In line with President Duterte’s efforts to improve the lives of the most marginalized sectors of Filipinos, the Department of Finance, headed by Sec. Carlos G. Dominguez III, recently signed the Implementing Rules and Regulations (IRR) of a new law providing them access to microfinance services and operations.
With this, families once considered as “unbankable” loan clients can now tap government funding to open up small businesses.
Under Republic Act No. 10693, aspiring small entrepreneurs who do not have access to financial products and services can team up with accredited microfinance nongovernment organizations (NGOs) that will provide them with convenient, flexible and low-interest credit.
Signing the IRR with Secretary Dominguez were Sec. Ramon Lopez of the Department of Trade and Industry (DTI) ), and Undersecretary Mae Fe Templa of the Department of Social Welfare and Development (DSWD). Chairperson Teresita Herbosa of the Securities and Exchange Commission (SEC) was also a signatory to the IRR.
Also attending the event was Rep. Pablo Nava III of the APPEND partylist group, who was instrumental in authoring the law in the House of Representatives.
One key feature of RA 10693’s IRR is the set of guidelines on the creation of a Microfinance NGO Regulatory Council, which is tasked to accredit NGOs that provide financial products and services to small entrepreneurs.
Under RA 10693, an accredited microfinance NGO is eligible for preferential tax treatment of 2% tax—in lieu of national taxes—based on their respective gross receipts from microfinance operations.
This new law is attuned to President Rodrigo Duterte’s 10-point socioeconomic agenda designed to sustain the economy’s high growth path and make its benefits felt by all Filipinos.
“By providing financial assistance to small entrepreneurs who would otherwise be turned away by financial institutions because of their perceived “unbankability,” the Duterte presidency would partly realize its electoral mandate of dispersing wealth and making growth inclusive,” Dominguez said.
Lopez said the law would “provide market access to small entrepreneurs and simplify the processes for them” in borrowing funds for their businesses.
Nava pointed out that the tax relief given to microfinance NGOs “would free more resources that they would otherwise use to pay for the VAT and the other taxes that the Bureau of Internal Revenue had previously imposed on them, to help more poor families gain access to credit facilities.”
According to Herbosa the law would help microfinance NGOs “lend to people who would like to engage in small businesses” such as “sari-sari stores, small parlors and other similar enterprises.”
Templa said the new law would provide the DSWD “with additional support in its ongoing efforts of improving sustainable livelihood programs of the DSWD,” especially for the ongoing Pantawid ng Pamilya Pilipino Program, the government’s conditional cash transfer program for the country’s poorest of the poor.
RA 10693 is based on the policy of the State “to pursue a program of poverty eradication, wherein poor Filipino families shall be encouraged to undertake entrepreneurial activities to meet their minimum basic needs including income security.”
To carry out this policy, the law mandates the government to work in partnership with qualified NGOs “in promoting financially inclusive and pro-poor financial and credit policies and mechanisms, such as microfinance and its allied services” to poor families.
The law defines “microfinance” as the “viable and sustainable provision of a broad range of financial services to poor and low-income individuals engaged in livelihood and microenterprise activities.”
Under RA 10693, microfinance NGOs are required to maintain a compensating balance, defined as “the proportion of the total loan of a microfinance client, which is retained with the microfinance institution as capital build-up (CBU) or microsavings.”
The amount can be used by the microfinance NGOs to offset their clients’ outstanding balance in case of default.
A microfinance NGO’s compensating balance or total CBU should not exceed its total loan portfolio, the law states.
Microfinance NGOs, under the law, provides the poor with direct access to reasonable and affordable credit and related programs and services “which shall include, but shall not be limited to, microfinance, microinsurance, microenterprise development, health care, and microhousing.”
These NGOs are also allowed to: provide business development opportunities as well as entrepreneurial and leadership training to their microfinance clients; borrow money or incurs such obligations for the purpose of relending to microfinance borrowers; and collect compulsory savings only from its clients for purposes of maintaining the compensating balance in relation to the same client’s loan.
Microfinance NGOs can also accept donations, grants or contributions in accordance with existing laws and regulations; invest its funds in sound, non-speculative enterprises and instruments; and charge reasonable interest loan rates.
However, they are barred from the following: deposit-taking activities for the purpose of equity buildup of an individual borrower’s own loans; directly engaging in the insurance business; and engaging in quasi-banking operations.
Accredited microfinance NGOs will, under this law, have access to government programs and projects as well as any form of technical assistance from the government, donors and support organizations.