SIXTEENTH CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
) 
First Regular Session 
) 
'13 
OCT --9 P 3 :27 
Introduced by: Senator Paolo Benigno "Bam" A. Aquino IV 
.-
EXPLANATORY NOTE 
In all parts of the country, microenterprises comprise the bulk of business enterprises in the 
country. The Department of Trade and Industry (DTI) estimates that, as of 2011, at least 99.6% of all 
businesses in the Philippines were classified as micro, small, and medium enterprises (MSMEs), 
while the remaining 0.4% were large enterprises. Of the total number of MSMEs, at least 91.0% 
were micro enterprises, with asset sizes not greater than Three Million Pesos (P3 million) and with 
up to 10 employees. 
At their very core, micro enterprises enable poor families to undertake entrepreneurial 
activities to meet their minimum basic needs, including income generation. However, one major 
barrier for micro entrepreneurs is their lack of access to credit or capital. One way for them to 
,access such funding is through micro finance. 
"Microfinance", as defined in this bill, "refers to the viable and sustainable provision of a 
broad 
range of financial 
services to poor/unbanked/financially underserved/low-income 
households engaged in livelihood and microenterprise activitie.s. It uses nontraditional and 
innovative methodologies and approaches such as, but not limited to, the extension of small loans, 
simplified loan application procedures, group character loans, collateral-free arrangements, cash-
flow based lending, alternative loan repayments, minimum requirements for CBU/minimum 
balance retention, and small denominated savers' instruments-aimed to improve their asset base 
and expand their access to capital and savings." 
However, the microfinance sector has yet to be acknowledged by government as an integral 
partner in poverty alleviation. Moreover, the unique structure and purpose of microfinance 
institutions (MFls) have yet to be recognized as different from those of purely commercial 
enterprises. 
Therefore, we are proposing the Microfinance Code of the Philippines to develop the 
microfinance sector in the country. This measure seeks to define the rights and responsibilities, 
institute performance management and standards, and provide an accreditation process for MFls. 
It also seeks to provide an enabling policy environment for MFls through appropriate incentives and 
support. Finally, this measure will promote a social reform strategy that will empower the poor, aid 
them in managing financial risks, and, in doing so, expand access to micro finance services, such as: 
microcredit, microsavings, health care, and others. This Act also opens up access to a broad range of 
financial, bUSiness, and other human development services. The ultimate goal of the Microfinance 
Code of the Philippines is to lift people out of poverty and enable them to live more productive, 
self-sufficient lives. 
In view of the foregoing, the approval of this bill is earnestly sought. 
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SIXTEENTH CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
) 
First Regular Session 
) 
'13 
OCT -9 P 3 :27 
SENATE 
S.B. No. 1832 
Introduced by: Senator Paolo Benigno "Bam" A. Aquino IV -
AN ACT CREATING THE MICROFINANCE CODE OF THE PHILIPPINES 
Be it enacted by the Senate and House of Representatives of the Philippines in Congress 
assembled: 
I 
CHAPTER 1 
2 
GENERAL PROVISIONS 
3 
SECTION 1. Short Title. - This Act shall be known as the "Microfinance Code of the 
4 
Philippines". 
5 
SECTION 2. Declaration 0/ Policies. - It is the declared policy of the State that there 
6 
shall be more equitable distribution of opportunities, income and wealth, sustained increase in 
7 
the amount of goods and services produced by the nation for the benefit of the people, and 
8 
expanding productivity as the key in raising the quality of life for all, especially the 
9 
underprivileged. 
10 
Towards this end, the State recognizes the indispensable role of the private sector in 
II 
fostering local enterprise development and social entrepreneurship, including the provision of 
12 
microfinance services to microenterprises. 
13 
In recognizing the greater role of the private sector in the provision of financial services, 
14 
the State shall provide an enabling policy environment that will facilitate the increased 
IS 
participation of the private sector and pursue financially inclusive and pro-poor financial and 
16 
credit policies, such as microfinance and its allied services. 
