THE Bangko Sentral ng Pilipinas (BSP) and the Department of the Interior and Local Government on June 21, 2022 signed a joint memorandum circular on the Paleng-QR Ph Program, which is a joint initiative to “promote account ownership and digital payments” among market vendors and transportation service providers.

This program is only one of the many government initiatives aimed at boosting digital payments and financial transactions in the country. If properly implemented, this program should allow small business owners to take advantage of QR technology that would grant them the means to participate in electronic transactions.

Enabling the financially “unserved” and “underserved” sectors of the economy to participate in financial services would, ideally, be a catalyst for growth in economic activity, especially as this allows for exponential growth in the number of transactions merchants and customers can perform daily.

Financial inclusion

Due to recent developments in financial technology and perhaps also partly because of the ongoing pandemic, the BSP was compelled to “recalibrate” its financial inclusion strategy in 2022. The National Strategy for Financial Inclusion 2022-2028 (NSFI) is a six-year plan that, according to the BSP, “aims to facilitate a coherent, well-coordinated, whole-of-nation undertaking toward the achievement of its vision of inclusive growth and financial resilience for every Filipino.” But what does the term “financial inclusion” really cover? According to the World Bank, “financial inclusion” means that “individuals and businesses have access to useful and affordable financial products and services that meet their needs — transactions, payments, savings, credit and insurance — delivered in a responsible and sustainable way.”

With the NSFI in place, several government agencies and local government units are now actively involved in making financial inclusion a reality for those who do not have access to traditional banking services.

A few years ago, it would have been impossible for anyone without a bank account to make payments online or receive funds via electronic transfer. The economy was not able to take advantage of the technological advances in the financial sector because a lot of people had no bank accounts. This is in large part a result of the difficulty in opening bank accounts experienced by people who either lack the required documents needed to prove identification or who do not have the financial capacity to meet the know your client or KYC requirements of banks, or both. Now, all one needs is a smartphone with internet access.

Serving the underserved and unserved

The question, however, remains: Are the current government programs really sufficient to ensure financial inclusion as envisioned by the World Bank? It would seem we are on track as enabling the financially “underserved” and “unserved” sectors of the economy to participate in electronic payments and transactions is already a big step closer to achieving this goal. On the other hand, it would also seem that the current government programs being rolled out are all somehow geared toward only making financial transactions and payments more accessible. What about “savings, credit and insurance?”

A person will not be able to earn interest from any savings account, except through a bank, because this service requires a banking license. Private companies cannot just offer this service without getting the appropriate government permits. Therefore, the only way this service can be made more accessible is by allowing people to open bank accounts more easily by lowering the costs of entry for the public — perhaps by making the environment more competitive by allowing more digital banks to participate and offer their services. However, it seems this cannot become a reality until after 2024 when the three-year moratorium imposed by the BSP on the application and issuance of digital banking license is lifted.

As of November 2021, there are only 124 online lending platforms registered with the Securities and Exchange Commission. This number is not sufficient considering that a lot of people do not actually have access to credit from banks — not to mention the difficulty of getting loans even if you do have a bank account. It seems the government will also need a general plan to address access to better credit since because of information asymmetry, borrowers are not able to discern good lenders from bad, and lenders are not able to identify borrowers, whether individual or business, who can make good on their loan commitments.

The development of a reliable nationwide credit scoring system may help, but this will need to be based on alternative credit information as bank transactions and traditional credit history will not be available to most people.

Nikko Emmanuel D. Silva is a member in good standing of the Philippine Bar and is currently the general counsel of First Circle Growth Finance Corp., an award-winning financial technology company that has been supporting Philippine small and medium enterprises since 2016. Prior to joining First Circle, Silva was a senior associate of SyCip Salazar Hernandez and Gatmaitan, one of the largest full-service law firms in the Philippines.