In the Philippines, a land of immense potential, a critical issue lies at the heart of its economic future: 44 percent of the bankable population, those ages 15 and older, remains unbanked.
This statistic is not just a number; it's a glaring indicator of untapped economic potential. Financial inclusion, or strategically integrating these individuals into the financial system, emerges as a beacon of transformative potential.
The Philippines, with its vibrant culture and robust natural resources, has always been a country poised for economic breakthroughs. Despite impressive GDP growth rates and a decrease in poverty levels in recent years, challenges such as income inequality and limited access to financial services persist.
This backdrop underscores financial inclusion's vital role in fostering economic development.
The financial history of the Philippines is marked by a journey from a tightly controlled banking system to a more liberalized financial environment in the 1990s. Tracing the evolution of this landscape illuminates the barriers to financial inclusivity and highlights the strides made so far.
This historical context is crucial for understanding the current challenges and the steps needed to foster a more inclusive financial future. This article aims to equip leaders with insights into leveraging financial inclusion to spur growth, drawing lessons from global models and adapting them to the Filipino context.
India's example: A model for the Philippines
India's journey toward financial inclusion offers a blueprint for the Philippines. In 2014, the Ministry for Finance of the Government of India launched the Pradhan Mantri Jan-Dhan Yojana (PMJDY) scheme to provide affordable access to financial services to those who don't have a bank account.
These services included banking, savings and deposits, remittances, credit, insurance, and pensions.While launching the Yojana, the prime minister described the occasion as a festival to celebrate the liberation of the poor from a vicious cycle.
The Jan Dhan account was targeted toward the rural and urban Indian population that was earlier unable to get benefits from financial services. It led to over 300 million new bank accounts by 2019.
This initiative not only increased financial participation but also boosted savings and investment at the grassroots level, leading to enhanced consumer spending and economic growth.
The Guinness Book of World Records also recognized the achievements made under PMJDY. It gave a certificate stating: "Most bank accounts opened in one week as part of the Financial Inclusion Campaign is 18,096,130 and was achieved by the Department of Financial Services, Government of India from 23rd to 29th August 2014."
The Union Finance Minister Shri Arun Jaitley said that the PMJDY was a game changer for the economy as it had provided the platform for Direct Benefits Transfer (DBT), which, in turn, would help in plugging leakages in subsidies and thereby provided savings to the exchequer.
Learning from India's policy reforms, including the role of public-private partnerships, can offer practical pathways for adapting these strategies to the Filipino socioeconomic landscape.
Strategic approaches to financial inclusion
– Comprehensive financial services package. Similar to PMJDY, the Philippines could introduce a program offering a range of financial services tailored to the unbanked, including banking, remittances, credit, insurance, and pensions. This approach should target both rural and urban populations who are presently underserved.
– Focusing on rural and marginalized communities. PMJDY's focus on the rural and marginalized urban population is a key aspect that can be replicated in the Philippines, where similar demographic groups are often financially excluded. Mobile banking and agent banking models could be particularly effective in these areas.
– Public-Private Partnerships (PPP). The Philippines can leverage PPPs to combine the efficiency and innovation of the private sector (especially fintech companies) with the reach and regulatory support of the government.
– Direct benefit transfer (DBT) system. PMJDY's use of DBT to plug leakages in subsidy distribution can be a game-changer for the Philippines. Implementing a similar system can ensure that government benefits are directly and efficiently transferred to the beneficiaries' bank accounts, reducing fraud and improving transparency.
– Financial literacy campaigns. Alongside offering financial services, conducting widespread financial literacy campaigns, as done under PMJDY, is crucial. Educating Filipinos about financial products, their benefits, and how to access them can significantly boost financial inclusion.
– Innovative use of technology. The Philippines can leverage technology, particularly mobile and internet banking, to increase the accessibility of financial services. This includes simplified account opening processes and the use of biometric identification systems for authentication and security.
– Incentivizing account usage. Encouraging the use of financial services for everyday transactions, savings, and investments is vital. Incentives like zero-balance accounts, overdraft facilities, and insurance coverage can motivate people to use their accounts actively.
– Regulatory framework. Establishing a robust regulatory framework that supports financial inclusion initiatives while ensuring consumer protection is vital. This includes regulations that encourage banks and financial institutions to reach unbanked populations.While adapting these strategies, it's essential to consider the unique socioeconomic and cultural nuances of the Philippines. Tailoring products and services to meet the specific needs of various Filipino communities will be key to the success of such initiatives.
Fintech's pivotal role
Fintech companies, with their innovative solutions like mobile banking and digital wallets, are ideally positioned to drive financial inclusion in the Philippines. These companies have successfully reached the unbanked in other regions, suggesting similar success in the Philippines, particularly given its growing digital penetration.
For example, mobile banking and digital wallets can be leveraged to reach the unbanked and the underbanked, as they provide easier access to financial services, especially in remote or rural areas.
Loan origination and management systems is another fintech approach where platforms can offer microfinance services and small loans to individuals and small businesses, which are often overlooked by traditional banks. This can empower entrepreneurs and stimulate local economies.
Finally, fintechs can offer a wide range of payment solutions. Seamless and low-cost payment solutions can enhance the efficiency of transactions for businesses and consumers, fostering a more dynamic economic environment.
Global technologies like blockchain and AI have been instrumental in enhancing financial inclusion. For instance, blockchain's role in providing secure transaction platforms and AI's ability to offer personalized financial services could be effectively implemented in the Philippines, considering local infrastructure and regulatory needs.
Implementing blockchain can offer secure, transparent and efficient transaction platforms. This technology can be particularly useful in areas like remittances, a significant part of the Philippine economy, by reducing costs and improving transaction speeds.
AI can be used to provide personalized financial services, improve customer service and enhance risk assessment models. AI-driven tools can analyze large datasets to identify trends and offer tailored financial advice or products.
In addition to this, Internet of Things (IoT) applications can assist in better data collection and analysis, leading to more informed decision-making in sectors like agriculture and manufacturing, which are vital to the Philippine economy.
Innovative credit scoring
Adopting inclusive credit scoring models using alternative data sources, as seen in the US and Europe, can broaden access to financial services in the Philippines. This approach enhances creditworthiness assessment, potentially increasing loan approvals for underserved segments.
Utilizing non-traditional data such as utility payments, mobile phone usage and social media activity for credit assessments can help include those with limited or no credit history. This can widen the customer base for financial institutions and enable more individuals and SMEs to access credit.
These innovative credit scoring models can provide a more holistic and fair evaluation of an individual's creditworthiness, increasing the chances of loan approval for underbanked segments of society.
Ultimately, by providing a more accurate assessment of credit risk, these models can encourage responsible borrowing and lending, contributing to a healthier financial ecosystem.
The global landscape offers numerous success stories that underscore the transformative power of financial inclusion.
By adapting strategies from India and leveraging innovations from other regions, the Philippines can utilize financial inclusion as a key driver for economic growth.
For chief executives and business leaders in the Philippines, embracing these strategies is not only a corporate responsibility but a strategic step toward building a more prosperous and equitable economy.
Source: Manila Times