Rural Financial Markets and Credit Delivery System in the Philippines

The growth in the microfinance industry in the Philippines as a potential ‘financial inclusion’ innovation is a welcome development. Micro, small and medium enterprises (MSMEs) and low-income clients are able to increase their economic activity and income, build up assets, prepare against emergencies and invest in education, health and housing services.But despite the many benefits and growing importance of microfinance, there remain social and financial performance issues as well as impact concerns that continue to challenge the industry. Central to its success is a strong link between rural finance and other components of development like access to basic infrastructure, appropriate technology and improved marketing infrastructure that are necessary conditions for competitive and sustainable economic activities. The inclusion of the private sector in financial intermediation must be reinforced by microfinance institutions (MFIs) and other channels of government funds that have the required competence, network, carrying capacity as well as infrastructure to minimise, if not totally eliminate, credit pollution and defaults. Regular access and proper use of credit ultimately leads to increase in total income, the springboard of the two long-standing development objectives of poverty alleviation and food security. The chapter discusses the role of microfinance in rural development in the Philippines. It particularly identifies the effects of microcredit on input use, productivity and income in the context of Philippine agriculture. The chapter concludes with an overview of the success of microfinance in the Philippines followed by policy directions.