Paper

A Microfinance Promise: To Provide the Poor Access to Finance Services

Exploring the advantages of market-oriented financial and credit policies in the Philippines
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This paper traces the shift in the Philippines from the financial repression policies of the earlier decades to market-oriented financial and credit policies in the 1980s. It highlights the advantages of microfinance.

The paper states that the government’s credit financing approach in the 1970s and 1980s was characterized by mandatory credit allocation, loan targeting, below-market interest rates, and credit subsidies to target sectors. Results of this intervention, however, were negative. This led the government to adopt a stance of financial liberalization and deregulation of interest rates in the 1980s. Data from the Microfinance Council of the Philippines indicate that microfinance has helped to reach greater numbers of poor people, while ensuring the sustainability of financial institutions. Key developments include:

  • Agriculture and Fisheries Modernization Act (AFMA) enacted in 1997 helped Congress phase out agricultural credit subsidies and install a market-oriented credit policy framework for agricultural lending;
  • Executive Order No. 138 terminated the participation of nonfinancial government agencies in the implementation of credit programs;
  • Credit-granting NGOs took the lead in developing microfinancing techniques that could reach the poor on a sustainable basis;
  • Government assumed a hand-holding role in creating a policy and regulatory environment to support the development of market-oriented financial programs for the poor.

About this Publication

By Llanto, G.
Published