In rising tide of financial inclusion, PHL seeks to lift all boats

TWO years ago, then central bank Governor Nestor A. Espenilla Jr. set out to put the country shoulder to shoulder with 14 nations in the world. It was a noble ambition.

The impetus came along with the release of the World Bank’s comprehensive database on global financial inclusion. The 2017 Global Findex database, a data set that is published every three years, showed that the Philippines has one of the weakest financial inclusion coverages in the region, as reflected by the low account-penetration in its adult population.

In particular, only 34 percent of the country’s adult population has a form of formal relationship with a bank or a financial institution. This pales in comparison with members of the Association of Southeast Asian Nations and five additional countries namely Australia, China, Japan, Korea and New Zealand; collectively known as the Asean+5.

In the Asean+5 bloc, Singapore had the highest account penetration with 98 percent of its adult population being included in their financial system. This is followed by Malaysia’s 85 percent, Thailand’s 82 percent and Indonesia’s 49 percent.

BSP initiative

SINCE then, the Bangko Sentral ng Pilipinas (BSP) has pushed financial inclusion as a priority agenda. Espenilla, then newly-minted BSP Governor, initiated a slew of reforms that would accelerate the current financial inclusion program of the government in place.

The BSP has also taken upon an agenda of expanding the account penetration of the country to 70 percent by 2023. Current BSP Governor Benjamin E. Diokno said this requires “openness to all possible transformative solutions and impactful innovations, such as digital technology, new business models and cross-sector collaboration.”

“It requires a concerted and holistic effort. It requires the participation of all key decision-makers and stakeholders, from the bank executives to the officers who go out in the field—including those in the expanding fintech [financial technology] industry,” Diokno said.

As such, financial inclusion in the country took a multi-faceted path.

Embracing digital

THE Covid-19 global health crisis has disrupted the norm and turned the world upside down. This includes the local financial system.

The pandemic, however, turned out to be a silver lining to the country’s financial inclusion journey. As people were prohibited to go out, financial consumers had to adjust. This pushed more Filipinos to embrace digital banking.

“The year 2020 gave rise to unique challenges and upheavals on a global scale as a result of the outbreak of the Covid-19 pandemic. Yet, 2020 also widened the path to accelerating financial inclusion. The pandemic gave new immediacy and put a much-deserved spotlight on the primacy of financial inclusion in the government’s crisis containment and recovery efforts,” the BSP said.

“The pandemic illustrated financial inclusion’s vital role in social welfare and protection, as the transaction account became a necessary means for the country’s poorest and most vulnerable to receive cash assistance from the government,” the central bank said. “With the imposition of lockdowns and physical distancing measures, consumers and businesses alike shifted to digital payments at an unprecedented speed and scale.”

Inclusion journey

ACCORDING to BSP Deputy Governor Chuchi G. Fonacier, “the upside of financial inclusion reform became more salient at the onset of the Covid-19 pandemic.”

Fonacier said in the Central Bank’s recently published book, “No One Is Left Behind, The Philippine Financial Inclusion Journey,” this is “when more people, forced to stay at home, relied on digital platforms for their financial transactions that kept them connected and empowered.”

The latest data from the BSP also showed that active electronic money wallet accounts grew 61.6 percent from end-2019 to end-2020.

“Account registration and usage have grown exponentially since the start of the pandemic due to limited mobility and safety concerns. Consumers, businesses, communities, and even the government simply turned to digital and cashless solutions,” PayMaya President Shailesh Baidwan told the BusinessMirror.

PayMaya, an electronic wallet financial technology firm in the country, also said that their registered users for our consumer platforms doubled year-on-year, reaching 35 million by end-March 2021.

MSMEs, e-money

ON the enterprise side, PayMaya’s unique merchants also rose by 3,000 percent for the same period and most of these are micro, small, and medium enterprises (MSMEs) that are trying to shift into the digital space due to the pandemic.

“At first, growth was driven by necessity. Traditional financial institutions had more limited operations. For many consumers, having an e-wallet like PayMaya was simply the fastest and easiest way to send money to loved ones and pay for everyday transactions. Going to a neighborhood remittance center like Smart Padala was the most convenient way to remit money as well as add and cash out funds,” Baidwan said.

“For businesses, going digital became necessary to survive and thrive. We saw a big leap to e-Commerce and the use of contactless payments for on-ground establishments. The government utilized digital payments to disburse financial assistance directly to citizens,” he added.

During the pandemic, BSP data showed that over four million new accounts were opened via digital platforms, along with new online sign-ups and app downloads for digital financial services.

“For our consumers, using the PayMaya e-wallet has become the fastest and most convenient means to become financially included. This is especially important this time given the public health situation because of Covid-19,” Baidwan said.

