Republic of the Philippines
Houser OF REPRESENTATIVES

Quezon City, Metro Manila

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Sixteenth Congress
First Regular Session

HOUSE BILL NO, 3364

Introduced by Honorable Pablo Roces Nava III

EXPLANATORY NOTE

One of the major socio-economic problems besetting the Philippine
economy is the pervasiveness of poverty. Recent economic growth did not
translate to an improved economic condition of the many who are poor.

In their attempt to improve their economic condition, a good number of
poor families are engaged, not by choice but out of necessity, in microenterprises.
A perennial problem of these microentrepreneurs is the lack of access to
financial, as well as, non-financial services.

This bill seeks to encourage the creation and accreditation of private non-
stock non-profit organizations to meet the credit, as well as, other demands of
said microentrepreneurs through a variety of innovative financial and non-
financial products and services. It also expects the government's assistance in the
giving of tax incentives, in the capacity building and in the appropriate
supervisory and regulatory framework to make markets more efficient and
practice in the microfinance industry more viable.

Hence, the approval of this bill is earnestly prayed for.



Republic of the Philippines

House OF REPRESENTATIVES
Quezon City, Metro Manila

Sixteenth Congress
First Regular Session

HOUSE BILL NO. 38364

Introduced by Honorable Pablo Roces Nava IIL

AN ACT

GOVERNING THE CREATION AND ACCREDITATION OF NON-
STOCK NON-PROFIT MICROFINANCE DEVELOPMENT
ORGANIZATIONS AND/OR CORPORATIONS, AND FOR OTHER
PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled.

Chapter 1
General Provisions

Section 1. Short Title. — This Act shall be known as the “Microfinance
Act of the Philippines.”

Section 2. Declaration of Policy. — It is declared policy of the State to
free the people from poverty through policies that provide adequate social
services, a rising standard of living, and an improved quality of life for all. It is
therefore important to recognize the indispensable role of the private sector,
especially those social and community enterprises which help the government
build economy from the grassroots through the development of entrepreneurship


and awareness and acceptance of the responsibilities of citizenship among the
poor.

In furtherance hereof, the government shall work in joint interest with
qualified organizations and corporations, providing them with incentives for their
encouragement to continue providing the poor the much needed microfinance
programs, products and services, in order to improve the poor’s economic
condition and quality of life.

Section 3. Basic Principles. — A microfinance development organization
or corporation covered by this Act shall conduct its operations in accordance with
the basic principles of microfinance, which include, but are not limited to the
following:

a. The poor shall be given access to appropriate financial services
that are convenient, flexible, and reasonably priced, including, but not
limited to credit, savings, and insurance:

b. Microfinance can and should be undertaken on a sustainable
basis, where providers shall be able to recover all of their costs to
allow sustainable operation and regular provision of financial services
to the poor;

c. It must aim to provide financial, social protection and
community development programs;

d. It shall abide by the Client Protection Principles, such as, but not
limited to, appropriate product design and delivery, prevention of over-
indebtedness, promotion of transparency, practice of responsible
pricing, fair and respectful treatment of clients, privacy of client data
and mechanisms for complaint resolution; and

e. Financial services, alone, is insufficient to achieve the goal of
serving increasing numbers of poor and excluded people sustainably,
thereby requiring that the microfinance sector develop financial and
social performance standards that will help define and govern the
industry toward greater outreach and sustainability,

Section 4. Coverage — This Act shall apply to non-stock non-profit
development organizations and corporations duly registered or licensed with


appropriate government agencies with regulatory power over them and duly
qualified and accredited as provided herein.

Section 5. Definition of Terms. — As used in this Act:

a. Acerediting entity refers to the Microfinance Regulatory Council
as organized and designated under Chapter 3 of this Act which may be
referred to herein as “MRC”;

b. Microfinance refers to the viable and sustainable provision of a
broad range of financial services exclusively for the poor 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 capital build-
up/minimum balance retention, and small denominated savers’
instruments aimed to improve their asset base and expand their access to
capital and savings.

c. Poor refers to individuals and families whose income fall below
the poverty threshold as defined by the National Economic and
Development Authority and/or cannot afford in a sustained manner to
provide their minimum basic needs of food, health, education, housing
and other essential amenities of life;

d. Compensating balance refers to the proportion of the total loan of
a microfinance institution client, which is retained with the microfinance
organization or corporation as capital build-up 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 (ie as a
barrower of his own savings rather than as a depositor who finances
other client’s borrowings/loans).

e. Microfinance Loans refer to small loans granted to the poor or
basic sectors, as defined in the Social Reform and Poverty Alleviation
Act of 1997 (Republic Act No. 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.

f. Microfinance Development Organization or Corporation refers to
a duly registered and accredited juridical entity covered by the
application of this Act which may be referred to herein as “MIDOC”;

g. Social Performance refers to the effective application of
MIDOC’s social mission or primary purpose; and

h. Net worth refers to the difference between total assets and total
liabilities of an organization or corporation required for the registration
as a MIDOC.

