Recalibrating financial inclusion in an evolving landscape

By Jaime Aristotle B. Alip, PhD

January ended on a positive note, with the launching by the Bangko Sentral ng Pilipinas (BSP) of the National Strategy for Financial Inclusion (NSFI) 2022-2028. The BSP has championed inclusive finance since 2015, and the updating of the NSFI is a laudable move amidst the evolving financial landscape shaped by emerging consumer needs, rapid technological developments, and the COVID-19 pandemic.

About 7 out of 10 Filipinos are financially excluded, according to the BSP. This is based on the share of adult population who owns an account that can be used to store, send, and receive funds.  Data show that financial exclusion disproportionately affects millions of Filipinos in the lower income class and those who are unemployed, less educated, and belonging to the younger generation. Senior citizens, migrant workers, persons with disabilities, indigenous peoples, forcibly displaced persons, and those who are excluded due to their religious beliefs are also underserved and unserved. Apart from them, many in the agriculture, micro, small and medium enterprises (MSMEs) and startup sectors, as well as informal workers are also financially excluded.

But things are improving. BSP said that over half (53%) of adult Filipinos had savings in 2019, an increase from 48% in 2017. Informal ways of saving remain prevalent among adults who save money, with nearly half (51%) of savers keeping their savings at home. Further inroads made toward inclusive finance will be captured by the Financial Inclusion Survey (FIS) that BSP will conduct from January through March 2022.  The FIS results will be released in July, and hopefully, will identify gaps and priorities leading to more evidence-based policies toward inclusive finance. Meanwhile, the adoption of the new NFIS is a step in the right direction.

Why Financial Inclusion is Important

Financial inclusion is a state wherein there is effective access to a wide range of financial services for all, especially the vulnerable sectors. The key word there is “effective.” The NSFI defines “effective access” as meaning not just the availability of financial products and services.  It requires those products and services to be appropriately designed, of good quality, and responsive to the varied needs of individuals and businesses—whether for saving, payments, financing, investing, or getting insured.

Thus, financial inclusion is not an end in itself, but merely a means to ensure that financial services truly enhance the financial health of their users.

Financial inclusion is important because it helps lay the groundwork for sustainable and equitable national development. It enables individuals to access finance for their daily needs, recover from financial shocks, transact with others, benefit from government programs, and control their finances.  It also facilitates business growth and livelihood opportunities for many low-income Filipinos, MSMEs, and other marginalized sectors. In fact, the supporting role of financial inclusion is explicitly recognized in seven (7) of the 17 Sustainable Development Goals.

Towards Inclusive Growth and Financial Resilience

The overall vision of NSFI 2022-2028 is “financial inclusion towards inclusive growth and financial resilience.” It is focused on helping the most vulnerable, since, as stated earlier, financial exclusion disproportionately affects certain demographics. The approach, therefore, is two-pronged: first, promote market-based solutions for financial inclusion toward resilience, and second, recognize the importance of financial safety nets facilitated by government programs targeting the most vulnerable.

The NSFI defines four (4) desired outcomes as pathways to the vision and upon which performance of the strategy is measured. These are: (a) reducing disparities in financial inclusion; (b) improving financial health and resilience; (c) ensuring more financially capable and empowered consumers; and (d) increased access to finance by MSMEs and the agriculture sector. Along these lines, NSFI 2022-2028 pursues these strategic objectives:

1. Promote inclusive digital finance, through digital technologies that facilitate cost-efficiencies and innovation in the delivery of financial services to the low-income market and small enterprises;
2. Strengthen financial education and consumer protection, through digital financial literacy programs which can be delivered by various stakeholders;
3. Enhance access to risk protection and social safety nets, through cash assistance, health and unemployment insurance, disaster risk insurance, pension and other mechanisms of support to the vulnerable sector; and
4. Enhance agriculture and MSME financing ecosystem, through a financial infrastructure (e.g., credit guarantees, credit information registry) and legal frameworks (e.g., secured transactions framework) aimed at reducing the risks and associated costs of serving these sectors.

The Role of Community-Based Organizations

What is notable about NSFI 2022-2028 is its express recognition of the crucial role that community-based organizations play in financial inclusion.  The new NSFI has a very comprehensive discussion on the context of financial inclusion in the country, who are the financially excluded, as well as the factors that inhibit and facilitate inclusive finance.  Its discussion on the financial inclusion ecosystem includes the financial landscape, of which community-based organizations such as microfinance non-government organizations, mutual benefit associations (MBAs), and credit cooperatives are crucial components. Their inclusion in the NSFI is important because these organizations pioneered the transformative vision of making financial services accessible to poor people and sectors not served by the traditional banking system.

The NSFI’s recognition that financial inclusion is multi-dimensional is also important. Financial inclusion is not a purely quantitative goal, which points towards 100% banking inclusion.  Looking at account penetration is good – of course, people need access to accounts – but it tells us nothing about the use of such accounts, whether they have positive impact on people’s lives.  That NSFI 2022-2028 is adopting the same approach as community-based organizations, which – since time immemorial – have been monitoring not just access, but the social impact of their financial services. This is important because the intended beneficiaries – poor people, MSMEs, the informal sector – are not just financially excluded. They also suffer different forms of deprivation, which MFIs, MBAs, and credit cooperatives provide: finance, livelihood, microinsurance, financial literacy, health and other social services. This needs-based and client-focused approach that measures both the financial and social impact of financial services is unique to community-based providers.

MFIs, MBAs, and credit cooperatives ensure that those who are marginalized even by the digital revolution are served. They also pave the way for other financial players to come in. By operating in far-flung rural areas and serving communities unserved and underserved by the formal financial system, they open new frontiers, sharing the benefit of their “investments” – from social capital, financial literacy training, data and learnings. As facilitators of inclusive finance, it is apt that the NSFI open the window for MFIs, MBAs, and credit cooperatives to be given policy and other forms of support. Their work with the poor and the vulnerable, after all, is the heart and soul of financial inclusion.

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Dr. Jaime Aristotle B. Alip is a poverty eradication advocate, with more than 35 years of experience in microfinance and social development. He is the founder of the Center for Agriculture and Rural Development Mutually Reinforcing Institutions (CARD MRI), a group of 23 organizations that provide social development services to 7.8 million economically disadvantaged Filipinos and insure more than 27 million nationwide. CARD’s innovative financial and enterprise development services targeting the poor has won many accolades, including the Ramon Magsaysay Award for Public Service in 2008, and for Dr. Alip, the prestigious Ramon V. del Rosario Award for Nation Building in 2019.  Dr. Alip is an alumnus of the Harvard Business School, the Southeast Asia Interdisciplinary Development Institute, and the University of the Philippines.