Four building blocks are needed to give access to financial resources for small and medium enterprises (SMEs) and achieve financial inclusion in the country, according to an executive of a technology services provider.
Jim Lim, customer business executive for Asia Pacific of software solutions and services provider Amdocs, said that there are “four building blocks” that are needed to provide financial inclusion to SMEs.
These four factors are: financial access, financial literacy, policy-driven innovations, and potential for mobile financial services.
Lim said the Philippines is in great need of innovation and technology, especially when it comes to economic inclusion. He said SMEs are mostly “excluded from financial access and are mostly underbanked.”
“In areas without access to online and mobile banking, it is extremely difficult to have access to financial services,” Lim said.
In terms of financial access, Lim pointed out that the Philippines should move broaden access to financial services such as savings, payments, and credit facilities, as 37 percent of the 1,634 cities and municipalities in the country do not have a banking office, and 15 percent of Filipinos live in unbanked areas.
“The lack of basic financial access to loans, banking and other services in these areas causes many small and midsize businesses to be stagnant. The key to creating an economically-inclusive market is granting financial access to these unbanked and hard-to-reach areas,” he said, pointing that SMEs make up 99.6 percent of the country’s businesses and enterprises.
For financial literacy, Lim said Filipinos have shown lack of education when it comes to finances and understanding their rights as consumers of financial products and services.
Lim noted that only 10 percent to 19 percent of Filipino SMEs rely on bank loans, while 11 percent to 28 percent use other forms of credit.
“There is a need for various government agencies to undertake financial education in cooperation with the school system at all levels. By starting with school-aged children, the issue of financial literacy can be solved from the ground up,” the Amdocs executive said.
“The government also needs to provide non-financial services help to SME clients in order to strengthen their operations, including assistance in preparing accounting records, business advice, and networking,” he added.
Lim also stressed that there should also be policy-driven innovations by the government — mostly technological innovations — to create more interconnected ecosystems for the financial inclusion of SMEs.
He cited examples such as the government partnering with the private sector to develop mobile financial services or other products for SMEs that can ultimately help fuel economic growth.
Lim also touted the potential of mobile financial services, where the effort to combine technology and innovation can create multi-dimensional financial platforms for SMEs such as mobile banking and electronic money (e-money).
Lim said this would make financial transactions faster and more efficient, which in turn would help the broad spectrum of businesses in the country that provide the bulk of economic activities and employment in the Philippines.
“Slaying the monstrous problem of lack of economic inclusion in the Philippines is possible if it is viewed as a worthy policy objective that can be pursued alongside the promotion of stability and efficiency in the financial system,” Lim said.
“We have already met our heroes — the BSP [Bangko Sentral ng Pilipinas], Insurance Commission, National Competitiveness Council (NCC), and all of the service providers and other innovators — that have entered the space. All should have a coordinated and collaborative focus on pursuing programs supportive of financial inclusion, including the four building blocks mentioned,” he concluded.