For January 1 to September 31, 2004, the National Credit Council (NCC) focused on the following activities:

Establishment of the Performance Standards for all Types of Microfinance Institutions (MFIs)

• The Performance Standards for MFIs, drafted by the Technical Working Group and subjected to a series of regional consultations in 2003, was tested by the selected institutions represented in the TWG who were either regulating, assisting or lending to retail MFIs (i.e. BSP, PCFC, LBP, MCPI, CUES, MABS) in early 2004.
• As of October 22, 2004, the last draft of the Performance Standards for MFIs, which incorporated inputs from the regional consultation and insights gathered from pilot testing, was finalized by the TWG and recommended for approval by DOF Secretary and NCC Chairman Juanita D. Amatong.
• The Performance Standards for MFIs, once approved, shall be endorsed and presented to target users (i.e. MCPI, LBP, PCFC, DBP, SBGFC, others) and regulators (BSP, CDA) to encourage the adoption of the Standards.

Advocacy for the Use of the Performance Standards for MFIs

• To solicit support for the adoption of the Performance Standards for MFIs by practitioners, the NCC joined the BSP in the latter's microfinance information campaign. Throughout the year, various seminars were conducted all over the country. The seminars were aimed at providing information on the various microfinance policies adopted by the government and the BSP to existing and prospective microfinance practitioners. Participants to these seminars included representatives from rural banks, thrift banks, microfinance NGOs and credit cooperatives.

DOF-NCC-BSP Collaborative Work on the Establishment of an Effective Credit Bureau

The BSP and the DOF-NCC jointly initiated work on the Meeting with on credit bureau operations in Bolivia. NCC-CPIP met with Mr. Carlos Alba and Mr. Raul Tapia for a briefing on credit bureau operations in Bolivia. The consultants made a presentation on the evolution of credit bureau in Bolivia and the key provisions of the current law in Bolivia that supports and encourage the operations of private credit bureaus.

1. Meetings with key officials of the BSP and the legal consultants on the BSP-NCC collaborative work for making credit bureaus in the Philippines effective. NCC-CPIP conducted several meetings with BSP officials and the legal consultants (January 13 and January 20) to discuss the inception report submitted by the legal consultants. The specific tasks to be done were clarified and prioritized. It was agreed during the meeting that the legal consultants will focus on the following issues:

• Review of (a) the current charter of the BSP, the General Banking Act and other relevant laws and issuances to identify various legal issues pertaining to the operation of a central credit information bureau, and (b) existing laws that are relevant in ensuring the effective functioning of credit bureaus with specific focus on confidentiality of collected information and on the protection of [the rights of] borrowers [with respect to their credit information].
• Recommend the most appropriate role of BSP and other regulatory agencies in the effective operations of credit bureaus.
• Identify specific measures that should be undertaken by the government financial regulatory agencies (without violating any legal provision) to ensure the effective functioning of credit bureaus, with specific focus on confidentiality and privacy issues related to the use of credit bureau information.
• When necessary, prepare initial draft of special legislation that provides clear mandate for credit information sharing with appropriate safeguards

  The technical working group on the credit bureau met with the legal consultants on March 16, 2004. Initial findings of the review reveal that the BSP can require banks to submit information on the credit transactions of borrowers as part of its regulatory policy. It cannot however, delegate the operations of the credit bureau to a third party, hence, the credit bureau that will store and process the information submitted by banks should be an organic unit within BSP. The consultants will review other options for BSP.
  
  A. Presentation of the draft interim report on the review of the legal environment for credit bureaus to the key officials of the NCC and the BSP. The draft interim report of the legal consultants on the review of the legal environment for the effective functioning of credit bureaus was presented to the key officials of the NCC and the BSP on April 12, 2004. The study, among other things, identifies the legal provision that will allow regulatory authorities to operate and maintain a credit bureau (hereinafter referred to as the Bureau) and recommends specific measures that could be undertaken by these regulatory authorities to make participation of financial institutions in the credit bureau more effective, e.g., ensure timely and accurate submission by all financial institutions of all the credit transactions of a borrower to the credit bureau.

