EDITORIAL | Democratized Access: The Needs of the Unbanked in Achieving Financial Inclusion

Despite general growth, however, financial inclusion among Filipinos remains low. It is not only "unbanked," but it is also associated with income disparity. We have been talking about inclusive growth, but neither growth nor inclusion exist. What is causing this?

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Financial inclusion has been characterized in the Philippines as a condition in which every individual has equitable access to a diverse range of financial products and services, including savings, credit, payments, insurance, remittances, and investments. It is an essential facet of social inclusion, particularly useful in eradicating income disparities and poverty by opening previously restricted avenues to advancement for underprivileged portions of the community. Despite general growth, however, financial inclusion among Filipinos remains low. It is not only "unbanked," but it is also associated with income disparity. We have been talking about inclusive growth, but neither growth nor inclusion exist. What is causing this?

In line with the results of the Bangko Sentral ng Pilipinas (BSP) 2021 Financial Inclusion Survey (FIS), over 50 percent of the adult population now has an account with a financial institution. We need to remember that financial inclusion is a key driver of economic expansion and policy relief. Equal access to finance can promote job creation and income, mitigate susceptibility, and increase human capital investments. Accessibility to a transaction account is a first step toward greater financial inclusion because it permits people to keep money and send and receive payments. Financial access strengthens daily life and assists families and businesses in planning every aspect, from long-term goals to unforeseen crises. People who have accounts are more likely to use other financial services, such as credit and insurance, establish and grow enterprises, invest in education or health, manage risk, and weather economic fluctuations, all of which may elevate their overall state of life in general.

When it comes to financial inclusion, there are constant and considerable roadblocks. First, there is a significant barrier in the form of an absence of awareness and information about formal financial services. Rural and marginalized groups may simply be unaware of the services or concepts available, and certain communities may have mistrust in legally binding financial systems. Furthermore, cultural, and social norms and traditions may impact financial habits and decisions. Financial firms may be discouraged from serving low-income consumers and entering underrepresented markets due to policy and regulatory constraints. Women and marginalized groups may face increased difficulties in accessing and controlling financial resources because of socioeconomic gaps and gender inequities. It can be extremely difficult to fix a problem that cannot be measured properly. Insufficient data and market knowledge on unbanked and underbanked groups might make it challenging to establish focused and successful financial inclusion initiatives. Furthermore, geopolitical and conflict-related difficulties can impair financial infrastructure and equilibrium, limiting access to financial services in specific geographic regions. Finally, concerns about data privacy and security may dissuade people from using digital financial services, particularly in countries with weak data protection regulations. In some circumstances, customers may deliberately or mistakenly choose to financially exclude themselves. Those who do not trust digital services, for example, miss out on many opportunities in exchange for greater autonomy and assurance over their personal information.

In comparison to peer countries, the Philippines has a low percentage of banking permeability, highlighting the large left unfulfilled demand for financial services. In accordance with McKinsey & Company, the Philippines' banking penetration rate in 2021 will be among the lowest in Southeast Asia. As shown by central bank data, the country's banking penetration rate was just 56%, according to a May 3 post on McKinsey's website published by Guillaume de Gantès, senior partner at its Southeast Asia office, Associate Partner Hernan Gerson, and Kristine Romano, a partner at its Manila office.

According to a Nielsen Company study, at least one-third of unbanked people like the idea of having loans, savings accounts, and life insurance, implying that they want access to financial services. What, however, are the reasons why Filipinos do not have an account? First, there is an apparent absence of awareness and information, which is one of the top reasons why Filipinos remain unbanked. This lack of understanding is more than just having illusions and prejudices. It has also played a role in numerous other challenges that Filipinos endure. More people can be enticed to the bank by conveying accurate information. Second, having a limited quantity of money is one of the key concerns of Filipinos, particularly those who rely on day-to-day wages. They are more preoccupied with meeting their basic requirements, such as food and utilities, before they consider conserve money. And, in light of the present pandemic, people are much more anxious about their basic needs. Third, there is a lack of accessibility: Did you know that in 2019, there are 510 cities and municipalities in the country that have no banking presence? This is why many Filipinos prefer bayad outlets, pawnshops, and ATMs (automated teller machines) for financial transactions. When compared to banks, it is more convenient to visit. However, most Filipinos are uninformed of the existence of rural banks. In fact, the country has more rural banks than commercial banks. These institutions are located throughout the Philippines and are more accessible than large banks. Finally, not having enough standards: One of the reasons why Filipinos remain unbanked is a lack of sufficient requirements. According to the BSP's 2019 Financial Inclusion Survey, 71% of people find it challenging to open an account due to the paperwork requirements, whereas 58% have no restrictions when applying for a loan at a formal financial institution. To solve this, the government is developing the Philippine National ID, which would replace the two valid ID criteria, allowing financial institutions to make account opening easier and more convenient.

To put it briefly, I'm convinced we can work to eliminate the impediments that prevent those who are impoverished from participating in the financial sector and using these services for the betterment of their lives, where people cope better with poverty, particularly dealing with the difficulties of irregular income and unexpectedly large bills, and where we can lift people out of poverty through streamlined education and health care. We can ensure that all people, particularly disadvantaged and marginalized, have access to inexpensive and appropriate financial services by serving the needs of the unbanked to achieve financial inclusion. Its goal is to provide people with instruments such as savings accounts, credit, insurance, and digital payment choices that will allow them to engage in the formal financial system, manage their finances, and build economic resilience. From exclusion to inclusion, everyone is endowed with boundless potential.

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Reference:

Why Filipinos Remain Unbanked: Addressing Banking Challenges in the Philippines. (2021, February 1). PearlPay. https://pearlpay.com/why-filipinos-remain-unbanked/

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