MCPI triumphs on its Microfinance Code Advocacy

On 03 November 2015, President Benigno S. Aquino III has signed into law the “Microfinance NGOs Act,” which was primarily sponsored by Senator Paolo Benigno “Bam” Aquino IV. Republic Act No. 10693, also known as “An Act Strengthening Nongovernment Organizations Engaged in Microfinance Operations for the Poor.” The Act aims to strengthen non-government microfinance institutions in their pursuit of community development and improvement in the socio-economic welfare of the poor and other basic and marginalized sectors. The law formally recognizes the “indispensable role of nongovernment organizations (NGOs) in fostering local enterprise development and social entrepreneurship.” In view of this, the law explicitly pointed out as a matter of policy that “the State shall support and work in partnership with qualified NGOs in promoting financially inclusive and pro-poor financial and credit policies and mechanisms,” primarily through the promotion of microfinance and its allied services.

To oversee the implementation of RA 10693, it called for the establishment of a Microfinance NGO Regulatory Council (MNRC), which shall be composed of four permanent members from the government (the chairperson of the Securities and Exchange Commission; the Secretary of the Department of Trade and Industry; the Secretary of the Department of Finance; and the Secretary of the Department of Social Welfare and Development) and three term-based representatives from the Microfinance NGO sector, to be chosen among the nominees submitted by organizations, associaltions, and/or alliances of Microfinance NGOs duly registered with the SEC.

In turn, Microfinance NGOs shall be required to obtain accreditation from the MNRC in order to fully enjoy the benefits accorded to them under the law.

Apart from enshrining the core principles and purposes of microfinance NGOs—including the provision of both financial and social protection programs as well as upholding the core Client Protection Principles, as it is widely and commonly regarded—RA 10693, directs the formulation of financial and social performance, and governance standards for microfinance NGOs, which will form part of the accreditation criteria.

Accredited microfinance NGOs shall be given ready access to all available support programs for the microfinance sector, such as, but not limited to the following: operational and capacity building grants; low interest loans; guarantee funds; and technical assistance for the improvement of microfinance operations. Most importantly, an accredited MF NGO shall only be subjected, in lieu of all national taxes, to a two percent tax based on its gross receipts from microfinance operations (defined under the law as interest income, penalties, surcharges, commission and discounts, service and general fees, and other related and incidental charges). Attached to this privilege is the responsibility of the MF NGO to ensure that each of their clients must have a Taxpayer Identification Number (TIN).

The Microfinance NGOs Act is a consolidation of Senate Bill No. 2752 (An Act Strenthening Non-Government Organizations Engaged in Microfinance Activities for the Poor, as per Committee Report No. 130, dated 06 May 2015) and House Bill No. 5217 (An Act Governing the Accreditation of Micro-enterprise Development Institutions, as per House Committee Report No. 495, dated 25 November 2014). It should be noted that while the House of Representatives had submitted an entirely different version of the bill as it was essentially based on the original text of the then-known “Microdev” bills that had been already approved in the previous Congress, the final text of RA 10693 was heavily based on the MCPI-endorsed Senate Bill No. 1832, “An Act Creating the Microfinance Code of the Philippines,” which was filed by Sen. Bam Aquino on 13 October 2013. Similar bills were introduced in the House of Representatives by Reps. Cresente C. Paez and Anthony M. Bravo (House Bill No. 277, “An Act Creating the Microfinance Code of the Philippines”); and by Reps. Rufus Rodriguez, Maximo B. Rodriguez, Jr., Rolando A. Uy, Peter M. Unabia, Juliette T. Uy, and Ma. Lourdes Acosta-Alba (H.B. No. 4154, “An Act Creating the Microfinance Code of the Philippines”). For his part, Rep. Pablo R. Nava III introduced H. B. No. 3364, “An Act Governing the Creation and Acrreditation of Non-Stock Non-Profit Microfinance Development Organizations and/or Corporations, and for Other Purposes”—a hybrid version of the original “MEDI or Microdev bills” and the MCPI-drafted Microfinance Code of the Philippines.