• Hooray for financial inclusion

    2
    Ben D. Kritz

    Ben D. Kritz

    IN its annual review of “financial inclusion” around the world, the Economist Intelligence Unit, the research arm of The Economist Group, ranked the Philippines third out of 55 nations. The country received a score of 81 out of 100, up slightly from its score of 79 last year, which places us just behind Peru and Colombia, and ahead of India and Pakistan.

    That news, when the stories for Monday morning’s paper were being reviewed on Sunday afternoon, raised a few eyebrows among Manila Times’ editors, and I suppose it might be met with the same reaction from the public. An unequivocally good result for the Philippines in any sort of global ranking exercise is not something we’re accustomed to hearing about, and for this particular ranking, there is an apparent dissonance between what we see in our everyday economy characterized by a heavy reliance on cash and informal funding sources and what offshore experts are seeing.

    The study was not an assessment of actual “financial inclusion” – a somewhat vague concept that is generally understood to mean accessibility to formal financial services regardless of income level – but of the potential for it, or how much opportunity people with low incomes have to access and use financial services and tools, which cover an entire spectrum of things from conventional banking to various kinds of mobile banking such as G-Cash or SmartMoney. If the study had been about the actual level of use of the financial system, the Philippines would have ranked poorly; as the report noted, only about one-fourth of the adult population have some kind of savings accounts, and only about 10 percent have access to formal credit.

    Within the context in which the EIU report was presented, however, the Philippines deserves the accolade. Over the past couple of years, the Bangko Sentral ng Pilipinas and a cooperative banking industry have done quite a lot of work to develop a more “inclusive” financial environment; the EIU study was released just as the BSP was conducting a ceremony to mark the official launch of the National Retail Payment System.

    The timing was purely coincidental (or so I’ve been told), but neatly punctuated the point the financial inclusion report made about the country’s progress.

    Having an inclusive financial architecture is one thing, getting the public – the vast majority of whom perceive themselves as being too poor to practice any sort of institutionally-aided financial management – to take advantage of it is quite another. The EIU report noted that there is much work to be done in terms of scale, particularly in “technology-driven initiatives,” and in terms of financial education and consumer protections.

    Overseeing the creation of an inclusive system and monitoring its performance is something the BSP evidently can do very well; changing mindsets so that the system becomes the norm for most people and businesses is a much larger challenge, because the country has had half a century or more to develop bad habits. One of the biggest ones is the continuing reliance on remittance income, which seems to discourage savings. Part of this is psychological; there is a perception that saving money is not a critical priority because the income stream is so reliable – the source of the remittance, in effect, is the savings account. Of course, it doesn’t really work that way, but that is not at all obvious to most people. And it is especially not obvious to those whose income from remittances is only just enough to meet monthly needs.

    And part of the problem is institutional, which the EIU acknowledged, albeit in polite terms. Customers, or would-be customers, often find procedures for opening a bank account, mobile money account, or even doing something simple like making a deposit or cashing a check off-putting, because while the BSP has developed sensible rules to improve bank security and keep better track of customers, the banking industry has yet to figure out how to follow them efficiently. They do properly follow them for the most part, but not in a smooth, customer-friendly way.

    Getting over those problems may simply be a matter of time, but it’s time that could have been shortened. For more than five years, President BS Aquino 3rd has been making his “inclusive growth” sales pitch to the wrong customers, while the BSP has provided an excellent package he could have sold to the right customers – that vast segment of the population who need to be “included.”

    ben.kritz@manilatimes.net.

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    2 Comments

    1. Financial inclusion is just another buzzword invented by those in charge of running this world for the purpose of making those who are at the bottom feel that something is being done for them. Why is there a need to dupe with buzzwords? So that no one at the bottom will notice that those at the top are the ones responsible for keeping them at the bottom. Get it?

    2. victor m. hernandez on

      This ranking exercise is another example of positive reinforcement among players in financial services such as your example, G-Cash and Smartmoney, and other remittance services. I believe, though, that the informal 5-6 operations and our neighborhood pawnshops still rules as far as the majority of the citizenry is concerned. At bottom, it is actually the big banks controlled by a few wealthy investors who provide the moneyline that makes the many small micro credit providers continue their operations. Such system is helpful to many who are in need but still fall short of empowering them to move up to a higher level of socio-economic mobility. Financial literacy program is a prescribed complement to financial inclusiveness. The fundamental requirement however is more jobs, better wages, and access to many social and public services, infrastructure and housing is imperative.