By Jeremaiah M. Opiniano and Dr. Alvin P. Ang / Institute for Migration and Development Issues
ON July 1 the Bangko Sentral ng Pilipinas (BSP) will launch a National Strategy on Financial Inclusion (NSFI). The forthcoming policy framework, to be collectively signed by 13 national government agencies, represents the Philippines’s effort at bolstering the “Creation of A Savings Habit” (Cash) and letting as many Filipinos—especially the poor—to be captured by the formal financial system. (The BSP recently conducted consultations to stakeholders in the country’s three major island groupings.)
In essence, the NSFI envisions this for Philippine financial inclusion: “A state wherein there is effective access to a wide range of financial products and services by all.”
The NSFI formalizes the policy showcase of the Philippines as one of the more accommodating countries for financial inclusion. The conduciveness of a nation’s environment for financial inclusion is the country’s turf: first in Asia and third worldwide according to a 2014 survey of The Economic Intelligence Unit. Admittedly, however, the archipelagic nature of the Philippines offers physical challenges in financial inclusion. Of some 1,300-plus municipalities nationwide, about 36 percent of these geographic units do not have a banking office leading to roughly 15 percent of the population unbanked.
Citing recent World Bank data covering the years 2010 to 2014—the economy’s sunshine period, the Philippines’s five-year gross domestic savings rate is 15.6 percent, lower than rates of neighboring Southeast Asian countries. Not even recent years of macroeconomic growth for the country, a situation the Philippines long dreamed of having, have pushed people to improve their savings habit.
Data on the Philippines from the WB Global Financial Inclusion Index (Findex) further pushes the concern. The Findex is a worldwide survey of over-150,000 people asking questions related to financial inclusion—from saving to borrowing to opening accounts. Done twice (in the years 2011 and 2014), some 1,000 Filipinos were surveyed in the two survey rounds of the Findex.
A source of good news is that the number of adults aged 15 years old and above with accounts at formal financial institutions increased to 31.3 percent in 2014, from 26.6 percent three years before. There was an increase in account-bearing Filipinos, who are living in rural areas: From 19.5 percent to 27.5 percent.
But above-15-year-old Filipinos, who saved at a formal financial institution, if to cite the Findex surveys, increased negligibly: From 14.7 percent in 2011 to 14.8 percent in 2014. This is baffling since Filipinos, who “saved any money,” be it kept on their own or placed in financial institutions, rose to 67.3 percent in 2014 from 45.5 percent in 2011, says the Findex survey data.
Ricart
PRELIMINARY survey findings of a research project in the Philippines using a tool called the Remittance Investment Climate Analysis in Rural Hometowns (Ricart) applied in the municipality Guiguinto, Bulacan, affirm national-level observations. Guiguinto, found in Bulacan province and is an hour’s ride from Manila, is still outside of the ambit of cities, even if the town’s first-class income status makes it look like a city already. But not even the presence of some four commercial banks, two rural banks, a thrift or savings bank and some five cooperatives pushed as much people to save.
In the Ricart survey (n=227 respondents, broken down into 118 migrant families, 36 overseas migrants and 73 nonmigrant families), the number of people bitten by the savings bug had not even reach half. Some 41.3 percent of migrant families, 44.4 percent of migrant remitters and 26 percent of nonmigrant families in Guiguinto have savings accounts in formal financial institutions.
So, when asked why, some residents, especially migrant families, cite usual reasons: incomes “not enough” for daily needs, accumulating and cyclical debts (the latter covering borrowing money to pay-off a current debt), among others. The Ricart survey showed people “know” about financial management and “do not need any help” in relation to handling money. However, practices fail to show such is happening. Most of the surveyed respondents do not list down expenses though they know the money that comes in. Unspent money from previous paycheck, most respondents answered, are spent for daily needs. And when the household is drained of cash, it’s time to borrow for many respondents.
Ricart had been applied in previous years in three other municipalities across the Philippines. To include the current round in Guiguinto that had been supported by the Institute for Money, Technology and Financial Inclusion (IMTFI) of the University of California-Irvine, the story is the same: local and overseas-based income earners and remittance-possessing households claim to “know” finance but the practices contradict what they’re supposed to do given what they “know.”
Yes, municipal-level results of previous and current Ricart surveys are not generalizable nationally (previous Ricart studies were done in Magarao, Camarines Sur; Maribojoc, Bohol; and Pandi, Bulacan). Still, these attempts give a good snapshot at the environment for savings and investment, at least by rural folks. If Ricart will be done in other places, the answer to the money handling question may remain to be the same: people “know,” but practices do not show what should be done.
Financial education and consumer protection is a second pillar of the NSFI. The mechanics of advocating financial education are things stakeholders know already, like budgeting sheets or answering risk profile questionnaires, or even giving out an alkansya (piggy bank).
But, with the delivery of these approaches to improving people’s financial management skills comes with its own tone. That tone may have to ring well in the mindset of Filipinos. One may know budgeting but, if the Filipino mindset is still on spending, will behavioral change happen?
Financial inclusion is a behavioral economics issue and, more important, a cultural challenge. Communicating clear messages that strike a chord at the Filipino’s money mindset may have to be the next step to improving the state of Filipinos’ access and usage of money and financial services.
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Assistant professor Jeremaiah Opiniano is executive director of the nonprofit Institute for Migration and Development Issues (IMDI, https://almanac.ofwphilanthropy.org) and teaches at the journalism program of the University of Santo Tomas. Dr. Alvin Ang is full professor of economics at the Ateneo de Manila University (AdMU) where he also heads an economic forecasting unit called Eagle Watch. This commentary is related to the research project “Overseas Remittances, Hometown Development and Financial Inclusion” of IMDI, funded by the Institute for Money, Technology and Financial Inclusion of the University of California-Irvine.