The World Bank approved on Friday a $400-million (around P19.5-billion) loan to support reforms that will assist the Philippine government in achieving a resilient financial sector and help ensure a more inclusive recovery from the COVID-19 pandemic.
The Philippines First Financial Sector Reform Development Policy Financing loan is the first of two programs supporting three reform areas, including strengthening financial sector stability, integrity, and resilience; expanding financial inclusion for individuals and firms, and promoting disaster risk finance that protects national budgets and businesses as well as the lives and livelihoods of families from the impacts of disasters.
Ndiame Diop, World Bank country director for Brunei, Malaysia, the Philippines, and Thailand said in a statement the multilateral lender welcomed the country’s commitment to these reforms, stressing that the pandemic’s impact on the economy has highlighted the importance of a strong and inclusive financial sector to support economic recovery.
“The health crisis, the economic impact of containment measures, and the global slowdown have increased the urgency for reforms, not only to ensure financial sector stability or financial inclusion, but also to support economic recovery and minimize the impact of future shocks particularly on poor and vulnerable segments of the population,” said Diop.
“In addition to providing timely financial resources to support government financing needs, the financial sector reforms supported under this loan will help meet the immediate needs of individuals and micro, small and medium enterprises under strain,” Diop said.
This new lending is a development policy loan (DPL) which provides quick-disbursing assistance to countries undertaking reforms. DPLs typically support policy and institutional changes needed to create an environment conducive to sustained and equitable growth as defined by borrower-countries’ own development agenda.
Among the policy reforms supported by the DPL to enhance the stability, integrity, and resilience of the financial sector are measures addressing legal, regulatory, and supervisory issues to improve prudential supervision of banks by the Bangko Sentral ng Pilipinas; bringing insurance legislation in the Philippines in line with global standards; and ensuring long-term availability of credit to small and medium enterprises.
To expand access to finance by individuals and firms, the DPL supports reforms to promote innovative financial services by harnessing digital technologies to expand the reach of the financial sector to underserved segments of the population; and increase the reliability of credit information to support access to finance of small and medium enterprises.
“Expanding financial inclusion through digital transformation will help individuals and firms increase access to essential financial services in economic recovery,” said Diop.
“The use of financial technology to improve access to finance by small and medium enterprises will help address urgent liquidity problems, thus limiting closures and bankruptcies and preventing widespread layoffs,” Diop said.
To catalyze disaster risk and green finance, this DPL series supports the efforts of the government and the private sector in establishing public-private partnership-based risk pooling mechanisms for catastrophe insurance to provide inclusive access to catastrophe risk insurance to businesses to adapt to climate-induced disasters.
It also supports financial sector resilience to climate-related shocks by integrating climate and environmental risks in financial institutions’ risk management frameworks and mobilizing finance for environment-friendly projects.