Chapter 2
The Microfinance Development Organization and Corporation

Section 1, Microfinance Development Organizations and Corporations
(MIDOCs) — They are hereby recognized as juridical entities or institutions
mandated to provide microfinance programs, products and/or services to the poor.
They shall be organized and operated as non-stock non-profit organizations and/or
corporations in accordance with Batas Pambansa Bilang 68 otherwise known as
“The Corporation Code of the Philippines.” These shall be governed by a Board of
‘Trustees whose members shall not receive compensation: Provided that no part of
the net income of MIDOCs inure to the benefit of the members, trustees, directors
or officers: Provided, further, that the administrative expenses shall in no case
exceed thirty percent (30%) of the total expenses within a taxable year and shall
conform with the rules and regularizations prescribed by the Department of
Finance (DOF) upon the recommendation of the Bureau of Internal Revenue
(BIR).

Section 2. Capital Requirements ~ A MIDOC shall have a net worth of at
least Ten Million (Php 10,000,000.00) Pesos, Philippine Currency, or in the case
of newly organized MIDOC, an initial net worth of at least Five Million (Php
5,000,000.00) Pesos, Philippine Currency.

Section 3. Powers and Functions of the MIDOC — The MIDOC shall
exercise such powers and functions and undertake such activities and operations
in accordance with the policies, programs and services provided in this Act.


The MIDOC may also engage in any and/or all poverty alleviation activities
or undertakings as allowed for non-stock non-profit organizations or corporations
under Batas Pambansa Bilang 68, otherwise known as “The Corporation Code of
the Philippines” and other relevant laws and issuances.

The accredited MIDOC shall not undertake deposit taking activities, engage
in insurance business and carry out fund management activities without the
necessary licenses and authority from the relevant regulatory agencies.

For the purpose of implementing this provision, deposit taking does not
include taking of funds from current or prospective borrowers for the purpose of
capital or equity build-up of an individual borrower’s loans. The MIDOC shall be
a net lender at all times and the client is considered a net borrower from MIDOC
rather than a net saver. The latter is considered a borrower of his own savings
rather than a depositor who finance other client’s borrowings or loans.

Chapter 3
The Microfinance Regulatory Council

Section 1. Creation and Composition of the Accrediting Entity — An
accrediting entity to be known as “Microfinance Regulatory Council” (MRC)
shall be created under the National Anti-Poverty Commission (NAPC) in order to
exercise the powers and perform the functions provided under this Act. It shall be
composed of the following:

a. The President of the National Anti-Poverty Commission (NAPC)
or designated representative;

b. The Secretary of the Department of Finance (DOF) or designated
representative;

c. The Secretary of the Department of Trade and Industry (DTI) or
designated representative;

d. The Governor of the Bangko Sentral Ng Pilipinas (BSP) or
designated representative:

e. The Chairperson of the Securities and Exchange Commission
(SEC) or designated representative;


f. The President of the Microfinance Council of the Philippines
(MFCP) or of duly registered or licensed network of MIDOCs or
designated representative; and

g. The President of APPEND Incorporated or of any duly registered
or licensed network of MIDOCs or designated representative.

The Microfinance Regulatory Council shall be assisted by a Secretariat in
the exercise of its powers and performance of its functions. Funding of its
operation shall be sourced from the two percent (2%) tax proceeds from MIDOCs
to be remitted to the People’s Development Trust Fund established under
subparagraph a) Section 10 of Republic Act No. 8425, otherwise known as the
“Social Reform and Poverty Alleviation Act.”

