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Bangko Sentral Makes Significant Strides Toward Building an Inclusive Financial System


The Year 2010 was marked by a wide range of BSP issuances that aim to build an inclusive financial system in the country. This system is one where there is greater access to much needed financial services by more Filipinos, especially those that are traditionally unserved or underserved. The BSP recognizes that financial inclusion is a worthy policy objective and is something that can be pursued alongside the promotion of stability and efficiency in the financial system.  This makes sense especially in an archipelagic country where 37% of our municipalities are still unbanked and many are left wanting for much needed financial services.

 The 2010 issuances have focused on a wide range of areas including: expanding products and services that can be offered by banks to service the varying needs of the market, widening access points where financial services can be delivered, developing the market infrastructure to increase transparency and competition in the industry, promoting innovation to encourage growth in scale and increases in efficiency, and addressing existing barriers that hinder the access to finance by the unserved and underserved market.  All in all, the issuances build the framework for an inclusive financial system that can service the needs of all markets in an effective, efficient and sustainable manner.

On the expansion of products and services, the Bangko Sentral issued in 2010 Circulars 678, 680 and 683 which recognize products like housing microfinance, micro-agri loans, microinsurance and micro-deposits. These products reflect the reality that the unserved market needs a wide range of financial services that are appropriately designed and priced to suit their needs and their capacities. Many banks have already demonstrated success in serving microfinance clients. In recognizing the unique features of these new products, banks can be more responsive and effective in serving the needs of this growing market. The 200 banks currently involved in the microfinance market are serving 883,863 clients with PhP 6.4 billion loans outstanding and PhP 3.0 billion in savings.

Hand in hand with the expansion of products and services, the Bangko Sentral also issued Circular 694 which provides the opportunity for banks to expand its network of offices particularly in areas that are hard to reach and remain unserved through the establishment of micro-banking offices (MBOs). Through these MBOs, the usual barriers of cost and distance can be addressed and people who have been deprived of a face-to-face banking presence in their areas need not travel far to be able to save, pay their loans or make simple financial transactions.

The brick and mortar offices of banks are also being fully complemented by gains being made in the mobile banking and electronic money space. The Bangko Sentral has built the groundwork for this by issuing regulations that clearly define e-money and e-money issuers. As a result, banks are already making use of these available platforms in providing financial services, including microfinance services. With the use of e-money as a revolutionary solution for low value payments, banks have dramatically lowered transaction costs, increased the productivity of account officers, decreased cash-on-hand risk and increased accessibility to a wide range of financial services, including loans and deposits. Since March 2009 when Circular 649, which governs e-money issuance, was issued, there are now 20 banks providing e-money services. This year, the e-money framework has been further expanded with the recognition of e-money network service provider (EMNSP). This issuance recognizes the complexity of the technology required in an e-money business as well as the substantial investment necessary which may constitute a formidable barrier to entry.  Cognizant of this limitation, the BSP has now authorized, through Circular 704, the outsourcing of services to the EMNSP which will now allow more institutions, particularly rural banks, to become competitive e-money issuers and therefore service more clients especially the unbanked in the countryside. 

As the products and access points are being carefully considered, other barriers to entry into the financial system have also been addressed. Most recent of BSP issuances is the soon-to-be-issued Updated Anti Money Laundering (AML) Rules and Regulations which now recognizes that some AML rules applied uniformly across all types of transactions may not be the proportionate approach especially in dealing with low-value transactions of the unserved and underserved market.  The consolidated rules now take into consideration the risk based approach in conducting customer due diligence, record keeping and customer retention policies. This is ideal for the underserved and unserved market where the transactions may now be considered low risk by the financial institution and thereby undertake more commensurate measures. The consolidated rules now also take into consideration arrangements for reliance on third party customer due diligence and the use of technology to produce the necessary photo bearing identification cards. These new rules will lower the AML costs associated with servicing low risk customers and therefore make financial services more accessible to those that are currently marginalized due to prohibitive AML requirements.

Finally, the BSP has also made some important headway in creating the necessary infrastructure that will ensure transparency and competitiveness in the industry. Circular 685 was also issued in 2010 recognizing Microfinance Institution Rating Agencies.   With the increased commercialization and growth of the microfinance industry, the demand for such ratings is increasing. Ratings are seen as an effective tool to raise the quality and efficiency of microfinance institutions, increase the transparency in the industry as well as provide confidence for social and commercial investors.  For banks with microfinance operations, ratings may provide valuable assessments that can materially improve access to financing and capital by qualified banks and generate a useful benchmark vis-à-vis other microfinance institutions both locally and internationally.  Already the world’s leading microfinance rating agencies have set up offices in the Philippines and have demonstrated their interest in being recognized by the BSP.

Indeed, 2010 has been a good year for financial inclusion in the Philippines and the world has noticed. For the second year in a row, the Philippines was named as one of the global leaders in microfinance according to a survey of 54 countries. The 2010 Global Microscope on Microfinance, conducted by the Economist Intelligence Unit, ranked the Philippines as the top two best performing country for microfinance and the best in the world for the sub-category of policy and regulatory framework for microfinance.

The improvement in the ranking was due largely to the initiative mentioned above which the survey identified as important steps to further promote the development of a viable, competitive and robust microfinance industry in the country.

Moving forward, the BSP will continue to work on creating a sound and stable banking system that can cater to the needs of all markets, including the underserved and unserved leading to a truly inclusive financial system. With many key elements now in place, the Philippines is set to make even bigger strides toward financial inclusion in 2011.

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