However, at present, these cooperatives are not regulated and supervised as the CDA seemed to have focused mainly on its developmental functions rather than on its regulatory functions. In part because the CDA Charter is ambiguous and does not grant the CDA the necessary authority to regulate cooperatives.

Recommendation: The thrusts of the CDA need to be refocused and its policy and regulatory functions need to be enhanced so that it can help strengthen cooperatives in the areas of governance, management and operations, among others.

f) Growth of production value

Finding: Lending to the poor in the agriculture sector remains a challenge to this day. The complexity of agriculture brought about by the risks associated with agricultural economic activities poses some challenges to microfinance. While some MFIs have embarked on designing microfinance products for clients in the agriculture sector, evidence shows that the schemes were mostly saddled by high delinquencies after several cycles. The peculiarities of the agriculture sector make it difficult to design microfinance products that would fit all types of commodities in all localities. While market price fluctuations and systemic risks (e.g. climate change, pest and diseases) in agriculture are challenges beyond the microfinance sector, these are considered important factors on how the rural-agricultural based poor can be given continued access to financial services.


There is a growing interest on how microfinance can participate in value-chain financing. Given the importance of the input and the output market in ensuring profitability and sustainability of income from the agriculture sector, value-chain financing has long been recognized as an important concept in making agriculture profitable. However, value-chain financing in recent past have mostly been focused on small and medium-sized agri-based enterprises. If there were small farmers receiving credit from “value-chain financing”, this has mostly been provided through either input-suppliers or trader-lenders. Given these facts and considering that MFIs, especially those operating in the rural areas, are looking at effective means of helping their clients increase their incomes from their agriculture-based economic activities, the challenge is on how MFIs can participate in value-chain financing.

Recommendation: Very low margins impede the accumulation of capital to reinvest in next farming cycles. Therefore, a long-term oriented strategy to relief small farmers from their dependence from informal lenders is to improve their income generation and the selling price of their product. Valid solutions to sustain this strategy are to provide Business Development Services to assist ARBOs and farmers to enhance their business skills and market access, as well as to develop product processing facilities to augment the quality and value of agri-products. These solutions can be provided thru clustered or federated ARBOs to guarantee cost effectiveness and volumes.

During next capacity building sessions, i.e. the country visit, recommendations and example of successful solutions will be presented to DAR staff.


A second approach aiming at a growth or production value is the activation of Fairtrade value chains, where traders and farmers cooperate in a win-win logic, to reach quality products and satisfy the demand for certified ingredients.

g) Requisite microinsurance for life and property

Finding: The government launched and issued the National Strategy and the Regulatory Framework for Microinsurance in January 2010. These documents provide the pillars for the development of the microinsurance market in the Philippines. Both documents were crafted in partnership with the private sector and generally call for increased private sector participation in the provision of risk protection to the low-income sector.

Since the launch of the Strategy, there has been more than 50 licensed insurance entities such as banks, cooperatives, and microfinance NGOs that provide microinsurance products, 89 Insurance Commission-approved microinsurance products, and 28 million Filipinos covered. Developments in disaster risk insurance, micro health products and agricultural risk insurance are also being made to further increase the penetration rate in the country.

The Insurance Commission notes that there are 23 micro mutual benefit associations, 18 life insurance companies, 24 non-life insurance companies, 42 rural/cooperative bank agents and around 100 microinsurance agents engaged in the provision of microinsurance products. Thus far, there are 122 microinsurance products approved by the Insurance Commission.


Recommendation: While micro-insurance products are provided by licensed insurance companies, and cooperative insurance societies and mutual benefit associations (MBAs), they are marketed through pawnshops, cooperatives, rural banks, mutual benefit associations, NGOs, and other microfinance providers that have taken advantage of the changing economic conditions and diversified their product mix. The unique context of microinsurance in the Philippines casts a wider net for financial inclusion, with more avenues opening greater access to finance for more vulnerable small holder farmers.

Vulnerability to contingent events such as flooding, drought and other natural calamities is being addressed through microinsurance. Hence ARBO or any farmer should obtain microinsurance as a mandatory requirement before obtaining credit.

VI.2.2 Recommendations on pathways to be designed within the framework of the pilot projects implementation

As previously described in this report, Microfinance is dominating the industry of alternative lending in the Philippines that is usually backed up by the development of high-tech services operating both online and offline. BSP has acknowledge these developments but emphasizes the necessity of developing financial technologies for a better financial inclusion.

This is where the ETIMOS Foundation, through this ITA, will be coming from. The ETIMOS Foundation, will introduce inclusive services to cater to the needs of the agrarian reform beneficiaries organizations (ARBOs) utilizing the new financial technologies and tailored financial services.


Financial technology, often shortened to fintech, is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. It is an emerging industry that uses technology to improve activities in finance.

The use of smartphones for mobile banking, investing services and cryptocurrency are examples of technologies aiming to make financial services more accessible to the general public. Financial technology companies consist of both start-ups and established financial institutions and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies.

Fintech can work in cooperatives. Cooperatives are business models defined by its ownership, control and benefits. It is a stakeholder organization which focus on social change and development with different standards in investment and lending, transparency and human development. Cooperatives, can act as the financial institutions of the ARBOs and propose micro solutions to emerging businesses .