Access expansion

PAYMAYA’S user profiles showed that more than half of their users are now from outside Manila and the majority of them are unbanked and underserved.

As more Filipinos enter the financial system through non-bank financial institutions, the PayMaya president said they felt the need to expand to capture this opportunity.

“During the pandemic, it became even more necessary for us to scale up on our innovations as we improved our operations to provide better services,” Baidwan said.

“To fully promote financial inclusion, we know how critical it is to also extend our services to millions of unserved and underserved Filipinos who do not have access yet to the digital world,” he added.

Baidwan said the company transformed its “Smart Padala” by PayMaya’s agent network “so they could become the one-stop-shop for their communities—offering their customers digital services such as remittance, bank transfer, bills payment, add money, buy load, and many others.” He added the company now has over 39,000 partner agent touchpoints nationwide with presence in 92 percent of all cities and municipalities.

E-money providers do not require a minimum balance and provide additional value through discounts and other benefits. Agents such as groceries, pharmacies, other financial institutions like pawnshops or other outlets can be used to load e-money and cash out. This means not having to go far to deposit or withdraw cash.

Growing branches

ANOTHER influential factor in financial inclusion is the actual physical access of consumers to financial institutions.

In the Philippines, BSP data shows that bank density concentrated in highly urbanized, densely populated, relatively developed regions of the country: the National Capital Region (NCR) with 29.8 percent share, Calabarzon or Region IV-A with 14.6 percent share, and Central Luzon or Region III with 10.5 percent share.

“In the unbanked areas, or those regions with low bank density (less than 400 banks as median), the people are bereft of access to financial services and are ill-equipped to participate in economic development,” Fonacier said.

In the middle of the pandemic in 2020, despite higher provisions for upcoming bad loans, traditional banks are still able to expand their branches. In particular, bank branches increased by 2.9 percent in the second quarter of 2020 compared to the same quarter in 2019.

The largest increase was seen among universal and commercial banks, with 4.8 percent more branches during the period. This is followed by a 3.7 percent increase in rural and commercial bank branches. Thrift bank branches, however, went down by 2.4 percent during the period.

The expansion of bank branches in the country during the time pushed the number of municipalities without banking presence down in the second quarter of 2020.

Innovations, strategies

IN the second quarter of 2019, the number of municipalities in the country without banking presence stood at 526, or 32.2 percent of all municipalities in the Philippines. By the second quarter of 2020, this number went down to 509 or 31.2 percent of all municipalities in the country.

Also, in end-2017 BSP approved the rules on putting up branch-lite units anywhere in the country “to facilitate greater access to efficient and competitive financial products and services.”

The BSP defines a branch-lite unit as an office or place of business of a bank that performs limited or simpler banking activities. Since these units are limited in the services they are offering, they are also subject to a proportionate regulatory framework, which means less strict rules and more flexibility to execute financial strategies and innovations.

Banks used this regulatory provision to expand in 2020.

Data from the BSP showed that as of the second quarter of 2020, the number of operating branch-lite units in the country grew 14 percent compared to its level in the same quarter in the previous year. The number of cities and municipalities with branch-lite units grew from 818 to 875 in the second quarter of last year.

‘New normal’

ALSO among the banks’ more pronounced advancements towards financial inclusion is their ability to allow financial consumers to open so-called basic deposit accounts (BDA).

In 2018, the BSP allowed banks to offer these BDAs. By the end of that year, BDAs reached 428,000.

These BDAs are accounts designed by the BSP to encourage more people to open bank accounts and promote financial inclusion. Among their key features are: simplified know your customer (KYC) processes to open, no maintaining balance, no dormancy charges and 0-percent reserve requirement for the bank.

The surge in the opening of BDAs was tied up with the rise of online transactions due to movement and travel restrictions. These BDAs are usually used as “transaction accounts”.

Diokno earlier said, “A transaction account serves as the gateway to financial services. With it, a user can store funds and electronic payments then eventually avail of more products such as credit, insurance, and investments.”

BSP data shows that during the pandemic, some 4.6 million in BDAs were opened, with an aggregate value of deposits at P4 billion.

Diokno said they expect more transaction accounts to be opened as more online providers, as well as the government, are growing more and more digital as catalyzed by the restrictions in movement and travel.

A massive push

ASIDE from regulations set up by the BSP, the Philippines is also pursuing mass registration for the Philippine Identification System.

In 2018, President Duterte signed into law Republic Act 11055, otherwise known as the Philippine Identification System (PhilSys) Act. The law aims to establish a single national identification system for all citizens of the Republic of the Philippines.

