Prepared by the National Credit Council

 The Vision

The vision is to have a viable and sustainable private micro (financial) market, with the government providing a supportive and appropriate policy environment and institutional framework to that market.


The Objective

The objective is to provide access to financial services to the majority of poor households and microenterprises by the year 2005.

This will be achieved in a liberalized and market-oriented economy where the private sector plays a major role and the government provides the enabling environment for the efficient functioning of markets and the participation of the private sector.



The Policy Framework

The government’s microfinance policy is built on the following principles:

    1. greater role of the private sector/MFIs in the provision of financial services;
    2. an enabling policy environment that will facilitate the increased participation of the private sector in microfinance;
    3. market-oriented financial and credit policies, e.g. market-oriented interest rates on loan and deposits;
    4. non-participation of government line agencies in implementation of credit/guarantee programs.

The government will pursue market-oriented financial and credit policies that create incentives for greater private sector participation in the financial markets. It will avoid costly, unsustainable and distorting credit subsidies that in the past failed to reach their intended beneficiaries, led to the weakening of the rural banking system, and saddled the government with a huge fiscal burden.

A distinction is made between credit and welfare policy. In the past, there has been a confusion between the need for welfare assistance by really poor households and legitimate credit demand by poor households/microenterprises. Those needing welfare will be provided assistance through the appropriate government departments. Welfare will never be provided through concessional credit, loan quotas and other financially repressive measures and never through government or private financial institutions.

On the other hand, the credit demand by poor households/microenterprises will be met through a variety of innovative financial products provided by the private microfinancial market. The government will be ready to provide assistance to build the institutional capacity of microfinance institutions and the appropriate supervisory and regulatory framework to make markets more efficient and institutions, more viable.


The Institutional Framework

The respective roles of various players in microfinance are determined by the policy framework and their relative comparative advantages in providing financial services to the poor. Thus, their respective roles are as follows:

    • Microfinance Institutions (MFIs): to engage in sound, sustainable and viable microfinance intermediation;
    • National Government through the National Credit Council: to provide a market-oriented financial and credit policy environment which will promote efficient financial markets, and help private microfinance institutions broaden and deepen their microfinancial services;
    • National Credit Council (NCC): as microfinance policy making body, to ensure such policy environment;
    • People’s Credit and Finance Corporation (PCFC): as the government credit corporation focused on poor households and microenterpises, to provide wholesale (loanable funds) and technical assistance to the MFIs and support the development of innovative financial products/services for poor households/microenterprises;
    • Government financial institutions: to provide wholesale funds (including those sourced from foreign borrowings) to MFIs which do not have access to wholesale loans from private commercial banks;
    • Commercial and other private banks: to provide wholesale funds and financial services to MFIs;
    • NGOs: to provide technical assistance in facilitating the linkage between the poor households/microenterprises and microfinance institutions, community organizations and capacity building of the target clientele;
    • Donors: to provide assistance to social preparation activities, and those that will lead to the broadening and deepening of microfinancial services such as: development of microfinance products, training in microfinance technologies, and upgrading of performance standards, operating systems and procedures. Donors will be encouraged to provide assistance in those areas which have been clearly identified from a consultation process with the NCC and microfinance institutions.


The Strategies to be pursued

To realize the objective of providing poor households/microenterprises greater access to microfinancial services, the following strategies will be pursued:

  1. Provision of a policy environment which is conducive to the effective and efficient functioning of the financial market. This will be carried out by doing the following:

    • Implementing a market-oriented interest rate policy in microfinancial intermediation (both on the savings and lending side).
    • Pursuing financial policy reforms with the end in view of removing existing distortions in the financial market, e.g. loan quotas, earmarking of public funds for direct lending, etc.
    • Rationalizing all existing government credit and guarantee programs toward the objectives of implementing microfinance programs in a market-oriented setting and encouraging greater private sector participation in the delivery of microfinance services.

  1. Establishment of a market-oriented financial and credit policy environment which is conducive for the broadening and deepening of microfinancial services. Broadening and deepening mean the development of new product lines and services, the design and implementation of new microfinance technologies and practices which will result to increased microfinance intermediation between the target clientele and MFIs. This will be accomplished through the following:

    • provision of appropriate supervisory and regulatory framework for MFIs which will enable them to engage in the development of new and innovative product lines and services appropriate to the demand for financial services/products by poor households and microenterprises;
    • establishment of standards of performance and business practices to guide the operations of MFIs;
    • promotion of broad-based savings mobilization, linkage banking technology and other microfinance technologies;
    • provision of information and training on best practices in microfinance to MFIs.

  1. Implementation of a capacity-building program for MFIs. The program will be implemented through the following:

    • provision of technical assistance to MFIs. The following areas of capacity building will be given emphasis in the provision of technical assistance: (1) local deposit mobilization, (2) financial and project management, (3) use of information technology, (4) development and establishment of microfinance technology, innovative product/service lines.
    • documentation, packaging and dissemination to MFIs of practitioner-based training and technical services. This will be done through the PCFC.
    • encouraging research and academic institutions to conduct studies, convene policy level discussions that will promote awareness of microfinance as a sound commercial investment. These institutions will identify best practices in microfinance, develop and install training and microfinance technology packages.

Hari Srinivas -
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