The Bangko Sentral ng Pilipinas (BSP) defines microfinance as the provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products to the poor and low-income households, for their microenterprises and small businesses, to enable them to raise their income levels and improve their living standards.[1] It is also defined as the provision of financial services to low-income clients, including the self-employed.
Who is a microfinance client?
Typical microfinance clients are low-income persons that do not have access to formal financial institutions. Microfinance clients are typically self-employed, often household-based entrepreneurs.
In rural areas, they are usually small farmers and fisher folk, as well as others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, and others.[2]
Microfinance products
Financial products of microfinance used to be limited to savings and credit. Several financial services have sprung up in the past decade to address the other financial services needs of microfinance clients like insurance, remittance and even housing services.
Loans that are up to PhP150,000 used for consumption or productive purposes are classified as microfinance loans as stated in government’s Social Reform Agenda or Republic Act 8425 of 1997. The same amount is set as the maximum capitalization for microenterprises.
For microhousing loans, the Bangko Sentral ng Pilipinas (BSP) set the ceiling to PhP300,000 although the Housing and Land Use Regulatory Board (HLURB) classifies socialized housing at PhP450,000.
Government policy
The National Strategy for Microfinance envisions a viable and sustainable microfinance market that will help provide poor households and microentrepreneurs with greater access to microfinance services.
It calls for a greater role for the private sector and the non-participation of government line agencies in the provision of credit and guarantee programs. Emphasis is on the adoption of market oriented financial and credit policies to ensure viability and sustainability.[3]
It is worthy to note that the Philippines closed the gender gap in terms of financial inclusion[4] which is largely attributed to microfinance institutions.
Players, portfolio and number of clients
There are approximately 6,183 microfinance institutions in the Philippines.
| Microfinance institution | Number |
| Banks (2022)[5] | 139 |
| Cooperatives (2020)[6] | 2,762 |
| Microfinance NGOs (2022)[7] | 27 |
| Financing companies (2017)[8] | 673 |
| Lending companies (2017)[9] | 2,582 |
| Total | 6,183 |
The microfinance industry in the Philippines has grown into a PhP406 billion industry in terms of loan portfolio as of March 2022. [10] This would be larger if the portfolio from financing and lending companies that also mostly qualify as microfinance loans are added. the figure also
| Microfinance institution | Amount of portfolio in billion pesos | ||||||
| 2022 1Q | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 | |
| Banks | 26.8 | 27.7 | 26.6 | 27.2 | 22.6 | 17.1 | 13.7 |
| Cooperatives | 327.1* | 327.1* | 327.1 | 315.8 | 315.8 | 194.1 | 167.4 |
| MF NGOs | 52.8 | 52.8 | 50.4 | 41.9 | 30.9 | 28.6 | 20.6 |
| Total | 406.7 | 407.6 | 404.1 | 384.9 | 369.3 | 239.8 | 201.7 |
* Carried over from 2020 figures, due to lack of updated data from the Cooperative Development Authority, to come up with a reasonable estimate of the total outstanding loans of the industry.
There are 18.2 million recorded microfinance clients in the banking system, Microfinance NGO and cooperative sectors.[11] In SEDPI’s research with various microfinance institutions, it is common for a client to have multiple memberships. In fact, a typical microfinance client has average membership in two to three microfinance institutions.
To estimate the number of microfinance clients served, the total number is multiplied by a factor 0f 50% to account for multiple memberships. This would bring the estimated number of microfinance clients in the industry to 9.1 million as of the first quarter of 2022.
