‘BUILDING Inclusive Economies, Building a Better World” is the theme of this week’s Asia-Pacific Economic Cooperation (Apec) Economic Leaders’ Meeting. Although not as widely publicized as Apec, another significant event is actually set to happen next week, as the Bangko Sentral ng Pilipinas (BSP) will be hosting the 51st Southeast Asian Central Banks (Seacen) Governors’ Conference.
Apec was established so that there would be a forum to discuss ways to enhance the economic conditions of states. Figuring prominently on its agenda is investment creation, which is what the Philippines must accelerate to make its growth more inclusive.
As for next week’s high-level meeting of central bank governors, one of the main discussion points is how central banks in Southeast Asia can support the development strategies of member-countries. This is an interesting topic, for it acknowledges the inextricable link between financial markets and the real economy.
In an attempt to marry the Apec and Seacen events, this article discusses financial inclusion, particularly in the Philippine context. Financial inclusion refers to the ability of households and firms to access appropriate financial products or services. As textbook theory goes, financial markets exist to promote economic efficiency by channeling funds from people who do not have a productive use for them to those who do.
In its National Strategy for Financial Inclusion, the BSP recognizes recent empirical evidence indicating that access to basic financial products and services, such as savings, payments, credit and investments, makes a substantial positive difference in people’s lives.
Financial inclusion, therefore, carries the potential of improving the well-being of unserved and underserved markets, such as low-income and marginalized sectors, small businesses, overseas Filipino workers and their beneficiaries, agriculture and agrarian-reform sectors, the youth, women, indigenous peoples and persons with disabilities, among others.
Moreover, a growing body of literature suggests that greater financial inclusion contributes to financial stability and economic development, and is critical for achieving inclusive growth.
The BSP also notes that an inclusive financial market is not only pro-growth but also pro-poor. Such inclusivity builds the potential to reduce income inequality and poverty, as well as to promote social cohesion and shared economic development. Financial exclusion, on the other hand, leaves the disadvantaged and low-income segments of society with no choice other than informal options, which make them vulnerable to financial distress, debt and poverty. Comparative financial-inclusion data from the World Bank Global Findex database suggest that much work needs to be done in order for the Philippines to catch up with East Asia and the Pacific, although within the lower-middle income group, the Philippines appears to perform better in more categories.
Also, the SME Policy Index 2014 rates the Philippines lowest among the original Asean-5 in terms of access to finance. The index considers factors such as collateral and provisioning requirements, credit-guarantee schemes, credit bureau/registries, availability of risk capital and access to the stock market.
Responding to these challenges, the BSP has identified four key areas in its strategic framework: 1) policy, regulation and supervision; 2) financial education and consumer protection; 3) advocacy programs; and 4) data and measurement. The fourth area actually underpins the other three, since it has a cross-cutting role in evidence-based policy-making, as well as in program development, monitoring and evaluation.
Regarding advocacy programs, in particular, the Bank of the Philippine Islands (BPI) serves as a praiseworthy example of private- sector involvement. In fact, on April 29, the BPI Foundation and the Ateneo Center for Social Entrepreneurship formalized a partnership through a memoramdum of agreement signing held at the BPI Head Office.
The partnership brought to life a new initiative called BPI Sinag, a business challenge that aims to capacitate and accelerate entrepreneurs through cash prizes, mentorship and access to finance.
As reported in the news, over 150 social-enterprise business plans were submitted to the BPI Foundation, and 40 were chosen to go through a Social Entrepreneurship Boot Camp.
The best 10 went on to participate at the BPI Sinag Pitch Day held in Makati City on October 6. The grand winner in the competition received a credit line of up to P500,000 from BPI Family Ka-Negosyo, while credit lines of up to P200,000 were also given to four awardees.
Indeed, promoting inclusive growth through inclusive finance is not a task for the BSP alone. The private sector needs to be involved, and ordinary Filipinos, particularly those owning small businesses, should also do their homework.
As Dr. Cielito Habito wrote in his column last year, while it’s a common lament that banks do not lend enough to small businesses despite an abundance of loanable funds in the system, one cannot fault them when small firms that seek loans are unable to demonstrate a minimum of responsible business and financial management.
Targeted capacity-building would be a worthy service that the BSP and banks themselves could provide as a direct contribution to inclusive growth.
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This article was written by Ser Percival K. Peña-Reyes, lecturer on Macroeconomics at the Department of Economics, Ateneo de Manila University.