  The review reports the following findings:

  • The BSP has the legal authority to establish and operate a credit information bureau as an internal unit within its organization. In the course of its operation, it may outsource part of its credit information activities, e.g., processing of raw credit information.
  • The BSP, in the exercise of its regulatory and supervisory powers, can require all its regulated entities to submit credit information to the BSP credit information bureau. The monetary board may prescribe specific policy guidelines for the release of credit information by the credit information bureau to BSP-regulated entities. These policy guidelines may include, among other things, the following: execution of borrower's consent to the submission of credit information to the Bureau and in turn to the release of such information to other BSP-regulated entities; other confidentiality measures, and ways to address erroneous information.
  • Inclusion of a borrowers' consent in credit loan application and agreements can be imposed on BSP-regulated entities through an exercise of BSP's policy-making authority.
  • To ensure submission of credit information by financial institutions that are not regulated by the BSP (e.g., credit cooperatives under the CDA and microfinance NGOs and financing companies under the SEC), a regulators' agreement maybe entered into by and between the BSP and the other regulators. Such agreement would, among other things, be uniform and specific and include confidentiality arrangements regarding the institutions' access to the information in the Bureau.
  • Entities accessing the Bureau in the BSP should enter into accreditation agreements with the BSP. Such agreements should include the terms and conditions for access to credit information in the database including, among other things, provisions on the allowed uses of the credit information, terms of confidentiality, and the rights of concerned borrowers.

  
  The legal consultants were then asked to draft the accreditation agreement, the regulators agreement and the agreement for the borrowers consent. These were then presented in another meeting that that included the participation of key officials of the NCC and the BSP on June 2, 2004. It was agreed during the meeting that the final report would be reviewed by the office of the legal counsel of the BSP, after which the key findings of the report will be presented to the members of the Monetary Board for appropriate action (See Annex A-1 for the final report).
  
  

  B. Drafting of the scope of work for the operational design of the credit bureau. Based on the results of the review of the legal environment, the BSP is considering the establishment of a specific organizational structure within the BSP that will operate and maintain a comprehensive credit information database. To ensure the effective functioning of the unit, the BSP and the NCC requested the Credit Policy Improvement Project (CPIP) to provide the necessary technical assistance in the formulation of an operational plan for an effective credit information bureau within the BSP. The operational plan will, among other things, identify the manpower, resource, infrastructure and technology requirements of the proposed unit. The technology and infrastructure requirements of the other regulatory authorities (i.e., the CDA and the SEC) as well as the participating financial institutions will also be identified in the operational plan.
  Meeting on Portfolio at Risk (PAR). NCC-CPIP attended a discussion meeting on portfolio at risk that was hosted by the BSP. Key officers of selected banks engaged in micro finance operations such as the CARD Bank and Opportunity Micro Finance Bank attended the meeting. The meeting was aimed at looking at the various issues raised by the microfinance institutions. These are: need to review the PAR-one day standard to consider bank holidays and other unforeseen circumstances that are not necessarily the fault of borrowers (e.g., typhoons preventing loan officers to travel to area of operations). It was clarified during the meeting that, given these circumstances, bank examiners may make the necessary adjustments. The banks were also informed during the meeting that the BSP will conduct a consultation on Portfolio at risk.

Establishment of the Appropriate Regulatory and Supervisory Framework for Credit Cooperatives

2. Conduct of regional consultation workshops on the framework for the regulation and supervision of credit cooperatives. The NCC with support from CPIP conducted regional consultation workshops on the framework for the regulation and supervision of credit cooperatives. The proposed framework recognizes the state - designated regulatory authority for cooperatives as the regulator. As the regulator, it will issue the basic rules and regulations for the safe and sound operations of credit cooperatives. The framework also states that federations and unions of credit cooperatives will be deputized by the state as supervisors and examiners of primary credit cooperatives, following a set of accreditation criteria developed by the state regulatory authority. The regional workshops were conducted in the following areas:

a. Baguio City - January 8, 2004
b. Legaspi City - February 5, 2004
c. Tacloban City - February 22, 2004
d. Manila - March 2, 2004

The following comments and recommendations were raised and highlighted by the participants during the consultation workshops:

• Need to build the capability of the CDA to issue the necessary rules and regulations. The current personnel of the CDA that will be assigned to the proposed regulatory unit should be provided the necessary training and technical assistance to enable CDA to implement its regulatory mandate more effectively.
• Need to build the capability of federations and unions in supervising and examining credit cooperatives.
• Need to clean and purge the current registry of cooperatives to ensure that only operating cooperatives are included in the registry.
• Need for appropriate consultation with the sector in the establishment of rules and regulations as well as in determining the accreditation criteria for deputized supervisors.

