The Philippines maintained its leadership in microfinance as most countries ran into problems with the rapid expansion of the industry, the Economist Intelligence Unit (EIU) said.
The Philippines placed fourth out of 55 countries polled by the EIU’s “Global Microscope on the Microfinance Business Environment 2012 ” — a jump of two spots from its sixth-place finish last year.
The country also improved its score of 64.4 out of an index of 100, up 4.8 points.
Peru topped the EIU rankings for the fifth straight year, followed by Bolivia and Pakistan.
Kenya, El Salvador and Colombia — other mainstays in the top 10 like the Philippines — ranked fifth, sixth and seventh, respectively.
Cambodia, meanwhile, was the only newcomer in the top 10, rising five places to eighth from 13th. Mexico and Panama tied at ninth.
At the other end of the EIU rankings, Vietnam remained at the bottom rung because of the government’s monopoly of microfinance.
“The last few years have presented a series of challenges and learning opportunities for the microfinance sector. During the last few decades the microfinance industry experienced substantial growth, but eventually this resulted in market saturation, a rise of non-performing loans and multiple lending across a few key markets,” the EIU said in its report.
The global financial crisis also highlighted the need for risk management, corporate governance and regulatory capacity, it explained.
The EIU rankings were created in 2007 as microfinance began to emerge as one of the key strategies for growth in developing countries.
It surveys governments, industry associations and international organizations on three areas: regulatory framework, institutional framework and stability.
The Philippines — along with Peru — kept its hold on the top spot in terms of regulatory framework, which assesses the legal recognition of microfinance institutions, national regulatory and supervisory capacity and policies towards deposits and market distortions. It was the fourth time the country led the regulatory rankings.
It also placed 15th in terms of institutional framework, which covers financial reporting standards and transparency, credit bureaus, pricing, dispute resolution and policies for offering microfinance through new agents and channels. It was an improvement of two slots from last year’s 17th place.
The sub-category of stability, a new addition to the survey, put the Philippines at 22nd place. It analyzes to what extent political shocks have affected the microfinance sector and general country conditions.
Overall, the EIU cited the country for its business environment.
The Bangko Sentral ng Pilipinas doesn’t just regulate but promotes and enables microfinance, it noted.
Government financial institutions like People’s Credit and Finance Corp., Small Business Corp., Land Bank of the Philippines and Development Bank of the Philippines also provide wholesale funds for retail lenders. The private sector, for its part, is diverse, with “no one dominant institutional type.”
The EIU is the business information arm of The Economist Group, publisher of The Economistmagazine. The “Global Microscope on the Microfinance Business Environment 2012″ is its fourth annual analysis of the microfinance business in 55 countries.