The road to a more financially inclusive Philippines

Published February 1, 2019, 12:00 AM

by manilabulletin_admin

Hamilton Angluben
Hamilton Angluben

2019 is looking positive for financial inclusion in the country, with significant technological innovations currently shaping the future landscape of the Philippines’ finance industry.

According to the 2018 Global Microscope of The Economist Intelligence Unit (EIU), the Philippines ranks as the “most conducive” country for financial inclusion in Asia, and is ranked 4th globally. This is thanks to the country’s sound government and regulatory support that allows digital innovations to reach the unbanked. The report sets a model for an “enabling environment” for financial inclusion across 5 domains: government and policy support, stability and integrity, products and outlets, consumer protection, and infrastructure.

The Philippines’ central bank, the Bangko Sentral ng Pilipinas (BSP) plays a huge part with its highly progressive regulatory approach anchored on three key pillars: 1) risk-based and proportionate regulation; 2) active multi-stakeholder collaboration; and 3) consumer protection. The same report recognized the BSP’s role in building a “digital finance ecosystem that has led to the introduction of a sound finance infrastructure” and has allowed players in the financial sector, particularly fintechs, reach the underserved and unbanked.

Last year, the Philippines saw an explosion in the fintech sector with over 120 startups across payments, remittances, lending, etc. The BSP’s 2017 Annual Report estimates the transaction value of the fintech market estimated to amount to US$5.7 billion. By 2022, the it is projected to amount to US$10.5 billion growing at an annual rate of 16.4 percent.

In line with this growth, the BSP created a specialized unit to oversee fintechs. This move aims to close the data security gap that has been a cause for consumer concern while at the same time expanding the market for digital payments and other financial products; further strengthening the BSP’s forward-looking stance on the role of technology as an engine for financial inclusion.

The honorable BSP Governor Nestor Espenilla Jr. has been a strong advocate of the vital role which the private fintech sector has to play in accelerating financial inclusion, with the rapid increase in smartphone penetration enabling broader reach to the millions of unbanked and underserved Filipinos in even the country’s most remote areas. He has often highlighted the responsibility of these new-age business models in transforming the inequity of the current financial landscape.

One of these innovative models, mobile lending, is both surprising in its simplicity as well as in its potential to deliver purposeful and sustainable socio-economic impact to local communities. Traditional financial systems have been averse to addressing the huge credit gap, due to a minimal appetite for risk from low-income communities.

Digital solutions like Cashalo use mobile platforms and bleeding-edge technologies–artificial intelligence, machine learning, data science, and predictive analytics–as an enabler, to provide not just a strong alternative to credit-assessment but also easy access to affordable credit, effectively on-demand. As a result, new-age solutions are rapidly transforming both the financial services landscape and the way consumers think about and interact with these services.

Today, these mobile apps are not only providing easy and affordable access to credit, they are enabling financial freedom and opportunity for millions that were previously “invisible”, unrecognized by traditional financial institutions. For communities comprised of deserving, hard-working individuals and MSMEs who continue to be undervalued, fintechs are unlocking their financial potential and allowing them to join the global economy.

Cultivating a culture of responsible financial habits is equally important. Standard & Poor’s Global Financial Literacy Index states that only 25% of the country is financially literate. This is unsurprising when you understand the depth of the problem. A recent survey by the World Bank revealed that over 90% of Filipino adults are not covered by a formal credit bureau.

Steps are being taken. In 2017, the BSP launched its Economic and Financial Learning Program (EFLP), and fintechs like Cashalo have earmarked significant resources toward this shared mission. This includes partnering with organizations such as Knowledge Community Inc. and ASSIST Asia to teach digital and financial literacy to the underserved and unbanked sectors of the population.

With greater collaboration between the private and public sector on the horizon, a purposeful common goal towards a more financially aware and inclusive society, and a powerful engine driven by innovation and technology, the road towards a financially equitable future for the Philippines may not be as long as we thought.