World Bank: Financial inclusion still a dream in the Philippines

Only 20 million out of 100 million Filipinos earn enough to save money, and only 10 million, or 10 percent of the population, own bank accounts. 

These were among the findings of a new World Bank (WB) survey called “Enhancing Financial Capability and Inclusion in the Philippines—A Demand-side Assessment.” Financial inclusion, the WB said, refers to the ability of individuals or families to access banking and other formal financial services.

Other findings of the study:

• Some 23 million adult Filipinos report their households run out of money for food and other necessary items either “sometimes” (29 percent) or “regularly” (26 percent).

• Even among those earning more than P50,000 a month, 23 percent say they run short of money for basic necessities. Among the households that run short of money for basic necessities, the use of credit is near universal—94 percent borrow to cover costs.

• Filipinos are more likely to use informal credit and saving services than formal financial services.

• Only 4 percent of those surveyed report having a mortgage, 5 percent have credit cards and 10 percent avail themselves of credit products from a formal financial institution. More than a third rely on informal savings and credit.

• Those who are knowledgeable about financial matters (“financially literate”) are more likely to report they have money left after paying for basic necessities and less likely to say they have borrowed beyond their means. * Higher financial literacy scores are strongly correlated with the level of education.

The study also revealed that about six in 10 Filipinos (59 percent) say they plan how they spend the money they earn.

Fifty-seven percent of those who plan or budget their expenses say they have money left after paying for basic expenditures, compared with 42 percent of those who do not plan their spending.

The survey had aimed to assess people’s financial literacy or capability in managing their day-to-day finances, as well as their access to formal financial institutions like banks.

“It pays to be wise with the way we handle money – that’s what this survey is telling us,” said World Bank Country Director Motoo Konishi. “If people have more knowledge about money matters, this can help them access financial services. Promoting financial literacy is, therefore, important to achieve greater financial inclusion and boost the growth of micro and small enterprises.”

The study showed the most commonly reported obstacles to owning bank accounts are: not having enough money (reported by 20 percent of those surveyed); lack of need for an account (18 percent); lack of trust (17 percent); distance (16 percent); lack of documents (10 percent); “the bank doesn’t treat people well” (9 percent); and high cost (9 percent).

“Almost all—98 percent—of those who save but don’t have bank accounts earn less than P50,000 a month,” said Nataliya Mylenko, World Bank senior financial sector specialist who supervised the survey. “This suggests there are significant opportunities for expanding financial inclusion among low- and lower-income groups in the Philippines.”

The survey indicated the need to develop financial products (like microdeposits) that meet the needs of consumers, particularly the lower-income groups.

The survey was conducted from February to September 2014, but it was only in July this year that the Bangko Sentral ng Pilipinas (BSP) launched the country’s national financial inclusion strategy

“This (BSP program) will be a very important platform for coordinating policy and programs for achieving greater financial inclusion and improving financial education among Filipinos,” Mylenko said.

The Philippines should also boost its effort for financial literacy, as this would help Filipinos plan their expenditures and save money in order to engage them in the financial system, she added.

The WB survey-report noted that more than half of those without accounts are men and live in rural areas, and that some of the constraints concern documentary requirements.

Mylenko said informal credit and informal savings are the most utilized financial products of Filipinos while the least tapped facilities are in the formal sector, which include debit card, formal credit, credit card, and mortgage because of strict requirements.

“There is cognizance on these issues. The national (financial inclusion) strategy (launched by the government), is quite material,” she said.

“The industry is starting to wake up to the size of this market because in the Philippines, we are talking 10 million to 20 million (individuals) you can include in the financial system and provide retail financial services, too. It’s an attractive market. The question is the model and the cost and the competitive structure,” Mylenko said.

She also said mobile technology has the potential of bridging the gap in financial inclusion, but financial institutions should assess and refine mobile payments solutions and products.

“I think the next frontier is for the providers of financial services to really refine their products and understand why the uptake is so low,” Mylenko said.

She added there is now a shift to mobile technology in sending money, thus, the need for banks, telecommunications companies, technology providers, and regulators to work together in strengthening this system.

“It takes time for people to be adjusted to the technology, to develop the trust in the technology, and in the case of the Philippines, the additional issue is the interoperability of the systems,” Mylenko said. She noted that expanding and strengthening technology-based financial services in the country would promote financial inclusion.

Mylenko said the poor access to the formal financial sector in rural areas stems from the difficulty of putting up branches in these locations.

“This is where I think the excitement about mobile is so strong in the Philippines,” Mylenko said, noting that the country is an attractive market for mobile-based financial services, with the technology in place and the number of unbanked population.

WB data also showed that about 20 million Filipinos are capable of saving money after paying for basic necessities.