innovations and trends in inclusive...
TRANSCRIPT
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Innovations and Trends in Inclusive Finance
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Course Objectives• Present status of PH microfinance industry• Provide the latest developments in the field of
inclusive finance– Agricultural and value chain financing– Disaster and climate change– Microfinance
• Describe latest trends on financial product design and delivery for the poor
• Site innovations in operational practices as well as institutional policies of successful MFIs
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External Assessment: The Philippine Microfinance Industry
Davao, Cebu, BaguioOctober - November 2017
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Inclusive Finance
• Encompasses improving the range, quality and availability of financial services to the underserved and the financially excluded
Stein, Peer, “Inclusive Finance,” Korea-World bank High Level Conference on Post Crisis Growth and Development, p. 10, June 4, 2010
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Microfinance
• “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, • for their microenterprises and small businesses• to enable them to raise their income levels and
improve their living standards”
BSP, 2001
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Microfinance Market Segmentsby Regulation
• Banks – up to 300,000 microenterprise loans• NGOs – up to 150,000 microenterprise loans• Housing – up to 450,000 housing loans• “Meso”-enterprise – 300,000 to PhP1M
BSP CircularMicrofinance NGO Act
Classification of mass affordable housing
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MICROFINANCE TIMELINE
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1960s
• Credit from rural banks and cooperatives for
agricultural activities• Low repayment rates
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1970s
• Subsidized credit from government
• Discontinued due to high arrears and corruption in government
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1980s
• Adoption of group methodology models
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1990s
• Active entry proliferation of small microfinance institutions (<3,000 clients) dependent on grant as capital
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2000s
• Rapid growth of large microfinance institutions with focus on internal mobilization of savings/CBU
• Rise of MBAs
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2010s
• Unprecedented growth of MFI giants
• Insurance products as standard product offering
• Automation of operations
• Entry of commercial banks
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Workshop
• Identify the (1) strengths and (2) weaknessesof MFIs in the Philippines
• Identify the (3) opportunities and (4) threatsin the microfinance industry
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Microfinance in PH Today
• Over 2,000 industry players composed of NGOs, cooperatives, financing companies, rural banks and thrift banks– 4.24M borrowers– 4.93M depositors
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Microfinance in PH Today
• Highest number of active borrowers– ASA Philippines - single institution– CARD – group of companies
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Top 10 MFIs in PHInstitution
ASA PhCARD NGOCARD BankNWTFTSKIPagasaTSPIPR BankARDCIKMBI
10 players comprise 88% market share
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Top 10 MFIs in PHInstitution Borrowers
ASA Ph 1,495,577 CARD NGO 1,245,169 CARD Bank 907,061NWTF 365,310TSKI 270,103Pagasa 249,620TSPI 148,210 PR Bank 137,720 ARDCI 120,770 KMBI 119,280
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Top 10 MFIs in PH
Institution BorrowersLoan
PortfolioASA Ph 1,495,577 12.41 CARD NGO 1,245,169 6.66CARD Bank 907,061 6.72NWTF 365,310 2.17TSKI 270,103 1.37 Pagasa 249,620 1.49TSPI 148,210 1.76PR Bank 137,720 9.10ARDCI 120,770 1.37KMBI 119,280 0.69
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Top 10 MFIs in PH
Institution BorrowersLoan
PortfolioClientLoan
ASA Ph 1,495,577 12.41 8,298 CARD NGO 1,245,169 6.66 5,349 CARD Bank 907,061 6.72 7,409 NWTF 365,310 2.17 5,940 TSKI 270,103 1.37 5,072 Pagasa 249,620 1.49 5,969 TSPI 148,210 1.76 11,875 PR Bank 137,720 9.10 66,076 ARDCI 120,770 1.37 11,344 KMBI 119,280 0.69 5,785
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Actual Market Segments
Market SegmentMicro Tier 1<50,000Micro Tier 250,000 – <300,000Meso300,000 – 1 million
BSP CircularMicrofinance NGO Act
Classification of mass affordable housing
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Actual Market Segments
Market SegmentMarket Share
(Portfolio)Micro Tier 1<50,000
74%
Micro Tier 250,000 – <300,000
21%
Meso300,000 – 1 million
5%
BSP CircularMicrofinance NGO Act
Classification of mass affordable housing
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Actual Market Segments
Market SegmentMarket Share
(Portfolio)Market Share
(Clients)Micro Tier 1<50,000
74% 97.2%
Micro Tier 250,000 – <300,000
21% 2.7%
Meso300,000 – 1 million
5% 0.1%
BSP CircularMicrofinance NGO Act
Classification of mass affordable housing
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3 Levels of MFI Development
