Financial Inclusion: Why is it important and how do we achieve it?

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

Financial Inclusion

• A state wherein there is effective access to a wide

range of financial services by all.

• “Effective Access”

MICRO PERSPECTIVE MACRO PERSPECTIVE

Access to savings, payments and credit make a positive difference in people’s lives (Dupas & Robinson, 2009)

A financial system able to

mobilize broad based savings and invest in growth of

productive sector drives economic growth (Levine, Loayza and Beck, 2000) Enables households and

businesses to seize economic opportunities and manage risks/ shocks

Deep and diversified financial system contributes to financial stability (Hannig & Jansen,

2010)

Philippine Country Context

37%

of the 1,634 cities and municipalities do not have a banking office

archipelagic barriers pose a big challenge

to financial access *All figures are as of end-Dec 2012

15%

of total population lived in unbanked cities and municipalities

For every 10,000 adults, 1 bank

2 ATMs

With at least one banking office Unbanked 93% 6% 71% Eastern Visayas ARMM CAR NCR 65% 0% 8% CALABARZON Central Luzon

% of unbanked cities and municipalities

2 out of 10

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.

of adults have a deposit account

of adults had a loan in a formal financial institution in the past year

share of insurance premiums to GDP Filipino households have

a deposit account

43%

68%

of the total number of deposit accounts

of the total amount of deposits

are concentrated in NCR

of adults are users of money transfer and loan and bill payment service providers

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,

• 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

Policy, Regulation and Supervision Initiatives

Wider Range of Products

• Micro-deposits •Microinsurance •Micro-agri Loans •Microfinance Plus •Housing Microfinance Expanded Physical Network • Opening of Micro-banking Offices (MBOs)

Expanded Virtual Reach

• E-money Issuers •E-money Network Service

Providers

Lower Barriers to Customer Acquisition

• Updated Anti-Money Laundering Rules

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

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

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

Results so Far

• 370 MBOs approved as of December 2012

• Over 130 MBOs in the pipeline

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

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

• 56 rural banks with electronic banking (mostly mobile banking using e-money) from none in 2005

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

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%

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

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

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

THANK YOU.