The reach
and sophistication of financial services in the Philippines has greatly
improved in recent times, while the national government is among the most
impressive worldwide in terms of support for financial inclusion. Without a
doubt, the need to establish inclusive systems for low-income customers and
SMEs is important, but the successful creation of an accommodating financial
ecosystem is a feat only a few developing nations have so far managed to
achieve.
The Rizal
Commercial Banking Corporation (RCBC) appreciates how financial inclusion in
the Philippines has improved dramatically in recent years, referring in
particular to the expanded list of activities and services permitted by the
Central Bank of the Philippines (BSP) for microbanking offices, and the waiver
of payment of processing fees for offices in unbanked areas.
As the
financial flagship company of the Yuchengco Group of Companies, RCBC is one of
the country’s leading private domestic banks. In its more than 50 years of
existence, the bank has done a great deal to further the Philippines’ growth.
World Finance spoke to Lorenzo V Tan, RCBC former president and CEO about the
challenge of promoting financial inclusion in south-east Asia and the role of
microfinance, green banking and the ASEAN integration in facilitating this
expansion.
Increasing access
Studies
have shown that financial inclusion empowers lesser earners by teaching them
how to manage finances and access to credit, insurance or savings. “As of
2015”, Tan told World Finance, “63 percent of cities and municipalities in the
Philippines had a banking presence, while 87 percent had at least one financial
access point.”
Poor
infrastructure, limited access to technology and a lack of credit information
are among the most significant impediments to progress. As a result, only 39.2
million people (38.6 percent of the population) are part of the formal banking
system, with the remainder of the population, according to figures cited by
RCBC, partially or entirely unbanked. Based on BSP data after to 2015, as
little as 31.3 percent of the total Filipino adult population has an account
with a formal financial institution, while 37 percent of cities and
municipalities have no banking presence whatsoever.
According
to RCBC, a key part of the solution to this problem is microfinance. The
Economist Intelligence Unit, an independent business within the Economist
Group, has ranked the Philippines as a microfinance leader in Asia, as well as
the third-highest ranking country globally in terms of its regulatory
environment for financial inclusion.
Such
findings led to the establishment of Rizal Microbank, RCBC’s microfinance arm,
which focuses on providing a suite of financial products and services to the
‘bottom of the pyramid’. According to Tan, “over 90 percent of households in
the Philippines still remain unbanked or under-banked, thus providing Rizal
Microbank with a huge market for its microfinance services”.
Aside
from its Microdeposits and Microenterprise Revolving Credit Line Facility,
Rizal Microbank offers an Agrifinance Value Chain Loan Facility in cooperation
with the International Finance Corp. This loan product aims to support the
agricultural industry by giving key players (for example, agri-input suppliers,
post-harvest facility providers and post-harvest processors, integrators and
consolidators) valuable access to financing.
This
facility is hugely influential, particularly given the agricultural sector
employs approximately 27 percent of the Filipino workforce, according to the
latest data from the Philippine Statistical Authority. What’s more, attempts
like this to further the sector’s development are critically important for the
Philippines as they represent a relatively easy means of driving growth and
creating new jobs.
Looking
at the last few years, growth in the agricultural sector has been stagnant, and
financial solutions such as RCBC’s are only now beginning to improve the
sector’s productivity. However, financial services, together with a host of new
and innovative initiatives, are spearheading positive developments in
agriculture, and increased funding should serve to improve both infrastructure
and food security: the Philippine Rural Development Project (PRDP), for
example, is a World Bank-sponsored initiative that aims to significantly expand
the country’s rural infrastructure over the next six years.
The
intention is to establish a government platform for a modern, climate-smart and
market-orientated sector. Once completed, the PRDP should result in a five
percent increase in annual real farm incomes, a 30 percent increase in income
for targeted beneficiaries of enterprise development, a seven percent increase
in market output, and improved access to Department of Agriculture services.
ASEAN integration
Aside
from the evolution of microfinance, the issue of ASEAN integration is similarly
important for the region’s ongoing development. According to Tan: “ASEAN
economic integration would make the region more competitive as an investment
destination, a base for production and an attractive market distribution. It
would increase economic activity in the region, especially in terms of trade,
capital, investments and labour, and would result in a bigger market for
ASEAN-based investors, businesses and exporters”.
Total
ASEAN GDP equates to around $2.5trn, more than eight times the Philippines’ GDP
of $292bn. The region’s population, meanwhile, stands at around 629 million –
six times greater than the Philippines’ own – which would allow companies to
export to and invest more freely in other ASEAN countries, and would in turn
result in greater business activities and faster economic growth. The
integration would also mean more choices for ASEAN consumers in terms of
product and service offerings, while demand for real estate (office,
commercial, residential and industrial) would increase as ASEAN investors moved
to different countries within the region.
“ASEAN is
one the fastest growing regions in the world”, said Tan – something that is
especially significant “given its relatively young population, its important
part in the global supply/production chain, and attractive market for
products”. Electronics, tourism, agriculture, consumer goods, medical tourism,
real estate and banking are all major drivers of ASEAN economic integration,
though the list is by no means limited to those sectors.
Duty of care
The rise
of green banking is fast emerging as a central part of the region’s development
plans. According to Tan: “Care for the environment and conservation of natural
resources have become critical advocacies in light of climate change and increase
in global population. With the improvement in technology, this has paved the
way for financial institutions to develop products and services that promote
resource-savings and ecological balance.”
RCBC has
been at the forefront of promoting green banking through the implementation of
advanced technology in staple banking services, such as cash and cheque
deposits, cash withdrawal, cheque encashment, bills payment, fund transfer,
MyWallet reloading, and account opening, along with many others. Over the next
two years, RCBC intends to install Touch Q Lobby Management machines in all of
its branches, with the aim of promoting paperless transactions.
RCBC will
also continue to support the green programme by providing financing to
environmentally friendly institutions, such as when it provided backing to the
North Luzon Renewable Energy Corporation for the development of a wind farm in
the northern part of the Philippines.
RCBC’s
green banking solutions share a great deal in common with the firm’s
microfinance arm, in that the two branches seek to foster a more sustainable
means of prosperity. Tan said: “RCBC will further contribute to the growth, as
well as benefit from the resiliency, of the Philippine economy, which is among
the fastest growing in ASEAN, subject to continued improvements in the
country’s economic and credit fundamentals and supported by favourable
demographics.”
According
to Tan, the bank will continue to advocate for these causes in both the short
and long term. With regards to financial inclusion, RCBC will support the
country’s agriculture sector by doubling its agri-lending this year through its
microfinancing arm. Lastly, in preparation for ASEAN economic integration, RCBC
will continue to bolster its tie-ups with Asian and ASEAN banks and securities
houses, and will look into establishing relationships with new foreign entrants
in order to explore new opportunities that may arise.
Lorenzo V
Tan,
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