Eligibility and Capital Requirements
- Microfinance banks can be thrift or rural banks.
- Capital ownership by private persons, multilateral entities, or a combination.
- Minimum paid-in capital for rural banks as microfinance banks: P5 million or existing capitalization whichever is higher.
- Thrift banks adhere to existing capitalization rules.
Organizers' Capacity and Board Composition
- At least 20% of paid-in capital owned by persons/entities with microfinance track record.
- Majority of board members experienced in microfinance; at least one with banking experience.
- Adequate loan tracking system mandatory for monitoring loans and arrearages.
Application Requirements
- Vision and mission statement showing commitment to low-income clients.
- Written manual of operations including administrative and credit procedures consistent with microfinance principles (Annex A).
- At least 50% of gross loan portfolio must be microfinance loans.
Microfinance-Oriented Officers' Qualifications
- Experience requirement for President/COO/General Manager can be satisfied by microfinance experience if the officer is a college graduate.
Branching Rules
- Exempted from general moratorium on branch establishment.
- After one year of profitability, branches can be applied for, subject to minimum capital requirements.
Conversion and Branch Establishment for Existing Microfinance Organizations
- Existing microfinance organizations may convert to banks and transform offices into branches.
- Must comply with standard branch establishment and capitalization rules.
- Must demonstrate the area is underserved by existing rural banks.
Definitions and Core Concepts of Microfinance (Annex A)
- Microfinance: financial services including deposits, loans, payment, transfers, insurance to poor/low-income households for income improvement.
- Core principles emphasize access, repayment capability, sustainability, and poverty alleviation.
Characteristics of Microfinance
- Clients are low-income, informal sector, lacking physical collateral.
- Lending technology relies on quick microloan approvals, group guarantees, and cash flow analysis.
- Loan portfolios are volatile; institutions typically decentralized with quasi-equity capital.
Microfinance Loan Definition and Amounts
- Small loans based on borrowers' cash flow, usually unsecured; maximum typical loan up to P150,000.
Collateral and Interest Rate Policies
- Loans usually unsecured; may be secured if borrower can provide acceptable collateral.
- Interest rates should be market-based to cover costs and sustain institutions; subsidized interest rates are discouraged.
Micro-credit Demand Segments
- Landless agricultural and manual laborers needing consumption and productive asset loans.
- Small farmers, artisans, and informal sector needing working capital.
- Medium farmers and small entrepreneurs barely above poverty line with inadequate credit access.