| Microfinance institution | Number of clients/members | ||||||
| 2022 1Q | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 | |
| Banks | 1,985,422 | 1,978,394 | 1,996,657 | 2,410,677 | 1,986,683 | 1,956,276 | 1,686,152 |
| Cooperatives | 9,900,000* | 9,900,000 * | 9,900,000 | 9,800,000 | 9,500,000 | 9,400,000 | 8,000,000 |
| MF NGOs | 6,400,000 | 6,200,000 | 6,400,000 | 6,200,000 | 5,200,000 | 4,300,000 | 3,900,000 |
| Total | 18,285,422 | 18,078,394 | 18,296,657 | 18,410,677 | 16,686,683 | 15,656,276 | 13,586,152 |
| 50% of total | 9,142,711 | 9,039,197 | 9,148,329 | 9,205,339 | 8,343,342 | 7,828,138 | 6,793,076 |
* Carried over from 2020 figures, due to lack of updated data from the Cooperative Development Authority, to come up with a reasonable estimate of the number of microfinance clients in the industry.
Based on the above figures, the average loan size per client in the industry is PhP22,000 as of the first quarter of 2022. Microfinance NGOs have the lowest average loan size at PhP8,250 which makes them reach the bottom of the pyramid. Cooperatives have the highest average loan size at PhP33,000 since most cater to salaried workers as well as farmers and microenterprises that require larger loan amounts. The average loan size for rural banks is PhP13,500.
Industry growth
Growth in microfinance portfolio was robust from 2017 to 2019, the pre-pandemic period, which registered 14% to 37% loan portfolio growth rate and 11%-16% member growth rate. Slight growth in loan portfolio was recorded in 2020 at 7% and remained flat in 2021 that registered only 1% loan portfolio growth.
| Microfinance institution | Growth in microfinance portfolio | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | |
| Banks | 4% | -2% | 20% | 32% | 25% |
| Cooperatives | 0% | 6% | 11% | 42% | 16% |
| MF NGOs | 5% | 20% | 36% | 8% | 39% |
| Total | 1% | 7% | 14% | 37% | 19% |
Number of clients had healthy growth rates from 2017 to 2019 which is ranged from 11% to 16%. On 2020 to 2021, the peak of the pandemic period, negative growth were recorded in terms of number of clients at -1% for each year.
| Microfinance institution | Growth in number of clients | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | |
| Banks | -1% | -17% | 21% | 2% | 16% |
| Cooperatives | 0% | 1% | 4% | 18% | 11% |
| MF NGOs | -3% | 3% | 19% | 21% | 10% |
| Total | -1% | -1% | 11% | 16% | 11% |
[1] BSP Circular No. 272, 30 January 2001
[2]Salonga, Edwin, “Microfinance: An Empowerment Tool for the Enterprising Poor,” October 8, 2003.
[3] Frequently Asked Questions on Microfinance, Bangko Sentral ng Pilipinas website
[4]https://public.tableau.com/views/MGIGendertableau/Dashboard1GPS?:embed=y&:showVizHome=no&:display_count=y&:display_static_image=y&:bootstrapWhenNotified=true
[5] bsp financial inclusion dashboard 220331
[6] bsp financial inclusion dashboard 220331
[7] list of sec accredited microfinance ngos 2022 221027
[8] list of financing companies with certificate of authority 171231
[9] list of lending companies with certificate of authority 171231
[10] Dashboard: Financial Inclusion in the Philippines, Bangko Sentral ng Pilipinas, December 2020
[11] Based on BSP financial inclusion dashboard and SEDPI multiple membership estimates
Term insurance provides protection against emergencies for a specific period of time. As lifetime coverage is not always needed, term insurance provides cheaper premiums with larger benefits. On average, investment-linked insurance schemes charge PhP80,000 in premiums.
His daughter, Rica Caneta, is a private school teacher. She has been helping him sell some of his works, “I made a hanging cabinet and a storage cabinet with the extra wood from the previously commissioned projects. I sold them for P2,500 and P3,000 respectively. Rica is working from home so she takes some time to promote my pieces through social media.” 
Federic’s son, Drake, is an animal handler and is supporting the family through these times, “My children are providing financial support we need. Our monthly expenses are usually P10,000 which was primarily covered through my business.” He has discovered the potential of taking his business online to help it grow, “I would need around P10,000 to buy materials for future orders. Online sales have made me realize that professional guidance in promoting our business would really help it expand.”
