Key Definitions Essential to the Law
- Accreditation: Official recognition of microfinance NGOs meeting regulator standards.
- Compensating balance: Portion of a microfinance loan retained as capital buildup.
- Microfinance: Sustainable provision of financial services like small loans and savings to poor individuals using innovative methods.
- Microfinance NGOs: Nonstock, nonprofit organizations registered with SEC, delivering microfinance and microenterprise development.
- Poor and Low-income: Income classifications defined by the National Economic and Development Authority (NEDA).
- Social performance: Effective implementation of NGO social missions.
Scope of Application
- Applies exclusively to NGOs primarily implementing microenterprise development strategies and providing microfinance services to poor and low-income clients.
Core Principles Governing Microfinance NGOs
- Recognition of microfinance NGOs as State partners in social welfare and poverty alleviation.
- Provision of accessible, affordable, and appropriate financial services to the poor.
- Sustainability requiring cost recovery by microfinance providers.
- Commitment to client protection principles such as transparency, responsible pricing, and fair treatment.
- Development of financial, social, and governance standards.
- Offering community development programs for holistic poverty transformation.
Fundamental Features and Operational Constraints of Microfinance NGOs
- Provide affordable credit, savings, microinsurance (through partnerships), health care, and microhousing services.
- Offer business development and human resource training.
- May collect compulsory savings strictly as compensating balances linked to loans, without being considered deposit-taking entities.
- Prohibited from direct engagement in insurance business.
- Must maintain net lending status (loans exceed compensating balances).
- Charge reasonable and lawful fees and interest.
- Allowed to borrow funds solely for relending purposes.
- Required to have transparent financial reporting and comprehensive management information systems.
Minimum and Optional Microfinance Programs
- Mandatory provision of microcredit and financial literacy; microcredit combined with microsavings.
- Optional programs include agricultural and housing microfinance, microinsurance partnerships, electronic payment systems, remittance services, and innovative welfare programs.
Establishment and Composition of the Microfinance NGO Regulatory Council
- SEC mandates creation of a 7-member Council: 4 permanent government representatives (SEC, DTI, DOF, DSWD) and 3 members from the microfinance NGO sector.
- The Council manages accreditation, monitoring, and regulatory support for Microfinance NGOs.
Accreditation Process and Initial Validity
- All microfinance NGOs must secure accreditation as a precondition to avail incentives.
- Transition provision accredits SEC-certified NGOs without derogatory information for one year unless revoked.
Functions and Powers of the Regulatory Council
- Develop and implement accreditation systems based on financial, social, and governance standards.
- Issue, monitor, suspend, or revoke accreditation certificates.
- Collect fees to support accreditation activities.
- Submit annual reports to the President and Congress.
Financial Performance Management Requirements
- Microfinance NGOs must engage in prudent financial resource management including asset-liability and liquidity management.
Social Performance and Integration
- Institutionalize process to translate social mission into practice, set clear goals, monitor and improve social outcomes.
- Social performance must influence operational and strategic decisions.
Financial, Social, and Governance Standards
- The Council sets parameters to assess portfolio quality, efficiency, governance, transparency, and ethical client treatment.
- Applies principles of good corporate governance including fairness, accountability, integrity, and regulatory compliance.
Regulatory Oversight by Bangko Sentral and Insurance Commission
- These authorities may request the Council to examine Microfinance NGOs for unauthorized financial or insurance activities.
- Findings can lead to probation, suspension, or revocation of accreditation.
Government Programs and Support for Accredited Microfinance NGOs
- Accredited NGOs gain access to government projects aimed at poverty areas or disaster/armed conflict zones.
- Support includes grants, low-interest loans, and guarantee funds.
Entitlement to Technical Assistance
- Accredited NGOs may access assistance for linking poor households to finance, capacity building, and microfinance product development.
Taxation Regime
- Accredited Microfinance NGOs pay a special 2% tax on gross receipts from microfinance operations instead of all national taxes.
- Non-microfinance activities remain subject to regular taxes.
- Mandated to secure Taxpayer Identification Numbers (TIN) with simplified processes.
Appropriations and Implementation
- Initial implementation funds included in the General Appropriations Act.
- SEC coordinates with relevant agencies to promulgate implementing rules within 90 days.
Legal Clauses
- Separability Clause ensures unaffected provisions remain valid if parts are declared unconstitutional.
- Repealing Clause modifies or repeals inconsistent laws or regulations.
- Effectivity Clause sets the law to take effect 15 days after publication in a newspaper of general circulation.