Trends and Challenges in Microfinance for this Decade

The first panel discussion of the RBAP-MABS National Roundtable Conference, moderated by MABS Chief of Party John Owens, addressed the current trends and challenges in the microfinance industry. Topics ranged from market issues, competition, the regulatory environment and branchless banking.
Ms. Pia Roman-Tayag, the Inclusive Finance Advocacy Staff Head of the Bangko Sentral ng Pilipinas (BSP), kicked off the panel discussion with a look into the regulatory environment. She began by emphasizing that policy and regulations are not the answer, but they provide the enabling environment and support for the market-based solutions of microfinance. To address the risks of limited technical know-how, inadequate risk management practices and governance issues of the early microfinance era, the BSP set regulations to require banks to develop adequate methodologies, risk management systems and comprehensive governance standards.
Ms. Roman Tayag noted that the current microfinance era has seen a mainstreaming of the industry with commercial investors, new products, technological innovation and a move towards financial inclusion. The current challenges for the banks include the need to find greater efficiencies, become more transparent and develop effective credit underwriting standards. For microfinance clients, she noted that financial literacy and the awareness of consumer rights and redress mechanisms are most important. To meet these new challenges, the BSP must be responsive, especially in light of the new definition of microfinance as addressed earlier in the Governor’s speech. Additionally, BSP will review consumer protection regulations, take action against financial crime and over-indebtedness, and advocate for financial literacy.
The next speaker was Mr. Joseph Omar Andaya, President and CEO of Green Bank and the President of the Rural Bankers Association of the Philippines. Mr. Andaya stressed that the future trend in this industry is the sustainability of the microfinance organization. What does this mean to the rural banks? They must strengthen the controls and monitoring systems with a focus on core values, such as honesty, integrity and customer service excellence. Driven by the need to be more relevant and cost-effective, banks can increase efficiency by decreasing acquisition and maintenance costs through the use of banking kiosks, mobile technology and other new banking channels. They can also out-source non-core activities, such as security, tax advisory services and specialized training. Additionally, banks should have a corporate culture open to change. Also, since most rural banks are family owned and operated, it is imperative that a succession plan be in place as well.
Mr. Tomas Gomez IV, Chairman of the Rural Bankers Research and Development Foundation (RBRDFI) and President of GM Bank, then shared his thoughts on competition. He discussed the growing trend of consolidation in the rural banking industry. It was noted that even though the numbers of banks are consolidating, the number of branches and other banking offices are increasing faster than thrift or commercial bank outlets in the countryside. Additionally, the financial strength of the rural banking sector remains strong. The sector is significantly out-pacing the thrift and commercial banks with a Return on Equity (ROE) of 12.2%. Rural banks are no longer viewed as conduits of government or donor loan programs, and have evolved to become full-fledged financial intermediaries that are more self-reliant on deposits with an average deposit-to-loan ratio of 108%. The opportunities are great in this industry, especially in underserved sectors like microfinance, SMEs, and many rural parts of the countryside.
MABS Chief of Party John Owens added that though the industry faces challenges, each bank has the ability to thrive in this sector. “You can make a difference,” he said as he inspired the crowd of rural bankers. Transforming the organization to meet the new challenges of today’s microfinance industry and recommitting to the organization’s core values can lead each rural bank to success.
Mr. Owens closed the panel session by discussing the new trends in branchless banking. Mr. Owens noted that there is a tremendous opportunity to increase the outreach of microfinance services via mobile channels and partnerships. By tapping into the 15,000 sub-distributors of Globe telecom which are now accredited GCASH cash-in and cash-out merchants, rural banks can effectively expand banking services to more clients than ever before. With a new plan now being put in place to support financial education for branchless banking, through support from Microfinance Opportunities and MasterCard Foundation, rural banks will also have the opportunity to partner with these merchants to help promote mobile phone banking services. Through a “train the trainer” model, the rural bankers will train these merchant-partners to then educate their customers on the value proposition and uses of branchless banking services that will help clients make deposits, withdrawals, and payments available via mobile money. By reducing transaction costs and increasing the convenience of banking services, branchless banking addresses the needs of the microfinance clients while expanding the rural banking sector’s outreach.
To view the presentations from this panel discussion, please click here.
What do you think the most pressing trends and challenges are for your organization? How have you changed your microfinance practices in light of these new developments? Are you considering outsourcing non-core banking services? Are you engaged in branchless banking? Please share your stories by replying to this post and continuing this important discussion.
Until next time, Mabuhay ang Microfinance!

