Through a micro-finance sector growth continuum, this paper shows that
there is definitely a future for wholesale lending which is not limited
to PCFC alone. Other wholesale lenders (of private origin) should also
be allowed to thrive, and to a certain extent, to thrive with
government support. This especially goes for wholesale lenders with an
outreach to destitute areas and sectors. The paper also discusses the
sustainability of PCFC over time citing that the best way to ensure
relevancy would be to privatize, taking into consideration the sector
growth continuum, the appropriate ownership structure, the risks
associated with it, and the necessary organizational transformations.

What is the People's Credit and Finance Corporation?

Created last February 22, 1995 by Memorandum Order No. 262, the
People's Credit and Finance Corporation (PCFC) became operational in
June 1996. It provides credit loans to accredited Non-Government
Organizations (NGO's), financial institutions (FI's), and people's
organizations (PO's) implementing credit assistance programs for
livelihood projects. It also provides credit for institution and
capability building activities and other expenditures related to the
lending program. Fully capitalized by the Land Bank of the Philippines
(LBP) for the purpose of poverty alleviation, it is an entity fully
supervised and controlled by the LBP. (Dingcong, 2000).

This process of lending to micro-finance institutions, which in turn
lends to individual borrowers, is called wholesale lending. The PCFC
was tasked to do this in order to replace some Directed Credit Programs
(DCP's), previously implemented by government line agencies, which
enforced direct government lending to individual borrowers. Since DCP's
had low outreach indices and were inefficient (Lamberte, 1997),
wholesale lending was viewed as a more rational, market-driven way of
implementing credit programs to the poor. Besides wholesale lending,
PCFC focused on improving the efficiency and outreach of micro-finance

From 1996 to 2001, PCFC has established 259 micro-finance conduits.
These conduits have served 71 out of 79 provinces nationwide. This
means 402,752 poor borrowers served in the last 4 years and P2.96
Billion loan releases using resources both from government (NLSF) and
foreign investors (ADB-IFAD, UNDP and CODESPA). At present, it has a
P1.3 Billion loan portfolio, a 98% collection rate and a 3.19% past due
rate. While this is an impressive show of fund utilization, portfolio
management and collection efficiency in just 4 to 5 years, this has not
translated into substantial outreach to the poor. The PCFC outreach as
of September 2001 of 402,752 is pitiful compared to the 5.2 million
poor families nationwide (NSCB Survey, 2000).

Another view is that this is phenomenal achievement by a single
institution in just 4 to 5 years, compared to the huge amount of fiscal
resources wasted by DCP's (Lamberte, 1997) for a much lower outreach.
This accomplishment is so phenomenal that if we were to assume the
existence of 6 other wholesale lenders like PCFC, we would reach 5
Million individuals (or more!) in just 10 years. This achievement is
testimony to the success of the policy towards wholesale lending and
the success of micro-finance institutions nationwide to help alleviate

Objectives of this Paper

The main objective of this paper is to address the fundamental question
of the future of wholesale lending, whether micro-finance institutions
will continue to need a wholesale lending facility in the future. To do
this, a micro-finance sector growth continuum (Annex 1) will be used in
order to assess the need and/or demand for wholesale lending in the
short, medium and long term. To supplement these discussions, this
writer will present a perspective on why there maybe a continuing need
for wholesale lending despite the eventual maturity of microfinance
institutions, and their integration into the larger financial sector.

A minor objective of this paper shall look into the modes of
privatization by presenting a spectrum of possibilities from 100
percent government owned and controlled to 100 percent private, as well
as their advantages and disadvantages. It would be ideal if we could
apply this spectrum into the specific circumstances of the PCFC, but
unfortunately, the data necessary to undertake this is currently
confidential. It however could be a subject for future research.

Finally, a practical objective of this paper would attempt to address
the question of how to gear the PCFC towards sustainability and
relevancy given the growth continuum of the micro-finance sector. This
will be done by building on an earlier section explaining why wholesale
lending maybe a continuing need, and ends with suggestions and options
on how the organization maybe geared in order to suit the needs of the

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