Electronic Banking: Delivering Microfinance Services to the Poor in the Philippinesi

Microfinance has proven to financial institutions (i.e. banks) that the services they provide to their “traditional” clients can also be offered to poor and low-income entrepreneurs and clients, in a sustainable and viable manner. These institutions have seen that reaching out to the majority of the country’s population, which is the low-income market, does not necessarily mean a losing proposition for their institutions. Similarly, it is only appropriate that the more efficient and cheaper methods of providing these financial services, such as electronic banking services, which are offered to valued traditional bank clients, should also be offered to microfinance clients. The increased convenience and lowered costs arising from innovations in electronic banking should also benefit the poor and low-income clients. This paper will present a brief overview of the microfinance “industry” in the Philippines as well as the recent developments of increased commercialization. Commercialization of microfinance has spurred greater competition leading to increased innovations in microfinance products and service delivery. Two case presentations will be made on existing models in which technological innovations of electronic banking are being used specifically to serve microfinance clients. First, is the use of mobile telephones through the short messaging services (SMS) to pay for microfinance loan amortizations using electronic cash platforms. The other case is a brief example of the distribution of Automated Teller Machine (ATM) cards to microfinance clients, which aims to lower costs for the microfinance institution while increasing convenience for the clients. These two examples will include the discussions on enabling factors, barriers and obstacles. A closer look at the implication for regulation particularly by the Bangko Sentral ng Pilipinas will be undertaken. The direction of policy, existing relevant regulations and rules will likewise be presented. Overview of Microfinance in the Philippines The practice and provision of microfinance has been increasing in the Philippines. Microfinance is continuously showing, through success stories and empirical evidence, that it is an effective tool for poverty alleviation and economic development. Microfinance provides the much-needed support for microenterprises to help them grow. This bears significance for the Philippines where micro, small and medium enterprises make up 99.6% of our total industries and employ 70% of our workforce.1 It becomes even more significant when 4.1 million families belonging to the lowest income strata are engaged in i Written by Eduardo C. Jimenez and Pia Bernadette Roman. Mr. Jimenez is the Microfinance Consultant of the Bangko Sentral ng Pilipinas (Philippine Central Bank) and Ms. Roman is an officer in the Microfinance Unit of the Bangko Sentral ng Pilipinas. The views expressed in this paper are those of the authors and do not necessarily reflect the views and policies of the Bangko Sentral ng Pilipinas (Philippine Central Bank).