Amid pork barrel scam, Congressional study recommends tighter monitoring of NGOs means BUSINESS

MANILA - A Congressional Policy and Budget Research Department (CPBRD) study has recommended closer monitoring of non-government microfinance institutions (MFIs).

The CPBRD study comes amid reports that non-government organizations (NGOs) had been used to divert pork barrel. Tighter rules face them after several whistleblowers revealed that at least P10 billion had been channeled to bogus NGOs in the last 10 years.

In a policy paper, CPBRD researcher Rosemarie R. Sawali said microfinance, which is one way the government can attain inclusive growth, requires an enabling policy environment.

"The main issue that requires priority consideration is the improvement of the regulatory framework for non-bank [MFIs]," Sawali said.

While the "very active" regulation by the Bangko Sentral ng Pilipinas (BSP) of banks with microfinance operations has placed the Philippines fourth among 55 countries surveyed by the Economist Intelligence Unit, bank-affiliated MFIs however make up only a fourth of the industry, Sawali said.

"A higher number of borrowers are served by microfinance NGOs and cooperatives which are not properly regulated, possibly posing risks not just to the clients but also to the integrity and sustainability of the industry as a whole," she said.

Citing MIX Market data, Sawali said the microfinance sector has served 4.7 million clients with $1.2 billion in outstanding loans at end-June. Non-bank MFIs lend out an average P6,000, while microfinance banks, P7,600 -- proof that the industry serves the lower end of the credit market.

Unlike the BSP, the Cooperative Development Authority (CDA), which supervises cooperatives, does not have the capacity to fully regulate cooperatives and lacks capacity for risk-based supervision, Sawali said.

For one, the CDA has yet to develop specific regulations for cooperatives engaged in microfinance as the agency is focused on developing the sector. Citing the 2012 Microfinance Industry Report, Sawali said the CDA charter is to blame for this "because it is ambiguous and does not give the CDA the authority to regulate cooperatives."

Given this, Sawali called for the passage of bills seeking to amend the CDA charter.

In the case of microfinance NGOs, the CPBRD study said they had been taking deposits beyond what is provided by law.

"The 2010 Microfinance Industry Report raised the possibility that several microfinance NGOs may have collected savings beyond the compensating balance which should already be subject to regulation. The problem is that there is no standard way of determining whether the collected savings have exceeded the compensating balance because microfinance NGOs are not required to submit financial information to any agency," Sawali said.

She said no agency regulates NGOs, adding that the Securities and Exchange Commission (SEC) merely registers them.

The CPBRD study also called for a review of the National Strategy for Microfinance, the harmonization of microfinance data, and the acceleration of operations of the credit bureau.