However, these sales do not provide stability for the pisonet. 
JJS Suds is a connection to the local community, “We would normally have 30 to 50 customers a day before the lockdown. We are lucky if there are five customers these days. Our daily revenue would reach up to P15,000 per day and that target is now P5,000.” John has had to cut corners to adapt to the new normal, “We had seven workers on a daily basis and now there are only two at any given time. The store is only open for limited hours because customers no longer come in late at night. It has led to slower service delivery. We have also started using electric fans.”
Communication is a constant with John’s regular clientele. The staff coordinate with customers on Facebook. John has also decided to bring the business to his regulars, “We also support our personnel needs by helping with the laundry and delivery. The shop currently relies on delivery modality to remain operational. Finding alternative solutions is necessary to keep the business running.”
Pureza’s shop is her saving grace during the uncertainty, “We need P9,000 for our household expenses and about P7,000 for the store.” The store is a constant for her. Its history in the community mirrors Pureza’s presence and determination, “We reinvest all of our profits into the shop. I’m obtaining inventory through other channels because I want to see my store grow despite the circumstances.”
The city was distributing P2,000 for tricycle drivers which Jhun was unable to collect, “I believe it is because my house is far from the collection point. The local government did provide us with rice and sardines on two occasions. We have also received grocery items from 
Inflation of necessary supplies during a disaster event makes business continuity an even greater challenge. Edwin’s main concern is procuring inventory, “We pick up essential ingredients from outside the local area because of lack of availability. The city’s clustering policy during the lockdown prevents vendors from sourcing some of the vegetables we need from Bukidnon.” The scarcity in supply and increase in price has forced Edwin to shut down despite being able to operate under COVID-19 safety guidelines. “The price of vegetables has inflated by 20 to 30%. Rice and grains have only gone up 10%. However, these cumulative prices make it impractical to continue operations.” The emerging caterer hopes that small businesses will receive the aid they need to carry on after the restriction, “We would appreciate logistical support, availability of supplies from the National Capital Region and other key cities, tax relief, and easing of local cluster market restrictions.”
Keeping their office is the biggest challenge, “Our maintenance cost fluctuates between P5,000 to P10,000 and the rental fee for the office is P7,000. We have used our savings to continue paying the rent and any vehicle maintenance that was necessary.” Shirly also has to consider the family expenses, “My sister works in Hong Kong and has sent us remittance of P20,000 during the lockdown. We were able to use the money for four months of household expenses. If we can resume operations soon, we would only need P5,000 to start functioning again.”
Multiple income-generating opportunities are a proven solution for many small businesses to sustain their needs. The COVID-19 restrictions have limited these prospects to entrepreneurs. Giselle currently works as a cashier for a university. It is the only stable income for the household. The lack of earnings has forced her to take loans, “My husband has a van that he would use for delivery operations. He would regularly work for Lazada but that has also stopped since March.” Loss of revenue sources has multifold consequences for microentrepreneurs. “We have lost around P19,000 a month since the lockdown. We also had an SUV that we would rent out through the Grab app. Unfortunately, we had to give it back to the dealership because we were unable to cover the monthly payment or the driver’s salary.”
Two months after the government started easing lockdowns in most parts of the country, 36% of nanoenterprises reported to have bounced back to pre-pandemic level. In May, only 18% expected to bounce back within one month which may be a good sign of recovery if the spread of the virus is contained.
With microenterprises cautious on demand, they prefer not to access loans. Only two of three of those who finished their loans opted to renew their for another cycle. This is also a sign that nanoenterprise have the ability to weigh risks and returns.
There are approximately 8 million low income households that access microfinance services in the Philippines. MFIs are frontliners in the delivery of financial services to low income groups who find it difficult to open deposit accounts and access loans from commercial banks.