Transparent Pricing In Philippines

The microfinance market in the Philippines is one of the largest and oldest microfinance markets in Asia. Fuelled by the success of mobile banking and favourable government policies, the sector has shown tremendous growth both in terms of outreach and financial performance. Institutions providing microfinance services include commercial banks, non-bank financial institutions, cooperatives, rural banks, credit unions, pawn shops and NGO-MFIs. Assisted by the presence of a large number of microfinance institutions, the sector provides a diverse  range of microfinance products.

The majority of banks, non-bank financial institutions and rural banks are included in the supervisory framework of the Central Bank of the Philippines. Cooperative societies are overseen by the Cooperative Development Authority. However, a significant part of the Philippines microfinance market consists of NGO MFIs, pawn shops and credit unions who are not included in the formal regulatory oversight. The Philippines has a long standing Truth in Lending Act No. 3765 issued in 1963. This Act has been strengthened by the issuance of the Microfinance Consumer Protection Guidebook of 2007.

Following the success of the Transparent Pricing Initiative in the Philippines, the Central Bank has updated the truth-in-lending act with the issuance of Circular No. 730. The Circular aims to promote responsible finance and consumer protection. It specifies requirements for pricing disclosure and reporting, and mandates the use of declining balance as the interest computation method. It requires interest rates to be communicated using Effective Interest Rate (EIR) terms. It is expected that the diverse nature of the Philippines microfinance providers may pose a challenge in the tracking and enforcement of activities related to consumer protection and responsible practices.