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    BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance

    January 16, 2022

    ​The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance. BSP also adopted the three-year Open Finance Roadmap 2021-2024 and signed a memorandum of understanding, or MoU, to collaborate with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), which is an Islamic finance standard-setting body, as part of its efforts to further promote Islamic banking in the Philippines. Apart from the collaboration with AAOIFI, BSP is also an associate member of the Islamic Financial Services Board, or IFSB, in the areas of banking, capital markets, and insurance.

    The following are the key highlights of these recent developments:

    • BSP announced that the Monetary Board has approved the imposition of ceilings on interest rates, penalties, and other fees and charges on small-value, short-term, general purpose, and unsecured loans extended by lending companies, financing companies, and their online lending platforms. The interest rate ceilings apply to unsecured, general-purpose loans that do not exceed PHP 10,000 and are payable within a period not exceeding four months. These small value, short-term consumer loans are the ones primarily taken out by low-income borrowers. In a forthcoming circular, the Monetary Board set a nominal interest rate ceiling of 6% per month (approximately 0.2 percent per day) for covered loans.
    • BSP formally launched the open finance framework, which aims to promote collaborative partnerships and digital transformation as key enablers toward economic resilience and financial inclusion. The members of the Open Finance Oversight Committee Transition Group (OFOC TG), participating financial institutions and third-party providers in the regulatory sandbox, and the international partners from the World Bank and the International Finance Corporation joined BSP in the launch. open finance is the extension of data-sharing principles, assigning greater control to customers over their own data, and enabling them to allow third-party providers access to their data across multiple financial products and services. In establishing a more defined program for the implementation of open finance in the country, BSP has adopted the three-year Open Finance Roadmap 2021-2024. The roadmap outlines priority actions that would require capacity building, development, and adoption of industry-accepted standards under a test-and-learn approach, and the implementation of a robust and scalable framework that is fundamental to establishing an open finance ecosystem.
    • With respect to the small and medium enterprise segment, the open finance framework is also seen to promote the financial inclusion of small businesses in the Philippines by supporting customer-centric development of innovative financial products or services. With the tailor-fit solutions that open finance brings, more SMEs can be onboarded into the formal financial system and provided access to digital financial services. 
    • BSP issued the Environmental and Social Risk Management (ESRM) Framework in line with its commitment to champion the sustainability agenda in the financial system. Under the ESRM framework, BSP expects banks to embed environmental and social risks into their operational risk management framework and their credit risk strategies, in addition all phases of the credit risk management system. This reform initiative is part of a series of regulations that will be released by BSP to promote sustainable finance. The ESRM Framework is expected to take effect in 2023, consistent with the effectivity of the Sustainable Finance Framework. Subsequent phases of regulations will cover the areas of investment activities of banks, climate stress testing, disclosure requirements, prudential reporting, and potential regulatory incentives.​
    • In another communication, BSP noted that it is looking at the possibility of extending regulatory incentives to banks that embrace sustainability principles in its efforts to mainstream sustainable finance and mobilize capital to address urgent global challenges. It is looking at the potential use of preferential rediscount rates or provision of higher loan values to enable banks to extend green loans or finance sustainable investments. The extension of regulatory incentives falls under the third phase of the Sustainable Finance Framework. The first phase was issued in April 2020 and second phase in October 2021. Under this framework, banks are expected to progressively increase their loan allocations for green or sustainable projects as part of their set strategic environmental and social objectives.


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    Keywords: Asia Pacific, Philippines, Banking, Sustainable Finance, Climate Change Risk, ESG, Disclosures, Stress Testing, Credit Risk, Operational Risk, Basel, Regtech, Open Finance, Open Banking, Islamic Banking, SMEs, Lending, Lending Marketplace, BSP

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