Asia’s Top Country on Financial Inclusion Policy, the Philippines, Strengthens Its Microfinance Market

> Posted by Jeffrey Riecke, Communications Associate, CFI

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Last week the Bangko Sentral ng Pilipinas (BSP) announced substantial increases throughout the country’s microfinance market: growth in the volume of loans dispersed to microentrepreneurs, in the number of microcredit institutions offering savings services, and in the return on equity of rural banks with microfinance operations. Concerning regulation and institutional support, the recently released 2014 Global Microscope found that the Philippines has the best environment in Asia for financial inclusion.

In 2014, loans extended to microentrepreneurs in the Philippines totaled P9.3 billion (US$209 million) as of June, according to figures reported by BSP Governor Amando M. Tetangco Jr. at the recent Citi Microentrepreneurship Awards in Manila – a roughly 7 percent increase over last year’s figure. On savings, in early 2012 only 22 banks in the country offered micro-deposit accounts. Now, 69 of the Philippines’ 183 banks with microcredit operations take deposits, with a total of 1.7 million micro-deposit accounts. Beyond credit and savings, 86 of the country’s institutions offering microcredit also provide microinsurance and 26 provide electronic banking services.

During his speech, Tetangco said, “It is clear microfinance has become a viable proposition for banks. In fact, we can say that microfinance as a medium for financial inclusion has strengthened the institutional stability of banks by generating reliable business opportunities.” Over the last four years, the return on equity of rural banks with microfinance operations was on average three percent higher than that of the rural banking sector as a whole. Additionally, the ratio of non-performing loans of rural lenders offering microfinance is now very slightly below the industry average.

The 2014 Global Microscope, the EIU’s annual examination and ranking of the inclusiveness of countries’ financial sectors, found the Philippines to be the best country in Asia and the third best country in the world after Peru and Colombia. Tetangco highlighted the country’s Microscope ranking, noting that the report singled out the Philippines’ highly capable regulator, credit regulation, and effective dispute-resolution mechanisms. Peru, Colombia, and the Philippines (with scores of 87, 85, and 79) ranked considerably higher than the next highest scoring countries, Chile, Mexico, and India (66, 61, and 61).

The Philippines’ financial inclusion efforts enjoy proactive leadership at the national government level. It was the first country in the world to establish an office dedicated to financial inclusion, the Inclusive Finance Advocacy Staff. The Philippines’ national financial inclusion strategy has specific goals and commitments, many of which have already been implemented, including financial education initiatives.

Much room for additional outreach remains, however, as only 27 percent of the adult population has a deposit account, according to the Global Findex. The archipelago country of 7,000 islands presents great physical challenges for reaching the unbanked. To date, the vast majority of financial services are concentrated in urban and semi-urban areas. New Findex figures are due out in the first half of 2015. That’s when we will be able to tell whether enabling policies are actually paying off in the form of rising inclusion.

For more on the Philippines’ financial inclusion environment, including additional challenges, read the 2014 Global Microscope.

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