By: Eric Miller, guest blogger

The first panel discussion of the RBAP-MABS National Roundtable Conference, moderated by MABS Chief of Party John Owens, addressed the current trends and challenges in the microfinance industry. Topics ranged from market issues, competition, the regulatory environment and branchless banking.

Pia Roman-TayagMs. Pia Roman-Tayag, the Inclusive Finance Advocacy Staff Head of the Bangko Sentral ng Pilipinas (BSP), kicked off the panel discussion with a look into the regulatory environment. She began by emphasizing that policy and regulations are not the answer, but they provide the enabling environment and support for the market-based solutions of microfinance. To address the risks of limited technical know-how, inadequate risk management practices and governance issues of the early microfinance era, the BSP set regulations to require banks to develop adequate methodologies, risk management systems and comprehensive governance standards.

Ms. Roman Tayag noted that the current microfinance era has seen a mainstreaming of the industry with commercial investors, new products, technological innovation and a move towards financial inclusion. The current challenges for the banks include the need to find greater efficiencies, become more transparent and develop effective credit underwriting standards. For microfinance clients, she noted that financial literacy and the awareness of consumer rights and redress mechanisms are most important. To meet these new challenges, the BSP must be responsive, especially in light of the new definition of microfinance as addressed earlier in the Governor’s speech. Additionally, BSP will review consumer protection regulations, take action against financial crime and over-indebtedness, and advocate for financial literacy.

Joseph Omar AndayaThe next speaker was Mr. Joseph Omar Andaya, President and CEO of Green Bank and the President of the Rural Bankers Association of the Philippines. Mr. Andaya stressed that the future trend in this industry is the sustainability of the microfinance organization. What does this mean to the rural banks? They must strengthen the controls and monitoring systems with a focus on core values, such as honesty, integrity and customer service excellence. Driven by the need to be more relevant and cost-effective, banks can increase efficiency by decreasing acquisition and maintenance costs through the use of banking kiosks, mobile technology and other new banking channels. They can also out-source non-core activities, such as security, tax advisory services and specialized training. Additionally, banks should have a corporate culture open to change. Also, since most rural banks are family owned and operated, it is imperative that a succession plan be in place as well.

Tomas Gomez IVMr. Tomas Gomez IV, Chairman of the Rural Bankers Research and Development Foundation (RBRDFI) and President of GM Bank, then shared his thoughts on competition. He discussed the growing trend of consolidation in the rural banking industry. It was noted that even though the numbers of banks are consolidating, the number of branches and other banking offices are increasing faster than thrift or commercial bank outlets in the countryside. Additionally, the financial strength of the rural banking sector remains strong. The sector is significantly out-pacing the thrift and commercial banks with a Return on Equity (ROE) of 12.2%. Rural banks are no longer viewed as conduits of government or donor loan programs, and have evolved to become full-fledged financial intermediaries that are more self-reliant on deposits with an average deposit-to-loan ratio of 108%. The opportunities are great in this industry, especially in underserved sectors like microfinance, SMEs, and many rural parts of the countryside.

John OwensMABS Chief of Party John Owens added that though the industry faces challenges, each bank has the ability to thrive in this sector. “You can make a difference,” he said as he inspired the crowd of rural bankers. Transforming the organization to meet the new challenges of today’s microfinance industry and recommitting to the organization’s core values can lead each rural bank to success.

Mr. Owens closed the panel session by discussing the new trends in branchless banking. Mr. Owens noted that there is a tremendous opportunity to increase the outreach of microfinance services via mobile channels and partnerships. By tapping into the 15,000 sub-distributors of Globe telecom which are now accredited GCASH cash-in and cash-out merchants, rural banks can effectively expand banking services to more clients than ever before. With a new plan now being put in place to support financial education for branchless banking, through support from Microfinance Opportunities and MasterCard Foundation, rural banks will also have the opportunity to partner with these merchants to help promote mobile phone banking services. Through a “train the trainer” model, the rural bankers will train these merchant-partners to then educate their customers on the value proposition and uses of branchless banking services that will help clients make deposits, withdrawals, and payments available via mobile money. By reducing transaction costs and increasing the convenience of banking services, branchless banking addresses the needs of the microfinance clients while expanding the rural banking sector’s outreach.

What do you think the most pressing trends and challenges are for your organization? How have you changed your microfinance practices in light of these new developments? Are you considering outsourcing non-core banking services? Are you engaged in branchless banking? Please share your stories by replying to this post and continuing this important discussion.

Until next time, Mabuhay ang Microfinance!