3. Meeting with the members of the Technical Working Group on the framework for the regulation and supervision of credit cooperatives. The members of the TWG on the draft framework met on March 18 and 19, 2004, to discuss the issues and comments raised during the various regional consultations. The members of the working group agreed to highlight the need for improving capacity for effective regulation and supervision for both CDA and federations/unions. The members also approved the draft framework for presentation to the members of the Board of Administrators of CDA. In view of the recognized need for improving capacity, CPIP was requested by the members of the TWG to provide the necessary technical assistance in the following areas:

• Establishment of the basic rules and regulations for safe and sound operations of credit cooperatives and other types of cooperatives with credit services;
• Formulation of the accreditation criteria for the selection of cooperative federations/unions that will be deputized as supervisors and examiners of primary credit cooperatives;
• Establishment of the guidelines, procedures and standards for supervision and examination of credit cooperatives and other types of cooperatives with credit services;
• Advocacy support for the adoption and implementation of the established rules, regulations, guidelines and procedures for effective regulation, supervision and examination of primary credit cooperatives. This includes, among others, the conduct of training programs for CDA staff with specific focus on the implementation of the rules and regulations.

Continued Capacity Building on the COOP-PESOS for

4. Conduct of regional training workshops on COOP-PESOS and microfinance standards. NCC-CPIP in collaboration with the Land Bank of the Philippines (LBP) conducted a series of regional training workshops on the COOP-PESOS and the microfinance standards for account officers of LBP. The training workshops are aimed at familiarizing the account officers of LBP with the various performance standards. These standards will be used by the LBP in evaluating their credit cooperative and MFI clients. LBP is planning to provide wholesale microfinance services starting with a limited engagement in 2004. The workshop was held on January 15 and 16 at the LBP Plaza in Manila. The account officers of LBP in Southern Luzon attended the workshop.

5. Meeting with the Chairman of CDA to discuss the proposed scope of work of the technical assistance to CDA. NCC-CPIP met with Chairman Ruben M. Conti of CDA on February 3, 2004, to discuss the proposed scope of work for the technical assistance to CDA. The draft scope of work was presented. It was highlighted during the meeting that CPIP assistance can only focus on the formulation of the necessary rules and regulations and the accreditation criteria for deputized supervisors. Technical assistance on actual regulation and supervision cannot be covered under the current CPIP scope. CDA was also informed that CPIP is terminating by October 31, 2004, unless an extension is provided by USAID. To institutionalize the current NCC-CDA collaboration, Chairman Conti requested that NCC and CDA should execute a memorandum of agreement highlighting the broad areas of assistance and collaboration.

6. Presentation of the framework for the regulation and supervision of credit cooperatives to NATCCO member credit cooperatives. NCC-CPIP presented the draft framework for the effective regulation and supervision of credit cooperatives to the members of the Board of Directors of selected member credit cooperatives of NATCCO on February 7, 2004. The workshop was aimed at creating awareness among large primary credit cooperatives on the current direction that the government is taking for the credit cooperative sector. The importance of effective regulation and supervision was highlighted during the presentation that generated support for the speedy implementation of the framework.

7. Meeting with CUES-Philippines re: the proposed framework for the regulation and supervision of credit cooperatives. NCC and CPIP met with Mr. Luis Sasuman and Mr. Dave Richardson re: the proposed framework. CUES-Philippines is currently forming an association of CUES partners and is looking at the possibility of being deputized as a supervisor. They were informed that according to the framework, the association has to qualify based on the accreditation criteria for deputized supervisors that is yet to be established.

Other Related Press Releases

8. Meeting with the JBIC staff on the Proposed Pilot study for Sustainable Microfinance for Poverty Reduction. NCC-CPIP met with the technical staff and consultants of JBIC to discuss the proposed pilot study. The study will review the microfinance sector in the Philippines with the end view of determining the appropriate strategy for effective JBIC support for the microfinance sector in the Philippines. NCC-CPIP briefed the team of the current government policy on microfinance and emphasized the need for assistance in building the capabilities of MFIs. It was also mentioned during the meeting that ADB has conducted a study that reviewed the microfinance sector in the Philippines. It was mentioned that the study identified specific areas of intervention to further strengthen the microfinance sector in the Philippines. JBIC was encouraged to consider the results of the ADB study. The minutes of discussion between JBIC and NCC were signed indicating government agreement to conduct the study. It was noted in the minutes that the implementation of the study does not imply any decision or commitment of JBIC to extend loan to the Government of the Philippines (GOP) nor any decision or commitment on the part of GOP to secure a JBIC loan.

9. Meeting with the evaluation team of MABS. NCC-CPIP met with the evaluation team for MABS. The team was informed concerning the activities done by CPIP where MABS participated. These are: formulation of the regulatory framework for microfinance and the development of performance standards for microfinance.

10. Briefing with the members of the Northern Samar Coalition Against Poverty Foundation, Inc. NCC and CPIP gave a briefing to the members of the Board of Directors of the Northern Samar Coalition Against Poverty Foundation on the government policies on microfinance and the various methodologies employed by microfinance institutions. The performance standards for microfinance operations were also presented during the briefing. The foundation recently got a grant and wants to engage in the provision of microfinance services