Market-Based Credit Policies for Increased Access to Rural Finance
This paper uses the example of the Philippines to explain how a country can implement market-based credit policies and rationalize subsidized directed credit programs.
A shift to market based credit from a subsidized rural directed credit program (DCPs) has been a difficult proposition in the Philippines; Complex structures and modalities limited the outreach and access. Finally the National Credit Council (NCC), under the department of finance (DOF), was formed with the following mandate:
- Rationalize government credit programs;
- Develop better credit delivery system;
- Encourage private sector participation;
- Define guarantee programs and agencies.
This was supported by USAID under Credit Policy Improvement Program (CPIP). They carried out reviews, analysis and evaluations, followed by advocacy and implementation. The advocacy was done through:
- Providing the Government the ownership of the policy reform;
- Distributing notes;
- Conducting regional consultations and working groups;
- Building capabilities of executive, legislative and the private sector.
According to the authors, the major project implementation results were:
- Key policy reforms adopted by the government;
- Rationalization of DCPs;
- Establishment of support information infrastructure.
The paper further states that challenges faced are mainly of policy reversal and uncoordinated donor intervention. The authors list the important lessons useful for donors as:
- Interventions of an enabling credit policy environment and infrastructure have greater impact than the scarce donor resources;
- Initial stakeholder support leads to long term project sustainability;
- Sound technical studies are important;
- It is necessary to establish infrastructure for information flow.