In this perspective, the strategy to implement the pilot projects could be based on:

a) On-going collaboration with the Kadtabanga Foundation for Peace and Development (KFPD) for the implementation and pilot testing of Islamic finance products that are Sharia compliant including the introduction of micro equity venture. Kadtabanga Foundation is finalizing their proposed Guidelines for the implementation of the pilot project while Etimos Foundation is drafting the Memorandum of Agreement for the partnership. Corollary to the implementation of the Islamic finance products is the continued negotiation between Etimos


representative and the Dubai-based funders for possible Islamic fund investment in the IARCDSP specifically targeting the BARMM;

b) On-going collaboration with SEDPI for the implementation and pilot testing of micro savings and microinsurance where mobile phone banking will be integrated as part of the whole process. The MOA is also be drafted to incorporate salient features of the microfinance products to be implemented by SEDPI;

c) On-going negotiation with the Sarangani Credit Surety Fund (SCSF) and the assistance and policy support we are presently seeking from the Bangko Sentral ng Pilipinas through Deputy Director Louella D. Leones for the possible enrolment of some DAR-supported Cooperatives in Sarangani Province into the SCSF. Likewise, We are also planning to involve Italian actors like the CONFIDI Group and SOLIDARFIDI that are amongst the Italian leaders in managing guaranty funds and organize a workshop with the SCSF managers and CSF Staff from the Bangko Sentral ng Pilipinas in order to share experiences developed in Italy in managing guaranty funds for cooperatives.


VII. ANNEXES

A. Bibliography

• Financial Inclusion in the Philippines, Bangko Sentral ng Pilipinas (BSP) Dashboard 2018 www.bsp.gov.ph

• Overview of Microfinance and Financial Inclusion (http://www.bsp.gov.ph/about/advocaciesmicro.asp)

• Microfinance in the Philippines Asia Focus country Analysis Unit, Federal Reserve Bank of San Francisco 2010

• Innovating Microfinance in the Philippines MABS4 Final Report (https://mabs4finalreport.wordpress.com/)

• Microfinance Council of the Philippines www.mcpi.org

• Mindanao Microfinance Council www.mmc.org

• Mainstreaming Micro: The State of the Art of Microfinance and Microenterprise Development in the Philippines, pinoyMe Foundation (www.pinoyME.org)

• Microfinance Activity in the Philippines, IDLO Microfinance Working Paper 2007

• Ma. Piedad Geron MCPI. Philippine Industry Report 2010

• Financial Inclusion, Education and Regulation in the Philippines Gilberto M. Llanto Asian Development Bank Institute Working Paper No. 541 August 2015

• Philippine Insurance Commission 2017


• Executive Order No. 138 Series 1999 Office of the President Manila

• Republic of the Philippines National Strategy for Microfinance 1999

• Republic of the Philippines National Strategy for Microinsurance 2009

• Operating Guidelines, EO No. 138, National Credit Council, Department of Finance March 2000

• Senate Bill No. 2231 An Act Providing for the Regulation and Organization of Islamic Banks 2019

• Islamic Banking and Finance in the Philippines, Rafael A. Morales 2018

• Republic Act No. 11054 Bangsamoro Organic Law (www.officialgazatte.gov.ph)

• Mehol K. Sadain Commissioner, National Commission on Muslim Filipinos (NCMF) 2015

• “Working with Islamic Finance” Mark Ross 2007 Islamic Finance Affairs

• Implementing Rules and Regulations of RA 10744 Surety Fund Act

• Terms of Reference – ITA IARCDSP January 2018


B. Resource Persons

1. Eleonor Ramos, Deputy Governor, Bangko Sentral ng Pilipinas (BSP)

2. Jerry Cabonegro, Chairman Malapatan Multi-Purpose Cooperative

3. Rodolfo dela Torre, Chairman, Sarangani Credit SuretyFund Cooperative

4. Jack Rubillar, Executive Director, Mindanao Microfinance Council

5. Shunie Pearl Palacios, Area Officer, Peace and Equity Foundation

6. Grace M. Acedillo, Area Manager, Kabalikat Para Sa Maunlad Na Buhay Inc (KMBI)

7. Tuna K. Langan, Shari’ah Advisory Board, Kadtabanga Foundation

8. Rontjin Moratalla, Manager, Rizal Microbank

9. Anthony P. Petalcorin, Mobile PhoneBanking Advisor, World Vision International

10. Atty. Imelda Tarhata Macarambon, COO & Chief Legal Officer, Amanah Bank

11. Amina Saliao, Branch Manager, Amanah Bank, Gen. Santos Branch

12. Eden B. Japitana, AVP Area Head, Landbank of the Philippines, Gen. Santos


13. Jeng P. Juan, Executive Director, APPEND Inc.

14. Jean Fulleros, Area Officer, Cooperative Development Authority, Gen. Santos City

15. Lasad Mohamad, Gen. Manager, Sapu Masla Tallawed Producers Cooperative

16. Zaldy Onias, Chairman, Tinagacan ARB Cooperative

17. Alejandro Gansayan, Chairman, Vineyard Agrarian Reform Beneficiary Cooperative

18. Antero Marapao, President, Tuguis Tambilil Irrigators Association Inc.

19. Johnny Cuaresma, President, Kiayap Malalag Farmers Association

20. Edwin Harid, President, Domolok Tokawal Irrigators Association, Inc.

21. Danilo Balanon, President, Badtasan Farmers Irrigators Association

22. Saturnino Basuel, President, Sison Farmers Association

23. Felipe Gella, Chairman, Samakana Multi Purpose Cooperative

24. Edward Gocotano, Gen. Manager, Kenram ARBMPC

25. Ronnie E. Tueres, President, Margues Irrigators Association

26. Shirly Gonzales, President Pangulan Isulan Irrigators Services Inc.

27. Leonerico T. Oriel, President, P4MP Farmers Association

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