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