Today, 51.2 million Filipinos—about half the total population—remain unbanked. As dire as that sounds, this may already be a good figure all things considered, as there have recently been massive gains in financial inclusion due to the demands of the pandemic.
Financial inclusion is a general term that describes the “buy-in” of an individual to the mainstream financial system. A financially included individual may have savings, make regular payments through banks and other mainstream financial institutions, have financing from a bank or licensed non-predatory lender, and may also purchase legitimate investments and insurance. Their participation in these activities should also be sustainable for them to be considered financially included.
The recent proliferation of quality digital infrastructure has led to more Filipinos than ever before becoming part of the financial mainstream. These facilities and tech assets were rapidly installed in underserved areas throughout the country by the government and its private sector partners such as the Aboitiz Group, following the Philippine government’s strategies to minimize the impact of the COVID-19 pandemic.
However, despite these gains, there is still much to be done. Here are some strategies and policy changes advocated by academics and analysts that may further improve financial inclusion in the country.
1.) Encourage the Creation of Digital Banks
Filipinos may be excluded from mainstream finance due to several reasons. One of the most common is living in a “banking desert,” an area that is a significant distance away from a mainstream financial facility that could serve one’s needs. Filipinos living in rural areas may not always live near a bank or ATM, for example, and they might need to take significant time off during weekdays just to access either.
Unfortunately, this leads to a host of problems. First, they may end up spending several hours every month just to get their finances in order. Next, they may lose prime productive hours and forgo income as a result. Lastly, this situation makes them vulnerable to predatory lenders who can offer convenience at a steep and unsustainable price.
Today, however, internet connectivity is rapidly improving in many previously unconnected or underserved areas. This means that physical banks, in theory, should no longer be necessary for most kinds of transactions. Encouraging the creation of digital banks and digital banking options may help more Filipinos save time and money while simultaneously insulating them from illegal lenders and excessive service fees.
2.) Improve the Credibility of Financial Institutions
Another reason that many Filipinos continue to be underbanked is the lack of trust in major banks and lenders. Even today, the acceptance of payment cards in the Philippines remains low compared to most of the developed world due in large part to the lack of trust in mainstream financial institutions.
Financial institutions in the country have already done much to improve their credibility since multiple crises hit them hard in the late 20th century. In particular, the adoption of employee payroll bank accounts has led to millions of adult Filipinos becoming included in the mainstream financial system for the first time, facilitating trust in the system.
However, as a recent paper published by Banko Sentral ng Pilipinas points out, there as some specific issues facilitating trust among other unbanked Filipinos, particularly getting them to use online services.
Specifically, customers have to believe their bank will keep their money safe and have their interests in mind. This means local banks’ actions, from over-the-counter interactions and website and app design, need to be very obviously customer-centric. Designs and processes that very clearly only look at a bank’s own interest can prevent this trust from being cultivated.
3.) Information Campaigns for Financial Literacy
Banks are a cornerstone for national development. However, if banks don’t have enough customers because of the lack of trust, lack of access, dearth of attractive financial products, or subpar tech implementation, their risks increase and they are ultimately limited in what they could do. And if there weren’t enough people in the mainstream financial system, this could also lead to a slowdown in capacity-building and prosperity for many other Filipinos.
For these reasons, it can be argued that public and private entities need to consider financial literacy to be a public good. When everyone is prosperous and does well, the whole community and the nation at large also benefit.
That said, campaigns to instill financial literacy, and therefore participation in mainstream financial systems, have to target a wide group of stakeholders.
Campaigns may be needed for students, agricultural workers, the urban poor, as well as people just joining the middle-class. If successful, these information campaigns are likely to improve not just individual prosperity, but the well-being of entire communities as well.
4.) Leverage LGUs
Local government units are likely to be the most in tune with the specific financial needs of their constituents. This makes them invaluable for improving financial inclusion within their communities.
LGUs can encourage financial institutions to offer products specifically designed for their constituents to encourage participation in mainstream finance. If they have the resources, they can also take more direct action, such as what the City of Makati did with the Makatizen Card, a multipurpose card that has connected thousands of previously unbanked and unincluded residents to mainstream finance systems.
5.) Offer Diverse Financial Products and Solutions
Not every locality or group of unbanked people can be served with the same sets of solutions. An unbanked urbanite in Metro Manila will tend to have different concerns and needs compared to an unbanked fish vendor in Sultan Kudarat. As mentioned earlier, there are several reasons why different individuals are unbanked, ranging from the lack of access to technology to a lack of faith in mainstream banks.
This makes it important for policymakers to offer a range of potential enticements and to try different strategies whenever applicable. These should be fit for the local culture, immediate and future needs, and other exigencies.
Financial inclusion does not just benefit individuals but it benefits financial institutions as well. The knock-on effects of banks, insurers, and lenders being able to take on more managed risks is largely positive—especially in terms of encouraging entrepreneurship, innovation, and most importantly, inclusive growth. More than ever, we may have to start considering it as a necessary goal for achieving wider economic prosperity.