BSP may raise cap on microfinance loans

The Bangko Sentral ng Pilipinas may soon raise the ceiling for microfinance loans to allow low-income earners borrow more for their micro businesses.

BSP Deputy Governor Nestor Espenilla Jr. said the central bank was scheduled to complete soon its review of the  regulations for microfinancing. This is expected to result in an increase in the cap for microfinance loans.

The current ceiling for microfinance loans was set at P150,000. Unlike loans extended to bigger enterprises, a microfinance loan does not require the borrower to put up a collateral. The intention is to support micro enterprises, which are owned by individuals who do not have assets that could back the loans.

Microfinance loans, however, are strictly monitored given that the risk of default on these types of loans are  higher than on loans for medium and large enterprises.

“Increasing the ceiling will benefit low-income earners who want to do business,” Espenilla said.

The BSP encourages banks to help boost the micro-enterprise sector, such as through loans and other types of financial services. The regulator, however, wants banks to maintain prudent lending standards as far as small borrowers are concerned to avoid increasing the lenders’ exposure to defaults.

Outstanding micro finance loans, extended by more than 200 banks in the country, have so far reached P7 billion. The amount, the BSP said, benefited nearly 1 million borrowers.

The central bank pushes for the establishment of the Central Credit Information Corp. (CCIC) before the end of the year, saying this would help increase access of micro enterprises to bank loans.

With the data to be provided by the credit bureau, the central bank said, banks would be more comfortable to lend to credit worthy micro enterprises.

Republic Act 9510, which mandated the creation of the CCIC, was signed into law in late 2008. Until now, however, the credit bureau has yet to be established. The delay was  blamed partly on the reluctance of banks to share vital credit information of their clients with other parties as well as administrative hurdles.

The BSP said it was calling on banks to become more cooperative in the setting up of the credit bureau, saying the banking sector would also benefit from the availability of vital credit information of borrowers.