17 
SECTION 3. Basic Principles. - A microfinance institution shall conduct its operations in 
18 
accordance with the basic principles of microfinance, which include, but are not limited to the 
19 
following: 
' 
20 
a. The poor shall be given access to appropriate finanCial services that are convenient, 
21 
flexible, and reasonably priced, including, but not limited to credit, savings, and 
22 
insurance; 
23 
b. Microfinance can and should be undertaken on a sustainable basiS, where providers 
24 
shall be able to recover all of its costs to allow sustainable operation and regular 
25 
provision of financial services to the poor; 


1 
c. 
Microfinance institutions must aim to provide both financial and social protection 
2 
programs to an increasing number of disadvantaged and/or underprivileged people; 
3 
d. Microfinance institutions shall abide by the Client Protection Principles, such as, but 
4 
not limited to, appropriate product design and delivery, prevention of over-
S 
indebtedness, promotion of transparency, practice of responsible pricing, fair and 
6 
respectful treatment of clients; privacy of client data and mechanisms for complaint 
7 
resolution; 
8 
e. Financial services, alone, is insufficient to achieve the goal of serving increasing 
9 
numbers of poor and excluded people sustainably, thereby requiring that the 
10 
microfinance sector develop financial and social performance standards that will 
II 
help define and govern the industry toward greater outreach and sustainability. 
12 
SECTION 4. Scope of Application. -
This Act shall apply to non-stock, non-profit 
13 
corporations and/or non-government organizations (NGOs) engaged in and/or associated with 
14 
the practice of microfinance in the Philippines. 
IS 
SECTION 5. Definition of Terms. - The following terms shall mean: 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
a. "Compensating Balance" refers to the proportion of the total loan of a microfinance 
institution client, which is retained with the microfinance institution as capital build-
up (CBU) or savings. This amount serves as a hold-out deposit on the loan of the 
client and can be used by the microfinance institution to off-set the client's 
outstanding balance in case of default. In view of this, the client is considered a net 
borrower from the microfinance institution rather than a net saver (i.e., as a 
borrower of its own savings rather than as a depositor who finances other client's 
borrowings/loans). 
b. "Council" refers to the Microfinance Regulatory Council. 
c. 
"Microfinance" refers to the viable and sustainable provision of a broad range of 
financial services to poor/unbanked/financially underserved/low-income households 
engaged in livelihood and microenterprise activities. It uses nontraditional and 
innovative methodologies and approaches such as, but not limited to, the extension 
of small loans, simplified loan application procedures, group character loans, 
collateral-free arrangements, cash-flow based lending, alternative loan repayments, 
minimum 
requirements 
for 
~BU/minimum bal;mce 
retention, 
and 
small 
denominated savers' instruments-aimed to improve their asset base and expand 
their access to capital and savings. 
d. "Microfinance Loans" refers to small loans granted to the basic sectors, as defined in 
the Social Reform and Poverty Alleviation Act of 1997 (Republic Act 8425), and other 
loans granted to the poor and low-income households for their microenterprises and 
small businesses so as to enable them to raise their income levels and improve their 
living standards. Microfinance loans are granted on the basis of the borrower's cash 
flow'and are typically unsecured. 
e. "Non-stock, Non-profit Microfinance Institution (MFls)" refers to a duly registered 
non-government organization (NGO) with the primary purpose of providing 
microfinance programs, products, and services, such as, but not limited to, 
microcredit and microsavings; referred herein as "Microfinance NGO". 


2 
f. 
"Social Performance" refers to the effective translation of an institution's social 
mission into practice. 
3 
CHAPTER 2 
4 
THE MICROFINANCE REGULATORY COUNCIL 
5 
SECTION 6. Establishment oj the Microjinance Regulatory Council. - The Securities and 
6 
Exchange Commission (SEC) shall have the power to establish and/or register a self-regulatory 
7 
organization for the microfinance sector to be known as the Microfinance Regulatory Council, 
8 
herein referred to as the "Council". 
