ADDRESSING the gaps in financial inclusion via digital means could boost the country’s gross domestic product (GDP) by more than 14 percent, the Asian Development Bank (ADB) said on Tuesday.

While the Philippines has been a regional leader in recognizing financial inclusion as a priority and putting it at the center of financial sector development, access and usage of financial services remain limited in many parts of the archipelago, the Manila-based multilateral lender said.

Only 28 percent of Filipino adults own a bank account and only about 15 percent save any money with a formal financial institution over a 12-month period, while only 10 percent borrow money from a formal financial institution over a similar timeframe, according to the report “Accelerating Financial Inclusion in Southeast Asia with Digital Finance,” which ADB released on Tuesday.

“We have assessed needs and formal supply for the Philippines in payments, savings, credit and insurance,” it said.

In terms of payments and transfers, the gap between needs and supply is roughly $16 billion even if 75 percent of the target needs already been met via some form electronic payments solution, the bank noted.

The gap in savings is about $20 billion, and the number of adults who practice saving with a financial institution has not gone up in recent years and has remained at 15 percent between 2011 and 2014, it said.

The credit gap is the largest of the three in terms of absolute size as well as in relative terms.

“The credit needs of the target segment that are unmet by formal financial institutions are estimated to be $21 billion, indicating that only about 50 percent of the target segment’s needs have been met so far,” it said.
The gap is exacerbated by the limited micro-loan book of banks and the lack of activity by large banks in pursuing microfinance, the lender noted.

About 97 percent of microcredit is provided by rural banks or nongovernment organizations, entities that are naturally constrained by the amount of funding they can mobilize compared with large commercial banks.

“We estimate that the Philippines’ GDP could increase by more than 14 percent if the financial inclusion gap were closed,” ADB said.

The bank believes that digital solutions can be a powerful leverage to address the unmet needs of the target segments, particularly its impact on four areas:

Real time know-your-customer schemes using digital technology that taps into public database and alternative verification platforms and techniques Creating a sustainable electronic payments ecosystem via supply-side innovations

Broader credit access via digitization of credit process, alternative sources of data like payment transactions
Enabling agents and applications such as wallets to mobilize formal savings by reaching more customers and reducing costs of service

“Digital enablement can be a powerful part of this solution,” the bank said.

It estimated that corresponding digital applications and related regulatory initiatives could boost GDP by about 3 percent, produce over $6 billion in additional electronic payment flows, lead to more than $4 billion in additional credit uptake and mobilize more than $7 billion in savings.

Regulatory initiatives are needed for digital finance to achieve its potential, the bank added.


Rachel Quintos

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