To boldly go where no bank has gone before

DURING workshops conducted by ING Bank employees, schoolchildren learned the importance of budgeting and saving money (See story on page B2-2).

If you are five minutes away from an automated teller machine, or any bank branch that lets you withdraw and deposit money, consider yourself lucky.

For several years now, government regulators have made financial inclusion—or, simply put, enabling more people to access a bank’s services—one of their top priorities.

But the latest data show more progress still needs to be made.

Access to financing still favors people in Luzon, and by a wide margin, highlighting how the bulk of the population is still neglected by banking institutions.

Of the 10,160 banks and banking offices in the country at the end of September 2014, 7,167, or just over 70 percent, are in Luzon, according to the Bangko Sentral ng Pilipinas (BSP).

More than a third of banks in the country are also located in Metro Manila, while more than half of all banks are in Region III (Central Luzon), Region IV-A (Calabarzon), and Metro Manila.

In contrast, the two worst off regions in the country, as far as the presence of banks is concerned, are the Cordillera Administrative Region (CAR), which has only 153 banking offices, and the Autonomous Region of Muslim Mindanao (ARMM), where there are only 21 banks.

Shortfall

This indicates a glaring shortfall in the government’s poverty reduction efforts, with the country already behind its international commitments under the UN Millennium Development Goals (MDG).

A report from the Asian Development Bank (ADB) released last month showed that the Philippines ranked behind its regional neighbors in terms of the ease at which people could access banks.

With its financial inclusion index (FII) score of 19.63 points, the country ranked 120th on a list of 176 countries.

The country’s score was below the median FII of 24, according to the ADB report titled “Financial Inclusion, Poverty, and Income Inequality in Developing Asia.”

In the region, the Philippines lagged behind Singapore (ranked 25th), Malaysia (41st), Burma (Myanmar) (101st), and Indonesia (102nd), among others.

FII scores were based on several indicators, namely, the presence of automated teller machines (ATM) per 100,000 adults, and commercial bank branches per 100,000 adults. Also taken into account were borrowers from commercial banks per 1,000 adults, depositors with commercial banks per 1,000 adults, and domestic credit to gross domestic product (GDP) ratio.

All indicators are sourced from the World Bank’s World Development Indicators. An indicator for each economy pertains to the average value from 2004 to 2012.

The ADB said giving more people easy access to financing—allowing them to save, invest and borrow money from government-regulated banks—had strong links to raising income and reducing income inequality in emerging markets.

To address the country’s deficiency in financial inclusion, the BSP has implemented several measures to encourage more banks to set up shop in far-flung areas.

Earlier this year, the BSP announced it would offer incentives for institutions that would set up shop in towns and cities in the country where banking offices were scarce.

Exclusion

Local banks are absent in more than a third of the towns around the country. Most institutions still find it hard to put up branches in far-flung areas that may turn out to be unprofitable and difficult to staff. As a result, a big chunk of the population has been excluded from the formal economy, unable to save or invest.

The BSP said it would waive the processing fees for banking offices to be established in the unserved municipalities. This is expected to lower the cost of setting up offices in such areas.

To facilitate the flow of information, the BSP will post on its website the list of “unbanked” municipalities and it will be updated quarterly.

Together with the revised rule on branch processing fees, the new regulation widens the scope of allowable activities and services that microbanking offices (MBO) can provide.

MBOs are simple offices that may engage in limited transactional banking activities, including the provision of small loans and deposits.

In addition to the disbursement and release of proceeds of all types of microfinance loans, MBOs can now provide other types of services to microfinance clients, such as offering educational, health and emergency loans.

Central role

The BSP also played a central role in the creation of over 30 credit surety funds (CSF) around the country. Members of cooperatives that administer these funds, usually small businesses, can take out loans from banks against the pooled CSF.

Even though actual access to banking services may be lacking in parts of the country, the BSP has gained recognition as being one of the most innovative regulators in the world in terms of promoting inclusive finances.

The Philippines topped all of its Asian neighbors and ranked third in the world overall in providing financial access to people, a report from the think tank Economist Intelligence Unit (EIU) showed. This comes as regulators continue to craft policies to remove barriers that keep or discourage people, especially the poor, from trusting banks with their cash.

Since 1997, microfinance in the Philippines “has enjoyed considerable support, and the government’s focus on this sector has been a key tool in reducing poverty,” the EIU said in an annual report on financial inclusion.

Of the 55 countries mentioned, the Philippines was one of three that had financial inclusion policies that “excelled” in the world. Ahead of the Philippines, which scored 79, were Peru (87) and Colombia (85). A far fourth was Chile, which scored 66.

The Philippines’ performance reflects the efforts of the BSP, which has microfinance and financial inclusion as its main advocacies to reduce poverty.

As of June 2013, there were 186 banks with microfinance operations, serving over one million clients. The banks at the time had an outstanding portfolio of P8.04 billion. Savings of microfinance clients totaled P8.9 billion, central bank data showed.

According to official data, the bottom 50 percent of Filipino households can only generate 6.2 percent of total savings. BSP Governor Amando M. Tetangco Jr. earlier this year said 37 percent of the country’s 1,634 cities and municipalities do not even have a single banking office.

However, some gains have been made over the past year. Tetangco said there were 47 million deposit accounts held by 38.4 million account holders in June 2014. This is a considerable increase from the 40.1 million accounts in the name of 31.1 million depositors recorded in March 2012.

The Philippines continues to face an uphill battle in fighting poverty, and the lack of access to formal banking services only make things harder. While progress has been made, more can indeed be done.