Inclusive Business in Finance Sector Reaches More Unbanked, Underserved Filipinos

When the Bangko Sentral ng Pilipinas (BSP) released the 2014 Consumer Finance Survey in 2017, results showed that 86 percent of Filipino households remain unbanked. The members of these households do not avail of financial services because they have little access to financial institutions, lack skills in managing bank accounts, have little trust in banks and financial institutions, and find service charges and maintaining balances too costly for their needs.

As the Philippines moves to foster greater financial inclusion, Inclusive Business models are showing potential in providing relevant and accessible financial products and services to more unbanked and underserved Filipinos.

“Creating a financially inclusive ecosystem in the Philippines is essential in boosting equitable growth and development, which creates more economic opportunities for low-income communities,” said Trade Undersecretary and Board of Investments (BOI) Managing Head Ceferino Rodolfo.

The BSP added that the finance sector should take advantage of increased digitization and the existence of enabling policies, including the National Strategy for Financial Inclusion (NSFI), to target unbanked and underserved markets.

“We have laid the groundwork for an enabling policy and regulatory environment so financial institutions can reach more unbanked and underserved Filipinos. What we need now is for private sector players to take advantage of these opportunities,” said Pia Roman Tayag, Managing Director of the Inclusive Finance Advocacy Office under the Bangko Sentral ng Pilipinas. “There’s a big market whose needs mean different business opportunities for financial institutions.”

Leveraging fintech

Given the Philippines’ rising number of smartphone users, the increased adoption of digital financial services is key to reaching more unbanked and underserved Filipinos, the BSP says.

One of the Inclusive Business models in the finance sector that successfully utilized digital technology is Globe Fintech Innovations, Inc. or Mynt, Globe Telecom Inc’s financing business which operates microservice payment service GCash and mobile loan provider Fuse Lending.

Mynt’s brands make it possible for unbanked and underserved Filipinos to engage in more convenient and cost-efficient transactions such as bills payment, online shopping, remittances, and loan applications on their phones. While microfinance institutions take a week to deliver financial services, Mynt utilizes the mobile technology of its mother company to deliver services in as little as 15 minutes.

GCash offers free remittance services while remittance agents would charge up to 10 percent in fees. Banks also tend to require a high maintaining balance while GCash does not. Informal lenders charge up to 20 percent in interest rates monthly but the interest rates of Fuse’s loans can be as low as 2.5 percent.

Because of the accessibility and convenience that GCash offers, Mynt now has five million account holders engaging in about seven billion transactions monthly. On the other hand, the flexibility of Fuse’s loans has improved the way of life for 18,000 customers, 3,600 of which are underserved micro, small, and medium enterprises (MSMEs) who gained additional working capital.

Opportunities provided for low-income sectors

Inclusive Business in the finance sector is also helping the country’s poorest sectors. In Mindanao, which holds 37 percent of the country’s poor and a quarter of the Philippine population, the lack of financial services in the region pushes farmers to borrow from traders and loan sharks. Because these farmers have to pay up to 20 percent interest per month, their debt piles up and they are left with meager income.

In addressing this challenge that farmers face, 1st Valley Bank’s Inclusive Business Model shows potential for replication in boosting agricultural development, which is’’ essential to reducing poverty in the island says the World Bank.

One of 1st Valley Bank’s products is an agricultural loan called Supervised Credit, which provides farmers with a loan of more than P31,000 per hectare. The loan term of this product is aligned with the cropping cycle of six months while its interest rate can be as low as 1.33 percent monthly, giving opportunities for farmers to increase their profits and lead better lives.

More than 10,000 farms in Northern Mindanao and Zamboanga peninsula borrow from 1st Valley Bank. The bank is currently expanding to Caraga and Central Visayas, a move that aims to reach more of the region’s 300,000 underserved farmers.

Advocating for Inclusive Business

Aside from the finance sector, Inclusive Business models are being implemented and making an impact in other Philippine industries. The Philippine government is advocating the development of more Inclusive Business models nationwide. Under the 2017-2019 (Investment Priorities Plan), the BOI may grant fiscal incentives to tourism and agribusiness firms with Inclusive Business models.

“Collaboration between the private sector and government is essential in creating a more financially inclusive ecosystem. As companies try to create their Inclusive Business models, the Board of Investments will keep on working with other government institutions to create an environment where these innovative and sustainable models can thrive,” Rodolfo said.