Ways to sustain financial inclusion gains proposed

While the Philippines has made strides in its financial inclusion efforts, an economist said the government’s role should remain limited to regulatory supervision while allowing the private sector to develop more accessible products and services.

“The government has so far largely resisted the temptation of directly participating in the microfinance market despite a recent attempt to go back to directed credit programs. However, there is always the risk that politicians may sponsor credit programs funded by public monies to meet certain sociopolitical objectives,” Philippine Institute for Development Studies president Gilberto M. Llanto said in the working paper “Financial Inclusion, Education, and Regulation in the Philippines” published by the Asian Development Bank Institute this month.

“The microfinance community should be vigilant about such attempts to weaken the market-based microfinance ecosystem that has so far shown to be a workable approach to financial inclusion,” Llanto added.

In the paper, Llanto noted that “a market-based financial ecosystem was just the right environment for the microfinance sector to grow and develop” in the country.

“The current vibrancy of the microfinance and microinsurance markets in the Philippines is basically due to the reforms pursued by the government and regulators in collaboration with private sector stakeholders that led to a greater private sector role, chiefly by MFIs (microfinance institutions), in providing credit, deposit services, and other services to low-income sectors,” he said.

Citing Bangko Sentral ng Pilipinas (BSP) data, Llanto said microfinance loans jumped by a compounded annual growth rate of 11.6 percent to P8.7 billion in 2013 from P2.6 billion in 2002.

As for microinsurance, coverage among Filipinos increased to 19.95 million or 20.4 of the population in 2013 from just 3.1 million or 3.4 percent of the population in 2008, Llanto said, citing Insurance Commission figures.

Also, Llanto said BSP data showed that 40 banks obtained authority to market, sale and service microinsurance products in 2013, such that Rural Bankers Association of the Philippines figures indicated that rural banks’ total number of clients covered with microinsurance grew by 153 percent to 1.4 million that year from only about 543,500 in 2012.

“This makes the Philippines one of the top microinsurance markets in Asia. The strong collaboration between insurance providers and the regulator were significant factors contributing to the rapid growth of microinsurance in the country,” Llanto said.

According to the paper, “the Philippine experience with microfinance shows the essential role played by a conducive policy and regulatory framework in motivating private financial services providers in making innovative financial products and services accessible to the poor.”

But while “[f]inancial deepening among the excluded segment of the population has started to take root” and “[f]inancial inclusion has started to expand,” Llanto said there remain challenges being faced by the microfinance sector.

In this regard, Llanto recommended that the BSP, the Insurance Commission and the National Credit Council “undertake financial education in cooperation with the school system at all levels: Primary, secondary, and tertiary.”

“Financial education should be incorporated into school curricula. Related to this is the importance of establishing a program of financial education for SMEs (small and medium enterprises),” Llanto said.

“There is also a role for civil society in promoting financial education,” he added.

The following are among Llanto’s recommendations:

— Banks, in collaboration with the BSP, should work on a regular reporting format for SME access to formal loans

— There is a need for more effective enforcement of consumer protection and this could be promoted through financial education for low-income clients

— There is a need to support and make Credit Information Corp. fully operational as soon as possible. It needs good staff and substantial resources to accomplish its mandated tasks

— There is merit in developing appropriate regulation and supervision of mobile banking and various types of financial innovations for fostering financial inclusion. There is a need to balance the expansion of financial inclusion through emerging technologies and ensure the stability of the microfinance sector.

— The government and regulators should support the development of back-end infrastructure, that is, the backbone needed for efficient financial services, including payment switches, credit bureaus and collateral registry.–Ben O. de Vera