The economics of oneness: Its impact on financial health and infrastructure

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Social capital involves the effective functioning of social groups through interpersonal relationships, shared sense of identity, shared understanding, shared norms, shared values, trust, cooperation, and reciprocity. Previously, we talked about how social capital positively impacts human capital and the natural environment. Today, we are going to look at its effects on financial health and infrastructure.

In the latest survey of the Bangko Sentral ng Pilipinas (BSP), the share of Filipino adults with bank accounts grew to 56 percent in the first quarter of 2022, from 29 percent in 2019. This was higher than Cambodia’s 33 percent, Laos’s 37 percent, Myanmar’s 48 percent and Indonesia’s 52 percent, but lower than Malaysia’s 88 percent, Thailand’s 96 percent, and Singapore’s 98 percent (World Bank Global Findex 2021). Despite this development, challenges remain for the financial inclusion agenda of the BSP. The main barrier is lack of income, and bank transaction costs persist. In addition, over half of savers still keep their money at home.

Effective financial organization and instruments are required, be it at the national (formal) level or at the household (informal) level. Financial institutions are a vital component of everyday economic life to all sectors, specifically to the ultra-poor. Social trust networks can be utilized to improve the financial well-being of ultra-poor communities.

International Care Ministries (ICM), an NGO that serves the ultra-poor communities in Visayas and Mindanao, leverages on social capital through its Transform program. The program is delivered through weekly group sessions. One of its key focus areas is “Livelihood” in which a trained staff teach business skills, and saving. Program participants are grouped into “savings groups.” SGs are typically five to 20 people who belong to the same community. These groups have their regular meetings at least once a week, and members are required to contribute a small sum each week, which is given to the group’s treasurer and serves as the group’s savings.

Once they have enough savings, the group uses it to put up their SG’s business, making their savings and income sustainable. At the same time, members may borrow from the group’s savings should a need arises, giving them access to financial services. In a comparable program in ultra-poor communities in Tanzania, a study show that a village’s social capital has a positive effect on the incomes of the households in that village (Narayan and Pritchet, Economic Development and Social Change, 2013). Meanwhile, a study across rural communities in China found out that social capital promotes rural entrepreneurship by sharing financial literacy (Zhao and Li, Frontiers in Psychology, 2021).

Social capital had also its impact on infrastructure. It serves as a mediator for collective action and can help communities build common property resources such as irrigation and water wells. In addition, it can improve access to food, natural resources and physical capital in rural areas. In a study conducted by the World Bank in selected rural areas across the Philippines, increase in social participation in village assemblies for community-driven development (CDD) is larger in villages that were successful in receiving funding for infrastructure projects. This is followed by an increase in trust toward  local officials in those villages (Labonne and Chase, World Bank, 2008).

On the other hand, a study from Wageningen University in the Netherlands found out that social capital can play a significant role in the development of rural infrastructure in Serbia in two ways: first, the development of infrastructure is less complicated when all the actors involved in building a road can work together without problems; second is the use of road network. Modern roads between two rural communities are of no use when two communities do not interact such as when there is no trade or shared activity (Runia, Wageningen University, 2010).

The studies and programs cited here are meant to create and leverage on “bonding” or “micro” social capital, which is based on smaller peer-to-peer groups and relationships. This is a kind of social capital that refers to strong relationships that develop between people of similar background, interests, and family. How can the impact of micro social capital in finance and infrastructure be translated to national or “macro” perspective?

Moving forward, the government must foster trust in communities in order to push financial literacy. Financial literacy can lead ultra-poor communities to better income opportunities where successful members begin to participate in the formal economy. Meanwhile, the strong bonding social capital that lobbies public infrastructure funding for poor communities may form a bridging social capital with other communities creating mobility, livelihood, and trade opportunities.

Clearly, true unity and oneness as a nation is key to move forward. One “micro” step can lead to a “macro” leap in nation building.

Mr. Thomas L. Lazaro III is a graduate student at the Department of Economics of Ateneo de Manila University.

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