Regulation of Financial NGOs.(Opinion &Amp; Editorial)
CONSULTATION is now going on through the National Credit Council and the Banko Sentral on whether to regulate financial NGOs and how to do it if it is decided to regulate. Financial NGOs are the organizations that have sprang up, mostly within the past ten years, lending to the lower economic levels generally without collateral.
Their success has called the attention of the President who wants to promote them and the regulatory bodies who are considering regulation either through legislation or administrative orders. While the banks are experiencing default rates of over 15 percent, most financial NGOs have defaults below 5 percent in spite of not requiring collateral for their loans. Of course these are two different credit worlds in terms of loan size. The micro finance institution loans average below P10,000 while the banks can go into the millions. Some of these NGOs have built up over 30,000 members or clients. However, compared to Bangladesh and Latin American countries this client volume is minuscule since many of their micro finance organizations each serve over a million clients. The potential here of recycling funds to the poor or rural areas is great. There is no doubt that in the present economy financial NGOs are beneficial. The question is whether regulation will help.
The saying "Don't fix, if it ain't broke" is a good general principle. At the same time financial history and local legislation demand that deposittaking institutions be regulated since they are in effect borrowing from their depositors and these deposits have to be protected. Do the financial NGOs come under the definition of deposit-taking institutions? The measure proposed is whether the sum of the loans they extend are more than the savings accumulated from their clients. …