RA 10693 AN ACT STRENGTHENING NONGOVERNMENT ORGANIZATIONS (NGOs) ENGAGED IN

MICROFINANCE OPERATIONS FOR THE POOR (“Microfinance NGOs Act”.)

There are approximately 6,183 microfinance institutions in the Philippines

The microfinance industry in the Philippines has grown into a PhP406 billion industry in terms of loan
portfolio as of March 2022

There are 18.2 million recorded microfinance clients in the banking system, Microfinance NGO and
cooperative sectors

With this large chunk in our economy,

On 03 November 2015, Republic Act No. 10693 otherwise known as “An Act Strengthening
Nongovernment Organizations (NGOs) Engaged in Microfinance Operations for the Poor” was approved
by the President

The law was enacted by virtue of the policy of the State to pursue a program of poverty eradication
wherein poor Filipino families shall be encouraged to undertake entrepreneurial activities to meet their
minimum basic needs

The law shall apply to ALL NGOs with the primary purpose of implementing a microenterprise
development strategy and providing microfinance programs, products and services for the poor. These
shall be referred to as “Microfinance NGOs”

Microfinance – the viable and sustainable provision of a broad range of financial services to poor and
low-income individuals engaged in livelihood and microenterprise activities. It uses nontraditional and
innovative methodologies and approaches, namely: 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;

Microfinance loans – small loans granted to the basic sectors, as defined in Republic Act No. 8425,
otherwise known as the “Social Reform and Poverty Alleviation Act”, and other loans; as defined by the
government as to their amount, scope, and coverage that are granted to the poor and low-income
individuals 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;

Microfinance NGO – a nonstock, nonprofit organization duly registered with the Securities and Exchange
Commission (SEC), with the primary purpose of implementing a microenterprise development strategy
and providing microfinance programs, products, and services, such as microcredit and microsavings, for
the poor and low-income clients
Typical microfinance clients are low-income persons that do not have access to formal financial
institutions. Microfinance clients are typically self-employed, often household-based entrepreneurs.

In rural areas, they are usually small farmers and fisher folk, as well as others who are engaged in small
income-generating activities such as food processing and petty trade. In urban areas, microfinance
activities are more diverse and include shopkeepers, service providers, artisans, street vendors, and
others.

Basic Features and Purposes of a Microfinance NGOs (Sec. 6)

a. Provide the poor direct access to reasonable and affordable credit and related programs and
services
b. Provide business development opportunities such as leadership training and entrepreneurial
skills enhancement
c. Provide human development services to help the poor achieve a level of sustainability and
empowerment, and adopts measures to promote a spirit of generosity and selfless giving among
individuals and institutions that shall help support programs directly involved in poverty
eradication.
d. Collect compulsory savings or capital build-up (CBU) only from their clients for purposes of
maintaining the compensating balance in relation to the same client’s loan. Acceptance of client
savings shall not be deemed as deposit-taking.
e. Are prohibited from directly engaging in the insurance business. However, they may establish
partnerships with authorized microinsurance agents and/or entities in the furtherance of their
social protection objectives.
f. Charge reasonable interest and collect such necessary fees and charges incidental to their
microfinance operations.
g. Borrow money or incur such obligations for the purpose of relending to microfinance borrowers.
An MF-NGO shall not be deemed as engaged in quasi-banking activities if the proceeds of the
borrowings are exclusively used for relending to microfinance borrowers.
h. The following are the other programs and services that MF-NGOs may undertake, subject to
existing laws and regulations:
i.
j. 1. Agricultural microfinance; - Many MFIs offer agricultural loans to farmers, helping them buy
farm inputs and augment their income with other sources of livelihood like sari-sari stores,
animal-raising, agro-processing, and other micro-enterprises
k. 2. Housing microfinance; - Considered to be one of the fastest-growing economies in South East
Asia, the Philippines has shown an average annual GDP growth of 6.3 percent1 since 2010.
However, there is also an immense housing shortage, with millions of homes needing to cope
with a growing population that lives in extreme poverty. The current housing backlog stands at
3.9 million households and is expected to reach 6.5 million households by 2030 . Safe, secure,
and adequate housing is one of the basic needs and sets up a strong foundation for families’
overall health and well-being
l. 3. Microinsurance, in partnership with authorized microinsurance companies, agents and/or
entities; - Microinsurance products, specifically designed with the poor in mind, will help
mitigate risks and reduce the vulnerability of poor households. The most prominent forms of
microinsurance are life insurance and health insurance (carried out as part of an overall health
 care package that links the health insurance to a health facility), which have been designed to be
responsive to the need of poor households.
m. 4. Electronic payment system such as mobile or any innovative digital platforms or channels;
n. 5. Money transfer and other related remittance services, in partnership with authorized agents
and/or entities;
o. 6. Provide development opportunities such as leadership training and entrepreneurial skills
enhancement; and
p. 7. Other relevant and/or innovative programs, products and services that address social welfare
purposes and which are not contrary to existing laws and regulations. This may include, but not
limited to, programs involving health, education, Disaster Risk Reduction and Management
(DRRM), and Persons with Disabilities (PWD) assistance.

Access to Government Programs and Projects (Sec. 18)

Duly accredited MF-NGOs shall be given ready access to related programs and projects of the
government

Technical Assistance (Sec. 19)

Duly accredited MF-NGOs are entitled to access any form of technical assistance from the government,
donors and other support organizations in facilitating the linkage between the poor
households/microenterprises and microfinance institutions, community organizations, and capacity
building of the target clientele; social preparation activities, and those that will lead to the broadening
and deepening of microfinance services such as development of microfinance products, training in
microfinance technologies, and upgrading of performance standards, operating systems and procedures.

Taxation of MF-NGOs (Sec. 20)

A duly registered and accredited Microfinance NGO shall pay a two percent (2%) tax based on its gross
receipts from microfinance operations in lieu of all national taxes: Provided, That the preferential tax
treatment shall be accorded only to NGOs whose primary purpose is microfinance and only on their
microfinance operations catering to the poor and low-income individuals in alignment with the main
goal of this Act to alleviate poverty. The nonmicrofinance activities of Microfinance NGOs shall be
subject to all applicable regular taxes.

Microfinance products

Financial products of microfinance used to be limited to savings and credit. Several financial services
have sprung up in the past decade to address the other financial services needs of microfinance clients
like insurance, remittance and even housing services.

Loans that are up to PhP150,000 used for consumption or productive purposes are classified as
microfinance loans as stated in government’s Social Reform Agenda or Republic Act 8425 of 1997. The
same amount is set as the maximum capitalization for microenterprises.

For microhousing loans, the Bangko Sentral ng Pilipinas (BSP) set the ceiling to PhP300,000 although the
Housing and Land Use Regulatory Board (HLURB) classifies socialized housing at PhP450,000.
With the enactment of this law it enables microfinance NGOs to serve well our poor constituents thru its
products and services duly designed for their needs. It is important that we should give valuable support
to our microentreprenuers as they comprise almost 99% of the Philippine economy.