9 
SECTION 7. The SEC may prescribe rules and regulations which are necessary or 
10 
appropriate in the public interest or for the protection of microfinance institutions to govern 
11 
self-regulatory organizations and other organizations licensed or regulated pursuant to the 
12 
authority granted in this Section, including the requirement of cooperation within and among 
13 
all microfinance institutions to ensure transparency and facilitate exchange of information. 
14 
15 
likeWise, the SEC shall prescribe the requirements for the establishment of the Council, such as 
16 
industry representation, governance structure, selection and appointment of directors, and' 
17 
such other requirements to ensure free, fair, and healthy competition in the industry. 
18 
SECTION 8. The powers and functions of the Council shall be exercised by a board of 
19 
directors composed of 15 members. The Council may establish a Secretariat as may be 
20 
necessary. 
21 
SECTION 9. Functions oj the Microjinance Regulatory Council. - The Council shall have 
22 
the following functions: 
23 
a. Provide a national policy and strategy for the practice of microfinance in the 
24 
Philippines; 
25 
b. Maintain a national registry of microfinance institutions; 
26 
c. 
Institute and operationalize a system of accreditation for non-stock, non-profit 
27 
microfinance institutions; 
28 
d. Issue a Certificate of Accreditation to the MFls; 
29 
e. Collect reasonable accreditation and monitoring fees, which shall be used for 
30 
operational requirements; 
31 
32 
33 
34 
35 
36 
37 
38 
39 
f. 
Require regular submission of reports by microfinance institutions; 
g. Monitor the financial and social performance of microfinance institutions to ensure 
compliance with the provisions of this Act and its implementing rules and 
regulations; 
h. Suspend or revoke any Certificate of Accreditation upon determination that a 
microfinance institution no longer meets the criteria for accreditation; 
i. 
Perform such other functions as may be necessary to accomplish the purposes and 
objectives of this Act. 
CHAPTER 3 


ORGANIZATION, REGISTRATION, AND ACCREDITATION OF MICROFINANCE INSTITUTIONS 
2 
SECTION 10. Organization and Registration af Non-stock, Non-Profit Microfinance 
3 
Institutions. - A non-stock non-profit corporation and/or non-government organization, in 
4 
accordance with the provisions of the Corporation Code of the Philippines and this Act, may 
5 
operate as a microfinance institution. 
6 
SECTION 11. Rights and Responsibilities of Microfinance NGOs. - Microfinance NGOs 
7 
shall have the following rights and responsibilities: 
8 
9 
a. Engage in direct lending to microfinance borrowers up to a ceiling specified by the 
10 
Council, at anyone time, or such other amount as it may deem necessary or 
11 
appropriate; 
12 
b. Microfinance institutions organized as non-stock non-profit corporations may accept 
13 
compulsory savings and/or voluntary savings, or capital build-up only from its 
14 
members for purposes of maintaining a Compensating Balance in relation to the 
15 
same member's loan. For the aVOidance of doubt, acceptance of member savings to 
16 
this purpose shall not cause the microfinance NGO to be deemed engaged in 
17 
deposit-taking operations; 
18 
c. 
Charge reasonable interest and collect such necessary fees and charges incidental to 
19 
its microfinance operations; 
20 
d. Borrow money or incur such obligations for the purpose of relending to microfinance 
21 
borrowers, subject to existing laws; Provided that a microfinance NGO may not be 
22 
deemed as engaged in quasi-banking activities if the proceeds of such borrowings 
23 
are used for relending to microfinance borrowers; 
24 
e. Accept donations or grants or contributions in accordance with existing laws and 
25 
regulations; 
26 
27 
28 
29 
30 
31 
32 
f. 
Invest its funds in any sound, non-speculative enterprises and instruments, subject 
to such rules and regulations ofthe relevant regulator; 
g. Maintain a transparent and comprehensive management information system; 
h. Publication and disclosure of audited accounts at the end of every Financial Year; 
i. 
Regular submission of reports to the Council; 
j. 
Engage in such other microfinance-related activities, subject to such rules and 
regulations of the relevant regulator. 