Section 2. Powers and functions of the Microfinance Regulatory Council
(MRC) — As the accrediting entity established pursuant to this Act, MRC shall
have the following powers and functions:

a. Institute and operationalize a system of accreditation for
MIDOCs;

b. Issue certificate of accreditation to a MIDOC applicant. Provided,
that the certificate of registration shall be valid only for such period as
may be prescribed under the implementing rules and regulations of this
Act;

c. Maintain a national registry of duly registered and accredited
MIDOCs;

d. Monitor the performance of MIDOCs to ensure compliance with
the provisions of this Act and its implementing rules and regulations;

e. Require regular submission of reports by MIDOCs;

f Place under probation any MIDOC, or suspend or revoke any
issued certificate of accreditation upon due determination that a MIDOC
violates this Act or its implementing rules and regulations, or no longer
meets the criteria for accreditation;


g. Collect reasonable accreditation and monitoring fees from
MIDOCs which shall be used for the MRC’s operational needs or
requirements;

h. Submit an annual report to the President of the Republic of the
Philippines and the concerned committees of the Senate and the House
of Representatives of Congress; and

i. Exercise such other powers and perform other functions as may be
necessary to accomplish the purposes and objectives of this Act.

Chapter 4
Performance Management and Standards

Section 1. Financial Performance Management. MIDOCs shall develop
and implement systems, practices and controls for efficient, effective and
sustainable financial operations through prudent resource management, asset-
liability management, liquidity management, and financial information
management.

Section 2. Social Performance Management. MIDOCs 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 MIDOC’s work, operational routines, and value
system to affect decision-making practices at both operational and strategic levels.

Section 3. Financial Performance Standards. —~ The Microfinance
Regulatory Council shall establish a set of parameters for assessing the financial
performance of MIDOCs, such as, but not limited to, the following: portfolio
quality, efficiency, sustainability, and outreach.

Section 4. Social Performance Standards. MIDOCs 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 meet clients’ needs and preferences;
treat employees responsibly; and balance financial and social performance.


Chapter 5
Microfinance Programs, Products, and Other Services

Section 1. Minimum Core Programs and Services. MIDOCS will provide
the following programs, products, or services:

a) Microcredit and financial literacy programs; and/or
b) Microcredit and capital build-up or microsavings

Section 2. Other Programs and Services. The following are the other
programs and services that MIDOCs may undertake:

a) Agricultural Microfinance;

b) Housing Microfinance:

c) Microinsurance:

d) Mobile or any innovative channels:

e) Money Transfer and other related remittance services; and

f) Other innovative programs, products and services, which are not
contrary to existing laws and/ or regulations.

Chapter 6
Taxation of MIDOCs

Section 1. The MIDOC shall pay two percent (2%) of the gross income in
lieu of all national and local taxes, fees, and charges which shall be remitted to the
National Government. The tax proceeds shall form part of the disbursable portion
of the People’s Development Trust Fund established under Republic Act No.
8425, The term “gross income” shall mean gross receipts less sales return,
allowances, discounts and other costs of services. The term “cost of service” shall
mean all direct cost and expenses necessarily incurred to provide the services
required by the customers and clients including salaries and employee benefits of
personnel, consultants and specialists directly rendering the service and cost of
facilities directly utilized in providing the service and cost of supplies. Interest
expenses on borrowing for lending services of a MIDOC shall be deductible from
gross receipts as part of cost of services in arriving at gross income. The term
gross income shall exclude donations;


Section 2. Donations to the MIDOC shall be fully deductible from the
gross income of the donor subject to the condition of Section 34 (c) of Republic
Act No. 8424, as amended, otherwise known as “ National Internal Revenue Code
of 1997”, Provided, however, that the accreditation of the MIDOC by the
accrediting entity under this act shall be sufficient;

Section 3. Donations to the MIDOC shall be exempt from donors’ tax
subject to the qualifications of Section 101 of Republic Act No. 8424, as
amended, otherwise known as “National Internal Revenue Code of 1997”
Provided, that for purpose of utilization, accreditation granted under this Act shall
be sufficient; and

Section 4. Any and all microfinance transactions of MIDOC with its
clients shall be exempt from value added tax and documentary stamp tax.

Chapter 7
Final Provisions

Section 1. Implementing Rules and Regulations. — The Microfinance
Regulatory Council shall formulate the Implementing Rules and Regulations
(IRR) of this Act within ninety (90) days after its effectivity. The IRR shall take
effect fifteen (15) days after its publication in a newspaper of general circulation
in the Philippines

Section 2. Separability Clause. ~ The provisions of this Act are hereby
declared to be separable. If any provision of this Act shall be unconstitutional, the
remainder of the Act not otherwise affected shall remain in full force and effect.

Section 3. Repealing Clause. — All laws, executive orders, rules and
regulations or parts thereof which are contrary to or inconsistent with this Act are
hereby repealed.

Section 4. ffectivity clause. — This Act shall take effect after fifteen (15)
days following the completion of the publication in the Official Gazette.

Approved.