By Bianca Cuaresma
Second of three parts
While the banking sector continues to display formidable resiliency in managing risks amid the external headwinds, a significant number of municipalities in the country remain out of reach. A good number of Filipinos remain reluctant to own a bank account.
According to data from the National Baseline Survey on Financial Inclusion (NBSFI) provided by the Bangko Sentral ng Pilipinas (BSP), 7 out of 10 Filipinos who have savings opt to keep their cash at home, instead of entrusting the money to the banks. The data parallel that of the World Bank’s latest review on global financial inclusion, saying that only 31 percent of all adults in the Philippines own a bank account, and pale in comparison with peer countries in the region.
Likewise, in terms of geographical reach, more than a third of the country still does not have a banking presence.
The data from the central bank show that 595 municipalities still have no banking presence as of 2014. While this was an improvement from the 611 unbanked municipalities in 2012, this still represented a large proportion of the country’s total 1,490 municipalities.
Central bank Governor Amando M. Tetangco Jr. acknowledged that, no matter the relative success in establishing consumer access to the various financial services in most parts of the country, the BSP recognizes that the unbanked areas in the country remain “significant”.
In separate studies, the International Monetary Fund (IMF) and the Asian Development Bank (ADB) said one of the barriers to a more extensive geographical reach by banks is the archipelagic nature of the country.
Also, as the central bank looks for solutions to the problem of the unbanked in the country, the NBSFI identified eight major reasons behind the Filipinos’ reluctance to open a bank account.
The most basic was the lack of money to open a bank account. Other reasons cited include the lack of a need for a bank account; limited knowledge in opening and managing an account; the mentality that it is “expensive” to have an account; the minimum balance is too high; the bank is too far away; the lack of an identification card; the interest rate on deposits is too low; and a general lack of trust in the banks.
As a result, the BSP pounced on these responses to combat the relatively low banking-penetration rate in the Philippines.
“The top three reasons [lack of money, lack of need and limited knowledge] can be addressed with greater awareness through financial education, capacity building and personal finance management,” Tetangco told the BusinessMirror.
“The BSP, through a comprehensive Economic and Financial Learning Program [EFLP], is trying to address this,” he added.
However, Tetangco said, financial education should be a “collective responsibility” and a shared accountability among the BSP and other players, the financial institutions and the financial consumers.
“The next two reasons [it is expensive to have an account, minimum balance is too high] can be addressed by product suitability,” Tetangco said.
The central bank’s solution to this was the establishment of microfinance programs in the country, essentially financial services served by institutions to low-income individuals.
“Microfinance has proven that an appropriately designed product that is aligned with needs and capacities of the low-income sector can be provided in a sustainable and viable manner. Our regulations allow for innovative products that are tailor-fitted to the requirements of small clients,” Tetangco said.
“An example is a microdeposit account, which can be maintained even with less than P100 maintaining balance and has no dormancy charges. As of end-year 2014, there were over 2 million microdeposit accounts amounting to almost P4 billion,” the central bank governor said.
However, in a paper on financial inclusion, the ADB noted that, while the Philippine microfinance sector is rated as one of the best in the world, there remains a large unmet demand for microfinance services in the country.
In particular, the ADB noted that in 2005, almost two-thirds of poor families (or 17 million) cannot access microfinance services, no matter that 4.1 million are engaged in microenterprise activities for their livelihood.
Meanwhile, the BSP looks to address the problem of the banks’ being too far away from clients, as recorded in the NBSFI, is establishment of alternatives to banking.
As the central bank cannot mandate banks to put up branches in certain areas and can only encourage them through regulatory incentives, the BSP looks at microbanking offices and the introduction of electronic financial services as alternative tools to reach the unbanked.
“Our regulations on expanding physical reach through microbanking offices [MBOs] and extending virtual reach through e-money and mobile-banking address the issue of distance to access points. As of end-year 2014, there are 517 operating MBOs serving 334 municipalities. Sixty-four municipalities do not have regular bank branches but have MBOs. There are 31 e-money issuers and a wide agent network of 13,435 active cash-in and cash-out outlets. In 2014 there were 273 million transactions in e-money,” Tetangco said.
Asked on the efficiency of such alternatives to traditional banking services in delivering the needed financial access of citizens, Tetangco said that these alternatives—particularly the use of electronic money services (e-money)—is a “very potent” solution that “should be supported and promoted.”
E-money is a monetary value digitally stored in a designated electronic account that may be remotely accessed through an instrument or device.
“The e-money platform can be used to pay bills, make purchases and send or receive money in a safe way, just like traditional payment and remittance services, but perhaps in a more convenient and cost-effective manner. For instance, a businessman can save time, money and effort in going to his bank by just using his mobile phone to pay his loan amortization or deposit money to his account. It is also cheaper to transfer funds via e-money—for example, it only costs at most P10 for every P1,000 money sent. Compare this to more than P50 for every P1,000, which is the [average] rate for most pawnshops and remittance agents,” Tetangco said.
The central bank governor also said transactional accounts, like e-money accounts, are an “enabler” and an “important first step” to access other financial services, such as savings, credit and insurance.
While Tetangco said banks still offer a wider range of products which are prudentially regulated, such as the benefits of interest-bearing desposits and the safety of deposit insurance, banks can use the e-money ecosystem in their operations, either by creating linkages with e-money service providers like telecommunications, or becoming
e-money issuers directly or through outsourcing arrangements.
“These options present an enormous opportunity for banks to create their own local agent network in partnership with merchant customers as extended touchpoints, thereby expanding their virtual reach to unbanked communities,” Tetangco said.
IMF Resident Representative to the Philippines Shanaka Jayanath Peiris backed up the central bank, saying that putting up alternatives has “considerable” impact on the country, most particularly the unbanked.
“In a ‘first best’ world, all residents would have access to both banking services and payment services. But given this is not always possible, ensuring that those without banking services at least have access to payment services becomes important [even though payment services cannot substitute for access to full-banking services, such as the provision of long-term credit]. This is why the BSP [and others] have directed considerable effort toward expanding the avenues for residents to send and receive funds in a safe and timely manner,” Peiris told the BusinessMirror.
The BSP also said the other concern on the lack of identification documents for opening bank accounts is also actively being addressed.
“Concerns about lack of ID and other documentary requirements are being addressed by our liberalized antimoney laundering [AML] regulations, allowing for reduced due diligence for customers carrying low AML risks, such as clients of microfinance with small-value transactions,” Tetangco said.
“Proof of identification will not be a problem, because there is an expanded list of acceptable IDs and financial institutions are only required to obtain at least one valid photo-bearing ID from the client,” he added.
As a result, despite the lag in the banking penetration in the country, the government, international organizations and local banks remain optimistic that the BSP will continue to find regulatory solutions promoting greater financial access in the country.
“High banking penetration, if we assume this to be the percentage of areas reached by banks, contributes to greater financial inclusion. But two things should be noted: First, while high banking penetration is important, we should also recognize the role of nonbank financial- service providers, such as pawnshops, cooperatives, microfinance, nongovermental organizations, etc., in increasing access to financial services. Second, financial access is not enough; financial inclusion encompasses other dimensions, such as usage, quality and welfare,” Tetangco said.
Add to that, the governor said, this means that, aside from physical access to financial products and services, these products and services must be appropriately designed, of good quality, and relevant to lead to actual usage that can benefit the person accessing the cited products and services.
“For a country like the Philippines where GDP [gross domestic product] continues to grow and yet the majority of the population are still outside the economic and social mainstream, financial inclusion is one of the tools to ensure that economic growth will be inclusive,” Tetangco said.
To be continued
