amando m tetangco, jr : microfinance – the bright spot in these challenging times speech by mr amando m tetangco, jr, governor of the central bank of the philippines ( bangko sentral ng pilipinas ), at the 2009 rbap - mabs national roundtable conference, manila, 12 may 2009. * * * mr. francis ganzon, chairman, rural bankers research and development foundation ; the officers and members of the rural bankers association of the philippines ( rbap ) ; our partners from the usaid led by christian hougen and john owens ; fellow advocates in the microfinance sector ; special guests, ladies and gentlemen, good afternoon. we at the bangko sentral ng pilipinas are happy that the the national roundtable conference of rbap – microenterprise access to banking services ( mabs ) has chosen for its theme “ microfinance : the bright spot in these challenging times ”. indeed, we believe that microfinance is an effective countercyclical tool for softening the negative effects of economic crises, particularly to the most vulnerable segment of the economy. former united nations secretary general kofi anan once said that microfinance recognizes that poor people are remarkable reservoirs of energy and knowledge ; that while the lack of access to financial services may be a sign of poverty, it is also an untapped opportunity to create markets, bring people in from the margins and give them the tools with which to help themselves. especially during challenging times, it is microfinance that can provide much - needed support for our entrepreneurial poor. but before i discuss microfinance, i will give a brief overview of our present operating environment and why we live in challenging times. the current global economic crisis is a source of worry. even countries that do not have strong financial links to the us, europe or the other markets that have been most affected are now seeing effects through real flows and financial losses on trade activities. as the global economy slows down, jobs are jeopardized and unemployment figures in the directly affected countries tend to rise. in fact, there are filipino workers here and overseas that have been laid off. we have learned that no economy is immune from the effects of the present global crisis, described as the most serious since the great depression. however, economies with sound economic fundamentals are likely to fare better than others. given the structural and market reforms we had painstakingly put in place

remained above national and international standards. and we did not see a freezing of credit markets similar to what was happening in the us and europe then. given all these indicators, one could say “ so far, so good ”. nevertheless, we are aware that risks remain. thus, in october 2008, at the height of the uncertainty surrounding this crisis, the bsp implemented preemptive measures to boost domestic liquidity. the following are among these measures : • enhancement of the bsp ’ s standing peso repo facility by expanding allowable collateral and relaxing valuation on these ; • creation of a us dollar repo facility to augment dollar liquidity in the foreign exchange market and ensure the ready availability of credit for imports and other legitimate funding requirements ; • increase in the budget for our peso rediscounting facility to p60 billion ; and • reduction in the regular reserve requirements on bank deposits and deposit substitutes by two percentage points. in addition, the bsp took the opportunity to reduce policy rates in the light of easing inflation expectations. during the last four policy meetings, the monetary board cut bsp ’ s policy rates by a total of 150 basis points. combined, the lower cost of money and increased liquidity should support continued economic growth. we will continue to monitor developments to ensure that our policy settings remain appropriate and balanced. nevertheless, while there has been monetary easing, the bsp remains unrelenting in its pursuit of reforms. we will continue to pursue greater efficiency, better risk management, stronger capitalization, improved disclosure and transparency practices, and enhanced corporate governance standards in the banking system. so far, the reforms we have implemented have allowed our banks to efficiently perform their central role of channeling funds to productive uses, as well as in managing and distributing risks. having a more efficient and liquid philippine banking sector has helped mitigate the risk of what is called the negative feedback loop from the global financial crisis. having said these, there is a critical question that we have to face : will the global financial crisis affect the world ’ s microfinance sector? microfinance scholars have grappled with the first question. unfortunately, the results from their initial studies remain inconclusive. one study by the united states agency for international development ( usaid ), published in march 2009 and entitled “ will the bottom of the pyramid hit bottom? ” 1 states that ( and i quote ) the crisis may ultimately lead to a squeeze in mfis ’ profitability.