Paper
Philippine Credit Policy and Microfinance Institutions: Some Lessons from the Latin American Experience
Have subsidized credit programs in developing countries eased small-scale borrowers' pressures?
6 pages
The paper highlights Peru, Bolivia, and Guatemala's experiences with subsidized credit programs and presents ways in which these countries are moving towards a sustainable, private-led effort to address the credit needs of low-income clients:
- Subsidized credit programs failed in all the three countries and forced government banks to close;
- Liberalization and interest rate deregulation triggered the development of non-traditional lending institutions for low-income clients;
- Growing competition reduced interest rates;
- Governments took measures to promote an enabling microfinance environment;
- Low income people successfully repaid loans.
Some of the lessons learnt from the experiences in Peru, Bolivia, and Guatemala, are:
- Government subsidized programs provide incentives for non-repayment;
- Political patronage, bureaucratic inefficiency, and distorted incentives cause failures;
- Stable macroeconomic and financial policies are necessary for efficient financial markets;
- Interest rate deregulation and competition help to reduce interest rates.
Some of the recommendations for an enabling microfinance environment in the Philippines are:
- Central Bank of Philippines should review existing regulations, standards, and performance indicators to determine their relevance for microfinance services;
- Regulatory mandate of the cooperative development law should be strengthened;
- Appropriate microfinance regulatory environment should be promoted;
- Capacity building support should be provided to MFIs to strengthen their operations.
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