Philippines second best in global microfinance business

by VG Cabuag, Business Mirror

Posted at Oct 28 2010 11:48 PM | Updated as of Oct 30 2010 07:40 AM

MANILA, Philippines - The country was ranked second overall in having a good microfinance business environment compared with 54 other developing countries around the world, but the country still lags in having a better investment climate, a study of the Economist Intelligence Unit showed.

According to the study on the “Global Microscope on the Microfinance Business Environment,” Peru was the only country that bested the Philippines, which had a score of 71.8 points, or 3.3 points higher when the study was last commissioned in 2009.

Peru has a score of 74.3 points, while third was Bolivia, with 69.6 points.

“The [Philippine] government has encouraged the establishment of microfinance banks and the commercialization of the microfinance sector, and has specifically promoted the upgrading of non-governmental organizations,” the study said.

The Philippines, along with Cambodia and Pakistan, has topped the regulatory framework category of the study, but the country lagged behind the investment climate category and was at 18th position.

On the institutional development category, the Philippines landed in the fourth position, alongside Latin American countries El Salvador and Nicaragua.

Peru, meanwhile, was in the top five in all three categories of the study.

“There are no regulatory restrictions on the ability of microfinance institutions [MFI], whether banks or [nongovernment organizations] NGO-MFIs, to accept debt investment from international investors in foreign currency,” the study said, referring to the Philippine business environment for the sector.

Rural banks, however, are prevented from taking in foreign equity investments, it added.

The study said the Bangko Sentral ng Pilipinas requires all regulated institutions to disclose effective interest rates and to be audited by an external auditor. However, NGO-MFIs, which are among the largest providers in the country, are unregulated and thus, not obligated to disclose information under these provisions.

The study, meanwhile, placed Venezuela in the last position, replacing Thailand, which occupied the position last year.

Microfinance in Venezuela suffers from a weak regulatory structure and low levels of market development, the study said.

The three countries in the bottom 10—Trinidad and Tobago, Jamaica and Turkey—also lack the appropriate level of regulatory support and have underdeveloped markets, it added.

The study provides a basis for benchmarking the business conditions for privately provided microfinance in countries around the world.

The study was commissioned and funded by the Multilateral Investment Fund, CAF or the Andean Development Corp., and Netherlands Technical Assistance Trust Fund at the International Finance Corp.

The 2010 index covers the period from August 2009 through May 2010, and evaluates microfinance across three distinct categories.