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Tuesday, February 27, 2024

BSP works to boost financial inclusion

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Financial inclusion—where most of the population have access to financial products and services—is now more attainable, boosted by the Duterte administration’s bid to connect Philippine islands.

Bangko Sentral ng Pilipinas Deputy Governor Nestor Espenilla Jr. believes that the focus of the new government on ramping up infrastructure and social development in underdeveloped areas was very positive for promoting financial inclusion and equitable economic growth.

“This approach is conducive to and is at the same time complemented by greater financial inclusion,” Espenilla told the Manila Standard.

“Rapid improvement of power supply and the digital infrastructure that makes telecommunications and broadband available everywhere and more reliable will be a particularly big help to financial inclusion by enabling affordable digital financial services,” Espenilla said.

The Bank for International Settlements and Bangko Sentral ng Pilipinas jointly hosted the Research Conference on Financial Inclusion and Central Banks in Mactan, Cebu in June this year. The high-level conference brought together senior central bankers, leading academics and other experts to discuss key policy issues on financial inclusion. 

Espenilla said that another important initiative of the government was the establishment of a centralized electronic ID registry system. 

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This initiative, he said, would greatly “simplify KYC” or know-your-customer processes of banks and other financial institutions, thereby allowing more people to enter the financial system.

The lack of infrastructure, aside from peace and order situation, is one of the reasons  mentioned by investors, banks and other financial institutions why they hesitate to expand to far-flung islands, particularly those in the southern Philippines.

Financial inclusion is defined as a state wherein there is effective access to a wide range of financial products and services. It is considered a multi-dimensional objective that can be achieved through combined effort of a broad range of stakeholders.

In the Philippines, it is an objective aligned with the Philippine Development Plan of the previous administration, which envisioned a regionally-responsive, development-oriented and inclusive financial system that provides for the evolving needs of a diverse Filipino public.

Golden age

Budget Secretary Benjamin Diokno said earlier that infrastructure projects under the Duterte administration would be built simultaneously nationwide and not sequentially as practiced.

He said the Philippine economy was deficient in all types of infrastructure—roads and bridges, ports and airports, railways and urban transit systems, irrigation systems and water systems.

To address this, Diokno said the Duterte administration would hike infrastructure spending from a low of 5 percent to a high of 7 percent of gross domestic product.  He claimed that the next six years would be the golden age of Philippine construction, both public and private.

The Duterte administration plans to increase annual infrastructure spending to P1 trillion beginning 2017 to spread development to other parts of the country. The plan is to raise infrastructure spending to as much as 6 percent of GDP.

Diokno said that while agriculture would be the main priority in the 2017 budget proposal, infrastructure spending would account for the largest part at a range of P800 billion to P1 trillion. 

Data from the Budget Department showed that as of the third quarter of 2015, the government spent only P243 billion in infrastructure or 2.55 percent of GDP, below the 2015 target of 4.47 percent of GDP. The Aquino administration set an infrastructure spending target of P595.7 billion in 2015.

Economic Planning Secretary Ernesto Pernia earlier cited the need to spread development outside Metro Manila.  He said about two-thirds of GDP was currently concentrated in the National Capital Region. 

National strategy

Queen Maxima of the Netherlands, the United Nations Secretary General’s Advocate for Inclusive Finance for Development, said during her recent visit to Manila that the National Strategy for Financial Inclusion spearheaded by Bangko Sentral ng Pilipinas was a vital first step to reducing poverty and creating employment.

She said financial inclusion also meant integrating everyone into the formal economy. The queen cited the Philippines’ efforts in financial inclusion, which was recognized worldwide as the best model of best practices for financial inclusion.

Despite the country’s efforts on financial inclusion, the queen said much needed to be done to improve the current condition.  She said launching the National Strategy for Financial Inclusion was the first vital step.

Based on data from the National Baseline Survey on Financial Inclusion conducted last year by Bangko Sentral, only 43.2 percent of Filipino adults had savings while 32.3 percent used to save in the past and the remaining 24.5 percent never saved.

Of those with savings, 68.3 percent kept their savings at home, 32.7 percent saved in banks, 7.5 percent in cooperatives, and 2.6 percent in group savings or ‘paluwagan.’ 

Meanwhile, 65 percent cited the lack of money as the main reason for not having a bank account.

The survey also showed that Filipino adults were most aware of banks (98.3 percent), pawnshops (95.7 percent) and automated teller machines (93.5 percent). However, there is low awareness of other access points such as microfinance NGOs (30.5 percent), e-money agents (25.6 percent), and non-stock savings and loans associations (13.6 percent).

Thought leader

The Philippines is considered a thought leader in financial inclusion specifically in light of its early initiatives and gains in microfinance and more recently in mobile financial services.

In 2014, the Philippines ranked first in Asia and third in the world in terms of having a conducive environment for financial inclusion, according to the Economist Intelligence Unit’s maiden survey on financial inclusion environments.

The Philippines posted the biggest improvement in overall score in digital and financial inclusion in 2016, according to a report of Brookings Institution, one of the world’s oldest think tanks.

Brookings recently released the 2016 Financial and Digital Inclusion Project Report: Advancing Equitable Financial Ecosystems.

The report said the Philippines increased its overall score by eight percentage points from its score in the 2015 report.

The report said “this upsurge was attributed to the launch of the Philippine National Strategy for Financial Inclusion; strong performance in terms of mobile capacity, as measured through smartphone penetration; and highest rate of adoption of mobile money accounts among the South East Asian countries included in the Report.”

In 2016, Brookings increased its sample to 26 geographically, economically and politically diverse countries, from just 21 in 2015. These countries were assessed using varied criteria classified under four general dimensions, such as country commitment, regulatory capacity, mobile capacity and adoption of traditional and digital financial services.

Brookings also expanded the scoring criteria to include existence of a consumer protection framework for financial services (under country commitment), smartphone adoption and availability of merchant payments via mobile money (under mobile capacity) and frequency of account usage (under adoption).

The Philippines garnered the highest scores in country commitment (100) and regulatory environment (100).  It also achieved a high score in mobile capacity (94) and a more modest one in adoption (42). All these scores represented positive improvement from 2015 levels.

The 2016 report also cited the work of Bangko Sentral  in leading the implementation of the Philippine National Strategy for Financial Inclusion and advancing the formalization of the high-level inter-agency Financial Inclusion Steering Committee.

Leadership role

Bangko Sentral was also recognized for its past leadership role in the Alliance for Financial Inclusion, an international organization of policymakers pursuing financial inclusion; its commitment to the AFI Maya Declaration, a set of objectives aimed to deepen financial inclusion in the Philippines; and its support to the Better than Cash Alliance, a multi-sectoral international coalition working to shift global use of physical cash to digital transactions.

Bangko Sentral was cited as a front-runner among central banks in establishing a dedicated financial inclusion unit; for its work on financial inclusion data and reporting; and for the issuance of enabling and proportionate regulations.

However, the Philippines scored low in consumers’ adoption and usage of digital financial services, both in the 2015 and 2016 reports.

Recommendations

To further expand digital and financial inclusion in all countries including the Philippines, Brookings recommended the setting of quantifiable financial inclusion targets to measure the success of initiatives; and data collection focused on barriers to mobile ownership, connectivity, and SMS/data usage to better inform the development of inclusive mobile ecosystems, and consequently the provision of digital financial services.

Brookings also suggested greater coordination between financial and telecommunications regulators and industry players to address uncertainties in the regulatory environment.

It cited the need to scale up the provision of financial services to target markets and facilitate the development of digital identification mechanisms crucial for on-boarding of marginalized markets into the formal financial system. 

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