Financial Inclusion: Why is it important and how do we achieve it? Pia Bernadette Roman Tayag Head, Inclusive Finance Advocacy Staff Bangko Sentral ng Pilipinas GDN Conference Asian Development Bank 21 June 2013
Presentation Outline Financial Inclusion: Definition Why is it important? Philippine Country Context How do we achieve it: Perspectives from the Bangko Sentral ng Pilipinas Policy and Regulation Financial Education and Consumer Protection Data Management Promotion and Advocacy Results so Far Moving Forward
Financial Inclusion A state wherein there is effective access to a wide range of financial services by all. Effective Access Wide range of financial services
Why is Financial Inclusion Important? MICRO PERSPECTIVE MACRO PERSPECTIVE Access to savings, payments and credit make a positive difference in people s lives (Dupas & Robinson, 2009) Enables households and businesses to seize economic opportunities and manage risks/ shocks A financial system able to mobilize broad based savings and invest in growth of productive sector drives economic growth (Levine, Loayza and Beck, 2000) Deep and diversified financial system contributes to financial stability (Hannig & Jansen, 2010)
Philippine Country Context For every 10,000 adults, 1 bank 37% of the 1,634 cities and municipalities do not have a banking office 2 ATMs 15% of total population lived in unbanked cities and municipalities % of unbanked cities and municipalities NCR CALABARZON 6% 0% Central Luzon 8% With at least one banking office Unbanked CAR Eastern Visayas ARMM 65% 71% 93% archipelagic barriers pose a big challenge to financial access *All figures are as of end-dec 2012
Philippine Country Context The 2009 Consumer Finance Survey (CFS) suggests that only 2 out of 10 Filipino households have a deposit account in a formal financial institution. Data from the World Bank 2011 Findex indicate that only 10.5% of Filipino adults had a loan from a formal financial institution in the past year. These gaps present both a challenge and opportunity to ensure that access translates into effective usage of available products and services. 2 out of 10 Filipino households have a deposit account of adults had a loan in a formal financial institution in the past year of adults have a deposit account 43% of the total number of deposit accounts 68% of the total amount of deposits are concentrated in NCR of adults are users of money transfer and loan and bill payment service providers share of insurance premiums to GDP
Cohesive and Consistent Guiding Principles Financial inclusion is a worthy policy objective and something that should be pursued alongside the promotion of stability and efficiency in the financial system. Financial inclusion and financial stability are mutually reinforcing. Evidence toward this should be collected. Financial stability and financial inclusion are not inevitable. Both demand at least the same measure of energy, imagination and serious attention from policy makers.
Cohesive and Consistent Guiding Principles In addressing financial access issues, market based solutions are feasible and should be encouraged. It is necessary to establish a supportive regulatory environment for the said market based solutions to work. These solutions, of course, present real and valid risks but these are concerns that can be managed. All financial service providers should be properly and proportionately regulated to uphold consumer protection and financial system integrity.
