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Competition in the Philippine microfinance market

By September 3, 2019 Microfinance

Competition is generally viewed as positive because this usually drives prices down which makes the customers win. The Philippine microfinance industry is considered to be near its mature stage. Competition is crowding out smaller players and is also considered as a barrier to entry. 

The estimated reach of the Philippine microfinance industry is approximately five million. With a poverty incidence of 25%, that gives approximately 5 million households that are below the poverty line. This matched the current estimate for microfinance reach which targets poor households which is an indication of market saturation.

MFIGross Loan Portfolio

(In Million USD)

# of BorrowersReporting Period
ASA Philippines119.881,073,5802015
CARD NGO104.1816,6202015
CARD Bank114.65666,5702015
PR Bank193.28134,9002015

Business generation follows overall market trends and may affect profitability and capitalization during times of intense competition. Competition is fierce in the Philippine microfinance industry. In any given barangay, there are about five to 19 microfinance institutions competing in the same market. 

Commercial banks are also gaining interest in the industry. Their strategy is to acquire existing microfinance institutions. Banco de Oro Unibank, the largest commercial bank in the Philippines acquired One Network Bank which has the largest branch network among rural banks. East West Bank also acquired Green Bank of Caraga. Rizal Commercial Banking Corporation has Rizal Microfinance Bank.

Closure of rural banks that operate microfinance units also pose a risk to the industry. In 2010, there were more than 700 microfinance institutions, as of June 2016 almost 200 rural banks were closed down. Financial institutions offering microfinance services may suffer a bad reputation due to these closures.

The table compares growth rates of the largest microfinance institutions worldwide gathered from Mix Market, an online platform that compiles data on institutions in the financial inclusion sector. 

The microfinance institutions chosen for the comparison are institutions either with more than 1 million clients, or the largest MFI player in the country. The countries chosen for the comparison are developing countries that have similar conditions to the Philippines and have microfinance operations. 

Five Years Growth Rate Comparison
CountryMicrofinance Institution20112015Growth Rate
CARD NGO633,259816,62022%
CARD Bank311,380666,57353%
Bharat Financial (SKS)4,256,7194,636,6698%
IndonesiaMBK Ventura270,458581,57553%
ColombiaBanco Caja Social625,546787,37821%
Banco Mundo Mujer0549,616100%
GuatemalaGenesis Empresarial157,46589,370-76%
Compartamos – GTM14,45175,97981%
EcuadorBanco Solidario135,587334,13559%
Pichincha Microfinanzas118,477305,36961%
Dominican RepublicBanco ADOPEM145,995217,99233%
Banco ADEMI120,709236,91449%
MexicoCompartamas Banco2,334,4402,861,72118%
UgandaBRAC UGA120,901194,72838%
Opportunity Uganda19,50428,54732%
Grooming Centre193,850510,22562%
KenyaKWFT MFB279,850222,790-26%
Faulu MFB82,32856,085-47%
Average Growth Rate29%

The number of active borrowers is used as an indicator of growth as outreach measures how many clients have been assisted with financial services. Furthermore, the number of borrowers is an effective tool to determine the MFI’s reach in line with it’s vision of financial inclusion.

As seen from the data below, the MFI with the highest growth rate is Banco Mundo Mujer from Colombia. The MFI with the lowest growth rate is Genesis Empresarial, with a negative growth rate. The average growth rate for all MFIs is 29%, making the giant microfinance institutions in the Philippines above average in performance. 

Since the 1980s, MFIs have proliferated all over the country. The industry has expanded from providing loans to rural poor to include urban poor clients. 

Moreover, MFIs have begun opening branches and increasing their operations to include hard-to-reach areas. This caused microfinance to be a widespread practice in the country. In 2011, the penetration rate of the microfinance industry in the Philippines is 45%. 

In 2015, it is estimated that the penetration rate could be as much as 80% due to the aggressive expansion of the top 10 microfinance institutions. The penetration rate is computed by dividing the current number of microfinance clients by the number of potential clients. 

Potential clients are those who live in the area and have their own microenterprises. This is usually counted by getting the number of households in the area and subtracting those who are in the middle-income bracket and higher. 

Only the number of households is counted because prudent MFI practices dictate that there should only be one member from each household to reduce the risk of over-indebtedness of the family. 


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