AS The Manila Times reported yesterday, the World Bank recently released its 2014 Global Findex report, which assesses the state of “financial inclusion” in economies around the world.
The report revealed that access to banking services in the Philippines, as measured by the number of deposit accounts held, improved in the three years between 2011 and 2014, although still only one in three Filipinos has a formal account. The Findex report showed that 31.3 percent of Filipino adults owned a formal account in 2014, an increase from the 26.6 percent in 2011.
In its press release celebrating the findings of the Findex report, the Bangko Sentral ng Pilipinas (BSP) explained that ‘formal account’ refers to an account held in a financial institution such as a bank, cooperative, or microfinance institution, and can also refer to a mobile money account.
The BSP, as expected, took the glass-half-full perspective, and chose to focus on the details of the expansion of formal banking coverage rather than the persistent low penetration of account ownership among the Philippine population, which was noted by the Times’ report on the Findex results.
Both views are correct. Growth in formal banking access, which in the time period studied amounted to the addition of about one million new accounts per year, is a legitimate sign of economic progress—a small improvement, to be sure, but a tangible improvement, nonetheless. By the same token, the relatively low number of Filipinos using some kind of formal account is still a big problem; at 31.3 percent coverage, the Philippines trails all but the perennial hard-luck cases Cambodia and Myanmar among its Asean neighbors.
I believe at least a cautiously optimistic outlook is warranted, for a couple of reasons. The BSP has applied a considerable amount of sincere effort toward financial inclusion over the past couple of years, and those efforts are evidently bearing some fruit. Part of that success can be attributed to the central bank’s taking a broad (and, therefore, very practical) view of what constitutes ‘formal banking’ to include various forms of mobile banking, services such as Globe Telecom’s G-CASH or its rival Smart Money, for example.
Cautious optimism is warranted, because there are clear steps in the right direction. The Philippines still has much to do before ‘financial inclusion’ can be considered the normal state of affairs.
The biggest problem, according to people in both the universal and rural banking sectors, is simple physical availability of banking services to customers. Roughly a third—estimates range from 30 to 35 percent—of the land area of the Philippines is not served by any sort of banking facility, whether a regular bank, rural bank, or other institution. The definition of this particular indicator is admittedly a bit vague; in general, any populated area that does not have some kind of easily accessible banking services provider within a comfortable distance of a kilometer or two is considered “unbanked.”
Mobile banking and mobile money accounts were supposed to provide a partial, medium-term solution—bank branches grow only slightly faster than trees—but they so far do not appear to be making much of a dent on the problem. The Findex report showed that only 4.2 percent of Filipino adults reported having a mobile money account in 2014.
In fact, Filipinos’ preference for the informal financial sector appears to be growing; between 2011 and 2014, the percentage of Filipinos sourcing loans from family or friends jumped from 39 percent to 48.7 percent, while the percentage using informal lenders rose slightly from 12.7 to 13.5 percent.
Unfortunately for the BSP, some of the factors that are hampering their efforts to spread banking availability to every corner of the country are entirely beyond their control. Mobile money and internet banking growth will continue to be stymied as long as the Philippines’ telecommunications infrastructure is only capable of providing poorly-secured, unreliable, and unreasonably expensive services. Central bank planning is also at the mercy of free market forces; a bank’s decision to raise a new branch somewhere depends almost entirely on whether or not there is a profitable local market for it.
One area where improvement would almost certainly help to attract more banking customers is in basic customer services. Compared with more developed countries, banking processes from a customer perspective are arcane and annoying. An experience I had a couple of months ago perfectly illustrated the entire problem: I attempted to enroll my ‘everyday’ account—an account I have had for about nine years at a bank whose services I am generally satisfied with—in the online banking system, only to be informed that I would have to visit a branch in person to “fill up” an application form, a step that seemed to me to be totally self-defeating, and which I have consequently never bothered to complete.
Making banking services available is one thing, making sure they are easy to use and provide an obviously superior option to the black market is quite another. The BSP is doing its best to support those aims, but whether or not they are ever achieved is up to the banking industry, which is a reality not many advocates of financial inclusion find comforting.