“A lot remains to be done.”
Seven of every ten Filipinos have no bank accounts. They are not served by the formal banking and financial system. That’s 77 million Filipinos out of a total population of 110 million.
The main reason most people don’t deal with the banks is that it’s very expensive to do so. And they require so much documentation – documents which are very expensive to produce. And the banks charge so much for a job that is done mostly by a computer.
Not surprisingly, according to the Bangko Sentral ng Pilipinas, itself, “financial exclusion disproportionately affects millions of Filipinos in the lower income classes and those who are unemployed, less educated, and belonging to the younger generation.”
Also victims of exclusion are: senior citizens, migrant workers and their families, persons with disabilities, indigenous peoples, forcibly displaced persons, those who are excluded due to their religious beliefs, and other marginalized segments. “Financial exclusion is also prevalent in the agriculture, MSME, and startup sectors as well as among informal workers,” BSP points out.
Per BSP survey data, only 27 percent of those in the lower class (E) have an account, compared to 72 percent among the upper class (ABC1). (Socioeconomic classifications: AB – upper class; C1 – upper middle class; C2 – upper lower class; D – middle class; and E – lower class.)
Poverty incidences for farmers and fisherfolk stood at 31.6 percent and 26.2 percent, respectively—the highest among the basic sectors—in 2018.
BSP says these segments continue to have difficulty accessing and using financial products and services, citing hindrances such as the lack of required documents to open a personal or business account, associated costs in opening and maintaining accounts, lack of financial data that will allow them access to formal credit, and limited awareness and knowledge about financial products and services.
Among MSMEs, for instance, lack of financing and capital was cited as the top barrier for microenterprises and the second largest barrier for small enterprises in the Asian Development Bank’s (ADB) 2021 Survey of MSMEs. In contrast, in this same survey, medium enterprises ranked lack of financing as the sixth largest barrier, indicating that financing is especially problematic for the smallest firms.
Inclusion of these productive segments into the financial system is crucial as the country tries to recover from the crisis and regain its momentum in economic growth. The agriculture and MSME sectors are the primary sources of livelihood for many Filipinos.
In 2020, MSMEs accounted for 99.5 percent of total enterprises in the country and generated 63 percent of total employment, but recent trends show that the total amount of bank loans to MSMEs as a percentage of their total loan portfolio has been declining.
On the other hand, the agriculture sector showed a steady share in the country’s GDP at around 10 percent. Since 2018, however, the share of loans to this sector has been declining as well.
Employed individuals are twice as likely (39 percent) to own an account than those who are unemployed (19 percent).
Interestingly, the rural population has a slightly higher account penetration rate (30 percent) compared to the urban population (27 percent). This coincides with the increase in the number of accounts in MFIs or micro-finance institutions which have a strong presence in the countryside.
Nearly six in 10 adults who have a college degree have an account, compared to only 3 in 10 among those who did not reach college level. Only 8 percent of young adults (aged 15–19) have an account, which is significantly lower than in other age groups.
Unlike in most countries, women in the Philippines are more financially included than men based on indicators such as account ownership, savings, credit, insurance, remittance, and making payments.
For bank accounts, men have a higher ownership level (13.8 percent) compared to women (10.7 percent).
In financial investment, only 18.9 percent of women had investments, which is lower than the 30.3 percent for the men. Those who receive payments like salaries and wages, more than half of the men (51 percent) do, compared to 35 percent of the women. This is because more men are employed, than women—76 percent of working age men have jobs; 52 percent for women.
More than half (53 percent) of adult Filipinos had savings in 2019, up from 48 percent in 2017. Nearly half (51 percent) of those with savings keep their savings at home.
In credit, more than half of borrowers sourced their loans from informal sources, specifically family and friends (44 percent) and informal lenders (10 percent). Formal borrowing decreased by 7 percentage points from 63 percent in 2017 to 56 percent in 2019, while informal borrowing grew significantly by 15 percentage points, from 39 percent to 54 percent, during the same period.
Adults with insurance are 23 percent of the population in 2019, up from 18 percent in 2017. Insurance premiums account only for around 2 percent of the GDP in 2021. Investment ownership likewise increased to 25 percent of adults in 2019 from 22.5 percent in 2017; however, most of these investments are mandatory contributions to the Social Security System (88 percent) and the Pag-IBIG Fund (52 percent).
Lack of money is cited by 45 percent of adult Filipinos as a reason for not having an account, related to the perceived high cost of opening and maintaining an account.
Per the World Bank, the percentage of unbanked Filipinos citing cost concerns as a barrier is significantly higher than the country’s Southeast Asian peers.
Other reasons noted were lack of documentary requirements (26 percent) and distance to financial institutions (8 percent). In addition, 31 percent of those who do not transact with financial access points cite being intimidated by the formal setup in bank branches and other financial institutions.
For the agriculture and MSME sectors, lack of formalization and productivity issues, including low financial and business management capabilities, constrain bankability of these borrowers.
The high penetration of cellular phones, mandatory national ID, digital finance infrastructure, and the rise of such payments software like GCash and PayMaya are helping in financial inclusion.
But a lot remains to be done.