WB: Financial literacy crucial

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‘The problem is more on the implementation side’

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Promoting financial literacy is crucial in the Philippines, the World Bank said on Wednesday, noting that many Filipinos experience money problems and that access to formal institutions such as banks remain low.

In particular, 23 million adult Filipinos or 55 percent reported that their households run out of money for food and other necessary items, a World Bank official said during a briefing on its “Enhancing Financial Capability and Inclusion in the Philippines – A Demand-side Assessment” survey.

Another finding was that half of some 20 million Filipinos who claimed to be saving money do not have bank accounts.

The most commonly reported obstacles to owning bank accounts were:

• not having enough money (20 percent);

• lack of need for an account (18 percent);

• lack of trust (17 percent);

• distance (16 percent);

• lack of documents (10 percent);

•“the bank doesn’t treat people well” (9 percent); and

• high cost (9 percent).

Nataliya Mylenko, World Bank senior financial sector specialist who supervised the survey, said an overriding factor was the difficulty in accessing financial services.

“Some of the constraints are from documentary requirements of financial institutions. The Bangko Sental ng Pilipinas issued regulations to relax these requirement but the financial institutions do not implement those regulations,” she said.

“The regulatory environment is actually conducive but the problem is more on the implementation side. The reason why financial institutions to not do it very often is it all boils down to profit and the cost of serving, especially in remote areas. So the physical presence is quite difficult for them to get into,” she added.

Mylenko said this indicated the need to develop financial products such as microdeposits that meet the needs of consumers, particularly the lower-income groups.

“This suggests that there are significant opportunities for expanding financial inclusion among low- and lower-income groups in the Philippines,” she said.

“The bigger picture is basically how do you move from cash to a much better channel. That vision and the willingness to shift to that direction could really make a major difference, especially given the Philippines’ archipelagic geography.”

Of the 23 million who reported running out of money for food and other necessary items, 29 percent said this occurred “sometimes” and 26 percent said this happened “regularly.

Even among those earning more than P50,000, 23 percent stated that they ran short of money for basic necessities. Among the households that reported running short of cash, the use of credit was nearly universal with 94 percent borrowing to cover costs.

“Those who plan their expenditures or budget are more likely to report that they have money left after paying for basic necessities and less likely to say that they have borrowed more than they can afford,” the survey stated.

The survey also revealed that Filipinos are more likely to use informal credit and saving services.

Only 4 percent of respondents report having a mortgage, 5 percent a credit card and 10 percent a credit product from a formal financial institution. At the same time more than a third rely on informal savings and credit.

“It pays to be wise with the way we handle money – that’s what this survey is telling us,” World Bank Country Director Motoo Konishi said.

“If people have more knowledge about money matters, this can help them access financial services. Promoting financial literacy is therefore important to achieve greater financial inclusion and boost the growth of micro and small enterprises,” he added.

The World Bank survey, which aimed to assess people’s financial literacy or capability in managing their day-to-day finances, as well as their access to formal financial institutions like banks, was conducted from February to September 2014. A total of 4,000 households were targeted, of which 12 percent did not respond to the survey.

The BSP earlier this year launched its National Financial Inclusion Strategy for the country, seeking to improve Filipinos’ access to a wide range of financial products and services.

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