• Level 1– Start up programs– Heavily dependent on subsidies
• Level 2– Program has achieved operational efficiency– Relies extensively on soft money
Churchill, Craig, Managing Growth: The Organizational Architecture of Microfinance Institutions, May 1997
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3 Levels of MFI Development
• Level 3– Program has achieved full self-sufficiency– Generates revenue to cover both financial and non-
financial costs, calculated on a commercial basis– Subsidies no longer needed– Investors have return on their equity at least
equivalent to the private sector
Churchill,Craig,ManagingGrowth:TheOrganizationalArchitectureofMicrofinanceInstitutions,May1997
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Scale and Age of MFIs
Age of OperationsMature > 15 yearsYoung 8 – 15 yearsNew < 8 years
Scale of OperationsGiant >PhP5 BillionLarge PhP1-5 BillionMedium PhP250Million – 1 BillionSmall < PhP 250 Million
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Growth patterns• Giants - High
intensity interval growth – periods of 25% to 100% annual growth intervals• Large - Three to
five year plateau• Small - Difficulty
crossing islands
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Expansion formula
• Two branches with PhP6M portfolio and <2% PAR supports one branch expansion
• >10% PAR seize expansion
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FORECAST: 2020 AND BEYOND
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Entry of telecommunications companies
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Crowdfunding
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Mobile Money and Cryptocurrencies
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Micro-pensions and microinvestments
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Market Competition
• Philippine MF industry is considered to be near the mature stage characterized by high competition– About 5 – 19 MFIs compete in one barangay– Entry of commercial banks in MF– Clients have multiple borrowings– Fast growth rate of leading MFIs in the Philippines
• Penetration rate is estimated at 80%
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Market Condition
• Closure of rural banks with MF operations– Almost 200 rural banks closed down
• FIs offering MF services may suffer bad reputation due to this closures
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Commercial Banks with MF
• BDO acquired One Network Bank, rural bank with the most number of branches
• Eastwest Bank acquired Green Bank• RCBC established – Rizal Microbank• BanKO merging with BPI Direct
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Philippine Economic Status
• Continuous growth of the economy– Predicted to become the 14th largest economy by
2050 (Goldman Sachs)
• ASEAN Economic Community created the ASEAN Free Trade Agreement– Growth in MSME– Diverse products
• Overall government support for development of MSME
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Challenges in Microfinance• High interest rate to clients – high transaction costs– high loan losses due to disasters
• Tough competition in the market:– Saturation in areas– Staff turnover
• Frequent occurrence of natural disasters• Impact of climate change• Lack of updates on current trends in the industry
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Opportunities in Microfinance
• Continuous economic growth of the country• Diversification of needs of clients:–Microhousing - Water, Sanitation, Hygiene– Education–Microinvestments
• High government support for growth and capacity development of MSMEs
• Availability of technology – mobile money platforms
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Critical Success Factors
• Standardized operations• Well-trained and dedicated staff• Clear staff and client incentives• Strong internal supervision and audit
capacities• Sound financial procedures and risk
managementHartungi, Rusdy, “Bank Rakyat Indonesia: Understanding the Success Factors of Microfinance Institution in a Developing Country,” International Journal of Social Economic, May 10, 2015
Mbira and Tapera, “Key Success Drivers for Microfinance Institutions in Zimbabwe: Developing Core Competences for Financial Inclusion,” International Journal of Business and Social Science, Vol. 7, No. 3; March 2016
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Critical Success Factors
• Prudent and enabling regulatory environment• Strong corporate governance and
management leadership• Access to resources• Access to capital markets• Disaster and climate change resiliency
Hartungi, Rusdy, “Bank Rakyat Indonesia: Understanding the Success Factors of Microfinance Institution in a Developing Country,” International Journal of Social Economic, May 10, 2015Mbira and Tapera, “Key Success Drivers for Microfinance Institutions in Zimbabwe: Developing Core Competences for Financial Inclusion,” International Journal of Business and Social Science, Vol. 7, No. 3; March 2016
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Vince Rapisura
@vincerapisura
vincerapisura
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Websitewww.sedpi.com
Telefax+632-433-8795
Office AddressUnit 303, Loyola Heights Condominium23 Dela Rosa Street, Loyola HeightsQuezon City