This effort has been strongly supported by the BSP, saying it is a massive push for financial inclusion.

This is because, in its 2019 Financial Inclusion Survey, the BSP found that the lack of documentary requirement, including a valid ID, is one of the biggest hindrances as to why Filipinos choose to remain unbanked.

“The BSP supports the Philippine Statistics Authority (PSA) in its recent advisory emphasizing the Philippine Identification (PhillD) card as the official proof of identity for transactions with government and private entities,” Diokno said.

“The BSP reminds banks of the provisions in the Republic Act No. 11055 that the PhilID card, by itself, is a sufficient proof of identification honored and accepted in bank transactions without the need to present any other documentary requirements,” he added.

This initiative has already spurred early gains in financial inclusion.

Transaction accounts

THE Land Bank of the Philippines recently reported that more than 2 million previously unbanked people have registered for bank accounts in the first four months of the year as part of their partnership with the PSA.

This initiative is part of LandBank’s partnership with the PSA to increase financial inclusion rates in the country by co-locating the unbanked through the PhilSys registration and providing them with their own transaction accounts.

Upon the invitation of National Economic and Development Authority Secretary Karl Kendrick T. Chua to co-locate with the PSA, the bank said its aim is to bank at least one household member of the estimated 18 million low-income households applying for the National ID.

This account will help them and the government provide access to basic banking services and emergency government subsidies.

The bank said a total of 2,481,788 unbanked PhilSys registrants have already signed up for transaction accounts as of end-April.

Of the total 2,481,788 unbanked registrants, LandBank has issued  Agent Banking Cards (ABCs) to 850,875 of them free-of-charge and without an initial deposit requirement. The rest will receive their cards by July.

Initial registrants

PREVIOUSLY, the PSA reported that 82 percent of the 10.52 million initial registrants do not have formal bank accounts.

“LandBank is one with the National Government’s financial inclusion agenda. In partnership with the PSA, we are focused on opening accounts for up to eight million low-income, unbanked individuals from the 32 PhilSys priority provinces at the soonest time,” LandBank President and CEO Cecilia C. Borromeo said.

In the legislative department, just last month, Sen. Sherwin Gatchalian pressed Congress leaders to front-load deliberation for the early approval of the proposed One Filipino, One Bank Account law envisioned to propel digitalization of financial transactions in the country.

The “One Filipino, One Bank Account” mandates the opening of a bank account for every Filipino that is expected to be a payment platform of the government in distributing financial aid, including educational assistance and medical assistance, among many others.

Gatchalian earlier said the remedial legislation aims to ensure equal access to financial services by boosting the digitalization of financial transactions in the country.

Vendor’s tale

THE merit behind giving all Filipino adults bank accounts is more than just including them into the financial system.

A case study in the BSP’s recently published book on financial inclusion featured fish-ball vendor Rodrigo Caadan who started to use a QR (quick response) code as an additional payment system in his fish-ball stand. Cadaan was able to do this by registering in one of the electronic money financial technology firms in the country.

Cadaan said he feels “safer” using the code as he does not have to hold a lot of cash.

He has also been able to save. “Dati mahirap mag-ipon” (it used to be hard to save),” he said. Cadaan said when he had all his cash on hand, he tended to spend almost everything he had. But with some payments now transferred directly to his account, he hardly has reason to touch the money he receives.

Cadaan’s case reflects the impact of financial inclusion not only on a country-level but also on a personal finance field.

Empowerment, entrepreneurship

IN the Asian Development Bank (ADB) summit on financial inclusion held late May, ADB Economic Research and Regional Cooperation Department (ERCD) Director of Regional Cooperation and Integration Cyn-Young Park said “economic literature suggests that higher financial inclusion leads to lower poverty and income inequality.”

Park said, “It also leads to higher women empowerment and entrepreneurship. Financial inclusion is a complex phenomenon linked to multiple underlying factors and evolving conditions.”

Park also said their recent study showed that economies with high per capita income tend to have higher financial inclusion and that the impact of financial inclusion and its dimensions is largest for poverty reduction.

With all engines fired up, along with the unexpected push brought about by the global health crisis, the Philippines’s financial inclusion journey has performed better than earlier expected.

Diokno earlier this year said that the Central Bank’s goal of reaching an account penetration level of percent by 2023 will now be attainable by the end of 2022.

“The real measure of a policy—its value and success—lies not in its complexities but in its responsiveness and practical benefit to everyone, especially those at the margins,” Diokno said. “The task before us is to foster greater understanding and recognition of the advantages of participating in the formal financial system that in turn will result in inclusive, sustainable growth.”

The BSP governor just wants every Filipino to remember a maxim: “A rising tide lifts all boats.”

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