Key Financial Inclusion Strategy Data Measurement and management Policy, Regulation and Supervision Advocacy Consumer Protection and Financial Education
Policy, Regulation and Supervision Initiatives Wider Range of Products Micro-deposits Microinsurance Micro-agri Loans Microfinance Plus Housing Microfinance Expanded Virtual Reach E-money Issuers E-money Network Service Providers Expanded Physical Network Opening of Micro-banking Offices (MBOs) Lower Barriers to Customer Acquisition Updated Anti-Money Laundering Rules Enhanced Internal Capacity of the BSP
Wide Range of Products Circular 694, Notes on Microfinance Microfinance Loans Microenterprise Loans Housing Microfinance Loans Micro-Agri Loans Microfinance Plus Microfinance Savings Deposit Account Microinsurance
Results so Far 187 mostly community based banks with microfinance operations currently serving over 1 million clients with outstanding portfolio of PhP8.4B These clients are saving PhP 6.4B 18 banks already offering housing microfinance with an outstanding portfolio of PhP 242 Million 39 banks providing micro-agri loans (PhP 496 Million) 76 banks have been issued No Objection Notices for microinsurance *Figures are as of end-year 2012
Expanded Physical Network Circular 694, Establishment of Micro-banking Offices (MBOs) Addresses obstacles in establishing bank offices Relatively low cost (i.e low infrastructure, no theoretical capital needed) Need not be attached to a microfinance bank or branch Viable in light of complete range of product offerings
Expanded Physical Network Circular 694, Establishment of Micro-banking Offices (MBOs) Expands the products and services that can be offered Micro-loans Micro-deposits Check deposits of existing microfinance clients Microinsurance E-money Conversion Collection/ Pay out of benefits from government Utility payments Purchase of foreign currency
Results so Far 370 MBOs approved as of December 2012 Over 130 MBOs in the pipeline 50 municipalities are served by MBOs alone
Expanded Virtual Reach Circular 649, Electronic Money Circular and Circular 704, Electronic Money Network Service Providers Defines electronic money Allows the establishment of e-money issuers (whether bank or non-bank) Provides the platform for an efficient retail payments platform Fosters the establishment of a ubiquitous agent network
Expanded Virtual Reach Banks can develop linkages with e-money issuers. As clients can transact remotely through the e-money platform, banks: Increase value of service to clients Increase efficiency Lower costs Reach new clients With existing clients an e-money ecosystem in the local community can be developed
Results so Far 24 E-Money Issuers - Banks 3 E-Money Issuers - Non Banks These EMIs currently have an agent network of over 15,000 and continuously expand In 2012, there were over 188 million e-money transactions amounting to PhP 613 Billion 56 rural banks with electronic banking (mostly mobile banking using e-money) from none in 2005 *Figures are as of end-year 2012
Results so Far Increasing competition, enhancing efficiencies and lowering costs. Illustrative example: (Domestic) Sending PhP 1,500 and Encashment E-Money* Remittance Agent Pawnshop* Bank Total for P1500 principal amount P11.50 P120 P80 P152.50 % of PHP 1,500.7% 8% 5.3% 10% *Average of 2 e-money providers/ pawnshops
Results so Far: Enabling meaningful retail payments: Government to People (G2P) E-money is now being used to deliver Conditional Cash Transfers (CCTs) Government savings in reaching 400 municipalities 500,000 beneficiaries Presents potential for similar opportunities Public school teachers? Soldiers?
Lower Barriers to Customer Acquisition Circular 706, Updated Anti-Money Laundering Rules and Regulations Provides scope for banks to have a risk-based and tiered system of classifying customers Establishes a framework for applying reduced, average and enhanced due diligence based on the type of customer as well as for customer acceptance, retention and identification process and record keeping Allows outsourcing or reliance on third party for face to face/kyc Liberalized list of acceptable IDs
Consumer Protection Issuance of price transparency and disclosure rules for all credit granting entities (banks and non banks and even businesses with credit activities) Issuance of market conduct regulations particularly behavior of agents
Financial Education Steady advocacy for personal finance and financial literacy Establishment of Comprehensive Economic and Financial Learning Program with various targeted audiences Conduct of financial learning for microfinance client sand the unbanked Conduct of Fin-ed Expos
Data Collection and Management Initial status report on state of financial inclusion in the Philippines Spatial Mapping and Geo coding of access points Participation in international fora on financial inclusion data Preparatory work for national base line survey and product catalogues
Moving Forward: Vision of an Inclusive Financial System Presence of a wide range of financial services that serve different market segments Assurance of the relevance, responsiveness and quality of the said products and services (financial products appropriately designed, priced and tailor-fitted to market need) Presence of a wide variety of strong, sound and duly authorized financial institutions utilizing innovative delivery channels Enabling the effective interface of bank and non-bank products, delivery channels, technology and innovation to reach the financially excluded In addition to the above, the following shall also be ensured: Adequately educated and protected citizenry confident to make well-informed financial decisions Comprehensive and robust financial inclusion data and measurement
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