MICROCAPITAL STORY: Ayala Corporation, Bank of the Philippine Islands (BPI), and Globe Telecom Announce a New Microfinance Bank in the Philippines

Ayala Corporation, the Philippines’ largest conglomerate, and two of its subsidiaries, inked a deal that will establish what it claims will be the Philippines’ first microfinance bank. Ayala Corporation, Bank of the Philippine Islands (BPI), the country’s largest bank by market capitalization, and Globe Telecom, the country’s second largest telecommunications company, will form a new company that will extend wholesale microfinance loans to microfinance institutions (MFIs) and use mobile technology to reach retail customers. The new company has authorized capital of P 500 million, approximately USD 10.2 million. The group will use BPI’s wholly-owned subsidiary, Pilipinas Savings Bank, as the vehicle for the venture. The closing of the deal is subject to approval by the Bankgko Sentral ng Pilipinas (BSP), the central bank of the Philippines, and other regulators. Ayala Corporation will retain a 20 percent stake and BPI and Globe Telecom will each retain a 40 percent stake.

In 2000, the Bangko Sentral ng Pilipinas was mandated by the General Banking Law to recognize microfinance as a legitimate banking activity and to begin regulating the sector. In the same year, the BSP declared microfinance as its flagship program for poverty alleviation. As of 2003, the CIA World Factbook reported that as much as 30 percent of the country’s population was living below the poverty line. According to the 2007 Year End Report on BSP Initiatives for Microfinance, since the 2000 mandate, BSP has made noteworthy steps in building up the sector by laying the regulatory groundwork, promoting the development of new MFIs, and helping to increase the use of technology to increase access and lower the costs associated with microfinance. BSP has outlined a three pronged approach that involves providing an enabling policy and regulatory environment, increasing the capacity of the BSP and banking sector on microfinance operations, and promoting and advocating for the development of sound and sustainable microfinance operations.

With their recent announcement, the Ayala Corporation claims that it will be the first microfinance bank in the Philippines. However, Mix Market tracks several financial institutions that are currently involved in microfinance in the Philippines. In addition, in 2007 BSP reported 229 banks and over 779,000 borrowers in the microfinance sector. In fact, the companies involved in the transaction are not new to microfinance. BPI has an ongoing wholesale lending program for microfinance institutions, while Globe Telecom provides several rural banks and microfinance institutions with its G-Cash technology, a cell phone SMS-based technology that is used for loan payments money transfers and loan collections.

Founded in 1834, Ayala Corporation (PSE: AC) was listed on the Philippines Stock Exchange in 1976. With a history of urban development, the company played a role in the construction of the Colgante and the Ayala Bridges. Today it holds a diverse portfolio of business. In addition to financial and telecommunications holdings, the conglomerate has investments in the automotive, electronics, information technology, water infrastructure development and management, and international operations.

By Iyanna Holmes, Research Assistant

Additional Resources:

Ayala Corporation

Bank of the Philippine Islands

Business Mirror: Ayala Corp., BPI, Globe Set Up RP’s First Microfinance Bank to Help Small Business

CIA World Factbook: Philippines

Globe Telecom

GMA News.tv: Ayala to Create Country’s First Mobile Microfinance Bank