Bernardo M. Villegas
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Financial Inclusion for the Poor (Part 1)

          The focus on poverty eradication of the Duterte Administration will surely build on what was started in the Aquino Government as regards what is known as financial inclusion. Those in the economic cluster of the Cabinet, especially the Secretary of Finance and the DTI Secretary, will surely be briefed by the BSP about the National Strategy for Financial Inclusion it has put together.  There are four systems in this strategy:  policy and regulation, financial education and consumer protection, advocacy programs and data and measurement.  As discussed by Benel D. Lagua, Executive Vice President of the Development Bank of the Philippines in a column under FINEX Folio, financial inclusion is the process of providing access to financial services for all—savings, credit, investment, money transfers and other products.  All these must be made available on a timely basis at affordable cost.  Those who need them most are those at the so-called bottom of the pyramid, the great majority of whom are unbanked, i.e., some 70 per cent of the total population.  In an article in the World Bank Research Digest (Winter 2016), it was emphasized that financial inclusion is critical in reducing poverty and achieving inclusive growth.  Studies have shown that when people can participate in the financial system, they are better able to start and expand businesses, invest in their children’s education, and absorb financial shocks.

         The World Bank article referred to The Global Financial Inclusion (Global Findex) database which provides in-depth data showing how people save, borrow, make payments, and manage risk.  It is the world’s most comprehensive set of data providing consistent measures of people’s use of financial services across economies and over time.  As a guide to our financial leaders in their national strategy for financial inclusion, Global Findex presents certain global standards by which we can measure our own actual data.  Globally, 62 percent of adults reported having an account in 2014, up from 51 percent in 2011.  The share of adults with an account increased in nearly every country.  In high-income OECD economies, however, account ownership is almost universal:  94 percent of adults reported having an account in 2014.  In developing economies, only 54 percent did.  There are also enormous disparities among developing regions where account penetration ranges from 14 percent in the Middle East to 69 percent in East Asia and the Pacific.

         Many people around the world, particularly women and poorer adults, still do not have an account.  Among adults in the poorest 40 percent of households within individual developing economies, more than half (54 percent) remain unbanked.  Among adults in the richest 60 percent of households, by contrast, 40 percent are unbanked.  To narrow the gap between the high-income and low-income households, it is recommended that both governments and the private sector should shift into bank accounts payments that are now made in cash.  Globally, more than 20 percent of unbanked adults (more than 400 million individuals) receive wages or government transfers in cash.  Paying government wages and transfers into accounts rather than in cash could increase the number of adults with an account by up to 160 million. Doing the same thing for private sector wages could increase the number of adults with an account by up to 280 million.

         In the rural areas, payments for the sale of agricultural produce offer another opportunity for increasing account ownership among the unbanked.  It is estimated that in developing economies overall, 23 percent of unbanked adults—440 million individuals—receive payments in cash for the sale of agricultural products.  For the more than 10 million Overseas Filipino Workers, there is much leeway for shifting to bank accounts in their transferring of their remittances to their relatives.  The important objective here is to get poor households to make more use of bank accounts.  For example, they should be encouraged to pay their utility bills and pay school fees through bank accounts.  Shifting these payments to accounts represents an enormous opportunity for increasing the use of accounts and making payments more convenient.  (To be continued.)