33 
Nothing in this section shall be construed as precluding a microfinance institution from 
34 
performing such services or exercising such powers as may be granted by existing laws or as 
35 
may be incidental to its activities as a non-stock, non-profit corporation. 
36 
SECTION 12. Accreditation of Microfinance Institutions Registered as Non-Stock, Non-
37 
Profit Corporation. -
Microfinanc~ NGOs shall seek accreditation as a pre-requisite for engaging 
38 
in the practice of microfinance in the Philippines. 
39 
CHAPTER 4 


PERFORMANCE MANAGEMENT AND STANDARDS 
2 
SECTION 13. Financial Performance Management. - Non-stock, non-profit microfinance 
3 
institutions shall develop and implement systems, practices and controls for efficient, effective 
4 
and sustainable financial operations through prudent resource management, asset-liability 
5 
management, liquidity management, and financial information management. 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
SECTION 14. Social Performance Management. -
Non-stock, non-profit microfinance 
institutions must have an institutionalized process of translating social mission into practice 
which includes setting clear social goals, monitoring progress towards these objectives and 
using information to improve performance and practice. Social performance information must 
be integrated into the MFI's work, operational routines, and value system to affect decision-
making practices at both operational and strategic levels. 
, 
SECTION 1S. Financial Performonce Standards. - The Microfinance Regulatory Council 
shall establish a set of parameters for assessing the financial performance of non-stock, non-
profit microfinance institutions, such as, but not limited to, the following: portfolio quality, 
efficiency, sustainability, and outreach. 
SECTION 16. Social Performance Standords. -
Non-stock, non-profit microfinance 
institutions, at the minimum, shall define and monitor its social goals; ensure board, 
management, and employee commitment to social performance; treat clients responsibly; 
design products, services, delivery models, and channels that meets clients' needs and 
preferences; treat employees responsibly; and balance financial and social performance. 
CHAPTERS 
MICROFINANCE PROGRAMS, PRODUCTS, AND OTHER SERVICES 
SECTION 17. Minimum Core Programs and Services. -
Non-stock, non-profit 
microfinance institutions shall provide, any ofthe following programs, products, or services: 
a. microcredit and financial literacy programs; 
b. microcredit and capital build-up or microsavings 
SECTION 18. Other Programs and Services. -
The following are the other programs and 
services that MFls may undertake: 
a. Agricultural Microfinance; 
b. Housing Microfinance; 
c. 
Microinsurance; 
d. Mobile or any innovative channels; 
e. Money Transfer and other related remittance services; 
36 
f. 
Other innovative programs, products and services, whicn are not contrary to existing 
37 
law and/or regulations. 


CHAPTER 6 
2 
INCENTIVES 
3 
4 
SECTION 19. Access to Special Credit Window - Duly accredited MFls shall be given ready 
5 
access to special credit facilities sponsored by or made available through government financial 
6 
institutions at preferential rates. 
7 
SECTION 20. Technical Assistance - Non-stock, non-profit microfinance institutions are 
8 
entitled to access any form of technical ass'istance from the government, donors, and other 
9 
support 
organizations-in 
facilitating 
the 
linkage 
between 
the 
poor 
10 
households/microenterprises and microfinance institutions, community organizations and 
11 
capacity building of the target clientele; social preparation activities, and those that will lead to 
12 
the broadening and deepening of microfinance services such as: development of microfinance 
13 
products, training in microfinance technologies, and upgrading of performance standards, 
14 
operating systems and procedures. 
15 
SECTION 21. Tax Fairness for Duly Accredited Non-stock, Non-profit Microfinance 
16 
Institutions. - Transactions of non-stock, non-profit microfinance institutions, to the extent of 
17 
the practice of microfinance between its clients, shall be exempt from value added tax and 
18 
documentary stamp tax. Provided, That, the amount that would have been paid as taxes and 
19 
saved by the microfinance institution by virtue of its exemption to the aforementioned taxes 
20 
shall be used for furtherance of its operations and meeting its social objectives. 
