BusinessWorld
Top Story
Posted on March 04, 2011 12:15:17 AM
BY DIANE CLAIRE J. JIAO
THE AQUINO administration wants to reverse the existing state policy on microfinance, saying government agencies should stay away from direct lending to the poor as this could be exploited for political purposes.
"We will work to institutionalize the National Strategy for Microfinance that was formulated in 1998. We will also make sure that microcredit will not be used as a tool for political patronage," President Benigno S. C. Aquino III said in a speech last week.
Asked if this meant drafting a microfinance law, Sec. Ricky A. Carandang of the Presidential Communications and Development Strategic Planning Office said: "We will wait first for the recommendations from the Cabinet."
The Palace could also draft its own Executive Order or push for a bill from Congress, National Credit Council (NCC) Deputy Executive Director Joselito S. Almario told BusinessWorld.
The NCC is the arm of the Department of Finance focused on creating a credit policy framework that will improve the delivery of financial services to the low-income sector.
In 1998, then President Joseph E. Estrada issued Executive Order (EO) 138 setting the National Strategy for Microfinance. It was in reaction to the government’s experience with direct lending programs to the poor, which resulted in many defaults.
EO 138 limited microfinance programs to government financial institutions (GFIs) such as the Development Bank of the Philippines and the Land Bank of the Philippines that lent wholesale to microfinance institutions (MFIs) such as rural banks, nongovernment organizations and cooperatives.
The directive, however, was repealed in 2006 by Mr. Estrada’s successor, Gloria Macapagal-Arroyo, through EO 558. Amid the public outcry that followed, she issued EO 558-A that allowed the Department of Social Welfare and Development (DSWD) to carry out their own microcredit programs in unserved areas. Government non-financial agencies state firms could also launch their own microcredit initiatives with the approval of the Office of the President.
"This is open to political patronage because these loans can be given to the poor as dole-outs," PinoyME Foundation President and CEO Danilo A. Songco told BusinessWorld.
Mr. Aquino made his statement in last week’s 5th anniversary of PinoyME, a non-stock, non-profit organization that provides funding and training to microfinance institutions. It was founded by his mother, former President Corazon C. Aquino, in 2006 along with business and academic leaders.
Messrs. Almario and Songco agreed with making EO 138 permanent via a law. "[Senator Teofisto D. Guingona III] filed a microfinance bill as a congressman, and we are hoping that he can do the same now in Senate," Mr. Songco said. Mr. Almario said he sent a proposed microfinance bill to the office of then-Senator Aquino in 2008, adding this could be used as a reference for Malacañang’s initiatives.
"An EO will be more expedient and will set the policy direction of the government. But, we have seen how easy it is to revoke an EO, so we also need a microfinance framework made permanent through a law," he said.
Industry players stressed the importance of a national strategy, saying GFIs are the best providers of credit programs for the poor. "In the past, when all government agencies had their own lending programs, they suffered from low payback rates," said Benel P. Lagua, president of state lender Small Business Corporation. The government is effectively creating a deficit by "throwing money to unproductive programs," NCC’s Mr. Almario added.
Mr. Aquino said during his speech that his administration would consolidate remaining credit programs for the poor under "more competent branches of government" to make them more efficient.
In an e-mail, meanwhile, Social Welfare Secretary Corazon J. Soliman told BusinessWorld that their Self-Employment Assistance Kaunlaran (SEA-K) lending program had a national repayment average of 72-75%.
According to the department’s 2009 annual report, SEA-K released a total of P189.452 million to more than 1,600 livelihood projects nationwide, benefitting more than 35,000 families.
The DSWD also provides lending windows for the poor in far-flung areas where microfinance institutions cannot enter, Undersecretary Celia C. Yangco told BusinessWorld.
But NCC’s Mr. Almario argued that these areas had bigger problems that lending alone cannot solve. "They try to go to regions without banks and cooperatives, like the uplands. But the reason why there are no microfinance institutions there is because there is no infrastructure, no market, no economic activity," he said.
The government has to come into these areas not to lend money to the poor but to create an environment where economic activity can thrive first, Mr. Almario said. "We need farm-to-market roads in the uplands. We need peace and order in Mindanao," he said. "When we have these, MFIs will naturally enter these municipalities."
GFIs also oppose the lower interest rates used by government credit programs, saying they are unable to compete. "The subsidy is disguised in the lower interest rates," the NCC’s Mr. Almario explained. "This distorts the market because people think, ‘Why is this interest rate lower than the others? I’ll just borrow here instead’."
Moreover, subsidized credit isn’t sustainable, PinoyME’s Mr. Songco said.
The DSWD’s Ms. Yangco said GFIs and the private sector were pricing themselves out of the market but the NCC’s Mr. Almario argued that high interest rates were not obstacles, citing the prevalence of loan sharks.
"The most effective way of helping the low-income sector is not by bringing down interest rates, but by making credit accessible to them," he said. "GFIs can focus on the lending, and the government can focus on creating the best environment for microfinance to thrive. It’s a partnership."
No comments:
Post a Comment