OF SUBSTANCE AND SPIRIT

It is always good for public authorities to check their bearing before continuing their journey. It might be too late to reverse course.

We recall almost 10 years ago when inclusive growth became imperative becauseour economic growth, while sustained,remained rather weak relative to our neighboring countries in East Asia. The incidence of poverty and income inequality was worsening, rather than receding. Former Economic Planning Secretary Ciel Habito, writing for ADB (“Agenda for High and Inclusive Growth in the Philippines,” 2010) observed a queer link between growth and poverty alleviation in our country. Instead of arresting poverty with record growth since 2003 as in the rest of East Asia, poverty incidence had in fact risen here.

Habito quoted the 2007 ADB Critical Development Constraints Study that indicated four critical factors inhibiting our growth: tight fiscal situation; inadequate infrastructure; weak investor confidence due to bad governance; and market failures leading to narrow industrial base.Agriculture and agribusiness, tourism, business process outsourcing, food and design-based manufactures are the most inclusive growth-inducing sectors.

But inclusive growth is also about investing in people. This requires a more direct, more targeted public intervention like shaping a financial ecosystem that promotes a mindset of financial literacy, or a financial system that prioritizes people’s acceptance of their need for financial services to enhance their welfare. Making digital finance infrastructure simply available without handholding would have limited result.

This is the Bangko Sentral ng Pilipinas’ (BSP) area of concern. The mantra is to pursue widespread adoption of technological solutions to the public’s limited access to financial services and gain some fruits of inclusive growth.

One good reality check to this strategic thrust is last week’s release of the latest (2018) Consumer Finance Survey(CFS). CFS is one of BSP’s national surveys done every three years on the financial condition of Filipino households covering their assets, liabilities, income and expenditure. This was launched in 2009 to bridge the data gaps on household wealth and indebtedness in the country based on the Family Income and Expenditure (FIES) and the Annual Poverty Indicators Survey (APIS).

This is essential because BSP’s monetary (interest rate and money supply) and financial (banking regulations) have to be anchored on the ground to ensure relevance.

Needless to say, on-line banking and fintech services are optimal solutions provided people have good access to the internet highway. However, it looks like the people’s access to cyberspace remains awfully limited. Only 12 percent of all barangays have access to free wifi.

Moreover, against the BSP’s own campaign for cash-lite economy in favor of using more digital cash, some 98.7 percent of households “are still using cash in their payment — and/or remittance-related transactions.” Only 2.4 percent of households use digital payments and only for purchases and other transactions, of which only 1.1 percent are either done through on-line banking or e-money usage.

In 2009, the BSP prescribed a more inclusive financial system as it realized that credit access in some parts of the Philippines remained limited. Shadow banking had to be examined, financial education had to be stepped to encourage saving in banks and investing in various financial instruments. Finally, the BSP also proposed the inclusion of insurance policy in financial education.

What are the policy implications extracted by the BSP from the 2018 CFS?

The BSP correctly brought back the focus to financial education in the Philippines. The BSP observed thathouseholds continue to prefer consumption and non-financial asset accumulation rather than savings and investment, a persistent trend for the last 10 years. Financial education should be mandatory in school curricula. “The goal is to be able to teach the average Filipino how to make optimal financial decisions and basic understanding of financial concepts.”

This is like going back to the fundamentals after a full-court press on digital finance infrastructure.

The BSP also offered an alternative solution to one real problem of households. With limited access to the internet, households are using only basic, rather than smart, phones which are not wired for internet capability. As a mitigant, a one-stop shop terminal for financial services like loan application, sending and receipt of remittance, etc. may be considered as a collaborative project among relevant government agencies and the banks.

Another policy implication is the intensified promotion of the Credit Surety Fund (CSF) program of the BSP in coordination with local governments and other donor institutions. Institutionalized by RA 10744, this program leverages on cooperatives and NGOs which run MSMEs and contribute to the CSF a minimum of P100 thousand. In return, they get free business and financial training, collateral-free loan from participating banks ten times their initial contribution, even without credit track record. What substitutes for collateral and credit history is the cooperatives and NGOs’ credit familiarity with their members and shared responsibility to pay back loans. No wonder, non-performing loan ratios among CSF borrowers are much lower than industry averages.

The 2018 CFS is very refreshing because it goes beyond simple financial inclusion focused on digital solutions. Strengthening of the Financial Sector Forum would address the so-called regulatory grey areas to ensure financial stability which actually inspires public confidence in financial and non-financial institutions. Given that the CFS also found that household income fell short of household spending, excessive indebtedness should also be addressed.Refocus on the adequacy of the social pension program and cash transfer would also be done.The BSP also called for constant reskilling or upskilling of the labor force to enhance their chance for decent job opportunity.

This is a reality check for the BSP’s penchant for digitalization. Fortunately, it decided to hold back and reassessed its options.

Once upon a time, Blaise Pascal said: “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.” The pandemic must have helped in our monetary authorities’ circumspection bias these days.