21 
SECTION 22. Tax on Donations to Microfinance Institutions. - Donations to non-stock, 
22 
non-profit microfinance institutions shall be fully deductible from the gross income of the 
23 
donor, subject to the provisions of Section 34(C) and qualifications set forth in Section 101 of 
24 
Republic Act No. 8424, as amended, otherwise known as the "National Internal Revenue Code 
25 
of 1997." 
26 
CHAPTER 7 
27 
TRANSITORY PROVISIONS 
28 
29 
SECTION 23. Compliance Period. - Non-stock, non-profit microfinance institutions shall 
30 
comply with the provisions set hereto, within three (3) years from the effectivity of this Act. 
31 
32 
SECTION 24. Exemption from Liability for Unremitted Taxes. - The Bureau of Internal 
33 
Revenue, in consultation with the Council, shall issue a circular detailing the standards, 
34 
guidelines, rules, and regulations of a tax amnesty program for non-stock, non-profit 
35 
microfinance institutions with tax assessments duly issued, arising from microfinance loans and 
36 
other related programs and services extended. 
37 
38 
CHAPTERS 
39 
FINAL PROVISIONS 
40 
41 
SECTION 25. Implementing Rules and Regulations. - 'Within six months after the' 
42 
effectivity of this Act, the Council shall promulgate the rules and regulations for the 
43 
implementation of this Act. 
44 
45 
SECTION 26. Prohibitions. -
46 
a. No person, juridical or natural, shall engage in or hold itself out as engaged in 
47 
microfinance, or shall use as part of its name the term "microfinance" or any other 
48 
title or name, which tends to give the public impression that it is engaged in 


microfinance activities, unless it is an accredited entity and has secured authority for 
2 
that purpose in accordance with this Act. 
3 
b. The use of "microfinance" or any other name or title or combination of names and 
4 
titles or any other deviation from the requirements of this section shall not be made, 
5 
except upon prior authorization by the Council. 
6 
SECTION 27. Penal Provisions. -
7 
A fine of not less than Ten thousand pesos (Pl0,OOO.OO) and not more than Fifty thousand 
8 
pesos (PSO,OOO.OO) or imprisonment of not less than six months but not more than six years or 
9 
both, at the discretion of the court, shall be imposed upon: 
lOa. Any individual or individuals, or in case of an organization, its officers, directors, 
II 
trustees and managing officers, who shall knowingly and willingly: 
12 
1) Engage in any activity sought to be regulated under this Act without a validly 
13 
subsisting authority from the relevant regulatory authority; 
14 
2) Hold themselves out to be a microfinance institution, either through advertisement 
15 
in whatever form, whether in its stationery, commercial paper, or other document, 
16 
or through other representations without authority; 
17 
3) Make use of a trade or firm name containing the'weirds "microfinance" or "MFI" or 
18 
any other deSignation that would give the public the impression that it is engaged in 
19 
microfinance as defined in this Act without authority; 
20 
4) Knowingly and willingly make any statement in any application, report, or document 
21 
required to be filed under this Act, which statement is false or misleading with 
22 
respect to any material fact; 
23 
5) Engage in other acts inimical or adverse to the microfinance industry as may be 
24 
defined by the Council; and 
25 
6) Violate the provisions of this Act. 
26 
b. Any officer, employee or examiner of the Council directly charged with the 
27 
implementation of this Act or of other government agencies, who shall commit, 
28 
connive, aid, or assist in the commission of acts enumerated under Subsection 1 of 
29 
this Section. 
30 
SECTION 28. Repealing Clause. - All laws, issuances, rules and regulations inconsistent with 
31 
any provision of this Act shall be deemed amended, modified, or repealed accordingly. 
, 
32 
SECTION 29. Separability Clause. -If, for any reason, a provision or part hereof is declared 
33 
invalid or unconstitutional, the other provisions not affected thereby shall remain in full force 
34 
and effect. 
35 
SECTION 30. Effectivity. - This Act shall take effect fifteen (15) days after its publication in 
36 
any newspaper of general circulation.