August 30, 2022

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On the way towards a financially inclusive country

Financial inclusion has been one of the Philippine government’s biggest goals towards the development of the country. Access to financial services is hugely important for the welfare and stability of every household and business. The Bangko Sentral ng Pilipinas (BSP) pointed out evidence that indicate that even access to the most basic financial services such as savings, payments and credit make a positive difference in people’s lives.

“Rather than being an end in itself, financial inclusion is a means to achieve broader aspirations. Its goal is not merely providing universal access to financial services, but ensuring that these services truly enhance the financial health of their users,” the BSP noted in the National Strategy for Financial Inclusion 2022-2028.

“Financial health is the ability of an individual to meet financial obligations, absorb and recover from financial shocks, reach long-term goals, and develop a sense of control of their finances. For enterprises, access to appropriate financing and financial services can facilitate business growth and livelihood opportunities for many Filipinos.”

In pursuit of this goal, the Philippine financial system as a whole has made great strides in reaching out to unserved and underserved areas and communities in the country to promote inclusion. This has been particularly evident in the wake of the COVID-19 pandemic, which saw the meteoric rise in the use of digital financial platforms and e-wallets.

SLG Account Officer heading to Blakol Elementary School.

Yet, the mission is far from over. According to the BSP’s Financial Inclusion Dashboard as of the third quarter of 2021, as much as 15.5% of the country’s cities and municipalities still do not have a banking presence, while an estimated 47% of adults do not have an account at a formal financial institution.

The challenge is compounded by many Filipinos’ misconceptions about formal financial institutions. BDO Network Bank (BDONB), the rural bank subsidiary of BDO Unibank, the largest bank in the Philippines in terms of assets, shared that many Filipinos believe that banks are completely inaccessible in remote provinces, or do not have suitable products for those markets.

SLG Account Officers of Region 5 riding a motorboat to the next island destination with underserved schools.

“The common misconceptions that hinder Filipinos from accessing the formal financial system are the same reasons they turn to informal lending sources,” the lender said.

“BDO Network Bank now has over 400 branches, mostly located in the countryside and sales teams that reach out to clients, primarily serving the banking needs of the unserved and underserved markets in rural areas.”

To serve those needs, BDONB offers loan products like salary loans or their Kabuhayan/MSME loans. Salary loans are personal loans specifically designed for government employees who may use the loan proceeds for various purposes like the purchase of real estate; house construction or improvement; education; capital for small business; acquisition of laptop or vehicles, among others. The payment for this is through salary deduction.

BDONB Sales Teams heading to Poh Elementary School in Baganga.

Meanwhile, the Kabuhayan/MSME Loans are business loans for MSMEs designed to help them grow and expand their businesses. Kabuhayan/MSME loans can be used for working capital purposes or fixed asset acquisition. Documentary requirements for Kabuhayan/MSME loan are even made simpler compared to traditional commercial loans.

The common belief that obtaining such loans is a tedious process that requires strict legal, documentary and collateral requirements is also untrue. BDONB said that documentary and collateral requirements for loans are prescribed primarily by the banking regulator, in this case the BSP, but these have been gradually relaxed over time to help improve financial inclusion.

“BDONB salary loans and MSME loans require minimal and uncomplicated documents (e.g., the employee’s pay slip for salary loans, or the firm’s proof of sales for MSME loans) and can be availed of on an unsecured basis,” the bank said.

Once secured, Filipinos also need not fear high interest rates for such loans. ”Banks actually charge lower interest rates than what alternative sources can offer. Institutions like pawnshops, finance companies, fintechs and informal money lenders on average charge higher effective interest rates on loans compared to banks,” BDONB said.

What’s more, despite rising interest rates, BDONB has maintained the interest rates on its salary loans and Kabuhayan/MSME loans to keep them affordable to their target markets.

“Loans for the underserved are less sensitive to rates; access is more important,” the bank added.

Through such efforts does BDONB aim to bring the full range of financial services to the country’s unserved and underserved communities. And it would seem that many Filipinos welcome the efforts. In terms of growth rates, the MSME loans and salary loans in particular have posted the highest expansion rates in 2021, growing by 34.5% and 21.5% respectively.

As with the sudden widespread adoption of digital financial platforms, it is only a matter of time until a tipping point is reached with regards to Filipinos’ misgivings about the credit from the formal financial system. Perhaps in a few more years, every Filipino can enjoy the multitude of opportunities universal access to financial services can provide.

 

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