The Economist Intelligence Unit (EIU) names the Philippines as the top country in East and South Asia and the third in the world, with the most conducive environment for financial inclusion.
In EIU’s maiden edition of the “Global Microscope on the Enabling Environment for Financial Inclusion”, the Philippines together with 54 other countries around the world, were assessed using 12 indicators that measure government support for financial inclusion; regulatory and supervisory capacity for financial inclusion; the effectiveness of regulations to promote inclusive financial services like savings, credit, microinsurance, and electronic payments; ease of setting up branches and agents that provide financial services; as well as the existence of credit reporting systems, market conduct rules, and grievance and dispute resolution mechanisms that protect financial consumers.
With a score of 79 out of 100, the Philippines bested 11 other countries in Asia and followed Peru and Columbia at the top of the global ranking.
The top 3 countries, on account of their strong leadership and institutional depth, scored well above the 4th country Chile which garnered 66 points.
From 2009 to 2013, the EIU Global Microscope focused on assessing the Microfinance Business Environment of countries.
In all these years, the Philippines was consistently ranked as having one of the best regulatory environments for microfinance. In the 2014 Global Microscope, the EIU notes that results cannot be directly compared with past rankings due to substantial changes in the assessment methodology.
However, the EIU acknowledges that “Under any (methodological) framework, the Philippines will score well, because it benefits from having a highly capable regulator, optimal credit regulation and effective dispute resolution”.
The Philippines received a score of 76 for 8 out of the 12 indicators.
The EIU cites the Bangko Sentral ng Pilipinas (BSP) as “the first central bank in the world” to establish an office, the Inclusive Finance Advocacy Staff, dedicated to financial inclusion. It also recognizes the leadership of Governor Amando M. Tetangco, Jr., as head of the BSP Inclusive Finance Steering Committee, in championing the crafting of a national strategy for financial inclusion.
For the past 15 years, the BSP has devoted significant efforts to establish an enabling policy and regulatory environment for financial inclusion. In 2000, the BSP initially focused on the safe and sound provision of microfinance services by the banking sector to traditionally unbanked microentrepreneurs.
The BSP has since committed to pursue financial inclusion, a state where there is effective access to a wide range of financial services for all Filipinos.
It has issued regulations that support expanded financial access, while preserving financial stability and integrity, deepening financial education and ensuring consumer protection.
BSP regulations allow market innovation, pioneering products, and new market entrants including non-bank providers, to target financially excluded segments of the population with affordable and accessible financial services. At the same time, these regulations ensure that providers and products are safe, sound, and responsive to diverse consumer needs.
The EIU report showed the Philippines is ranked as having the 3rd best environment in financial inclusion out of 55 countries with a score of 79.
This is an improvement from the Philippines’ already impressive 4th rank and score of 67.9 last year.
Peru finished first in the index, with an overall score of 87 out of 100, followed closely by Colombia at 85.
In May 2014 the BSP approved a general consumer-protection framework, in which the BSP will supervise and assess the safety and soundness of banking operations.
The framework, which includes a separate system to access consumer-protection practices, is expected to be fully functional in 2016.
Also, EIU noted the establishment of the Credit Information Corporation which is now off the ground and expected to be fully operational by December 2014.
But EIU also said the country’s financial inclusion initiatives are also faced with challenges, foremost of which is the archipelagic setting of the country.
“While the Philippines is at the forefront of promoting and creating an enabling environment for financial inclusion, some sector experts believe that delivery and implementation is weak. In an archipelago made up of more than 7,000 islands, there are huge financial, security and logistical challenges in reaching the poor and unbanked,” EIU said.
This is also the reason why the concentration of microfinance institutions (MFIs) is found in the urban and semi-urban areas with larger populations, and this often results in lenders charging higher interest rates.
Non-regulated financial institutions, namely, co-operatives, are not well supervised and engage in deceptive practices and charge high interest rates.
Furthermore, EIU said overindebtedness is also an issue with multiple financing, although the establishment of the Credit Information Corporation is a step in the right direction.
“Lastly, financial literacy continues to be a problem, as many Filipinos do not understand or value the importance of savings,” EIU said.
In a report, BSP said the country’s microfinance services remained stable as of the end-2013 characterized by increasing number of borrowers.
BSP said microfinance loan portfolio grew by 3 percent to P8.7 billion in 2013 from P8.4 billion in 2012.
Micro-deposits have also been on an uptrend where accounts grew by 27 percent to P2.96 billion in 2013 from P2.33 billion in 2012.
In terms of volume, the total number of micro-deposit accounts surged by 36 percent to 1.5 million accounts in 2013 from 1.1 million accounts in 2012.
For microinsurance, data from the Rural Bankers Association of the Philippines (RBAP) indicated that the total number of rural bank clients with microinsurance rose by 153 percent to 1.4 million in 2013 from around 543,500 in 2012.
The number of banks offering microfinance loans to microenterprises decreased to 168 banks in 2013 from 171 banks in 2012, although the amount of microenterprise loans still expanded by 7 percent to P7.4 billion in 2013 from P6.9 billion in 2012.
In the Philippines, MSMEs (micro, small and medium enterprises) account for 99.6 percent of our total enterprises, employs 61 percent of our total employed population, and contributes 32 percent to the GDP.
EIU is an independent business within The Economist Group providing forecasting and advisory services through research and analysis, such as monthly country reports, five-year country economic forecasts, country risk service reports, and industry reports.
According to EIU, both Peru and Colombia showed strength across the board, ranking in the top five in most of the indicators, while the Philippines received a score of over 76 for eight of the 12 indicators.
“These top three countries score well above the next-highest country, Chile (66 out of 100), which can be attributed to strong leadership, as well as institutional depth. Philippines will score well, because it benefits from having a highly capable regulator, optimal credit regulation and effective dispute-resolution mechanisms,” EIU said. Colombia and Peru are global leaders in prudential regulation and rules for deposit-taking and have strong records in microcredit. Colombia is one of the leaders in the regulation of micro-insurance, along with India, Mexico and the Philippines.
“Interestingly, of the top three countries, neither Colombia nor Peru has a unique, formalized and documented strategy for financial inclusion. While the Philippines has a documented financial-inclusion strategy that contains specific commitments and goals, the governments of Colombia and Peru have providedfinancial-inclusion support though the implementation of a range of initiatives in the context of financial education, government-to-person payments and programs aimed at increasing access to bank accounts, among others,” the report said.
– See more at: http://www.malaya.com.ph/business-news/special-features/financial-inclusion-ph-ranks-1st-asia-3rd-world#sthash.VI5BjNqf.dpuf
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