Financial Inclusion: Status and Impacts

Gilberto M. Llanto

Philippine Institute for Development Studies Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

R A D I S S O N B LU H OT E L , C E B U C I T Y

2 3 M AY 2 0 1 6

What I want to present

Current status of financial inclusion in the country based on BSP survey data and other data sets

From the perspective of households, what factors determine access and usage?

What is the impact of financial inclusion on household incomes?

2

What is Financial Inclusion?

Financial inclusion

or an inclusive financial system

A state wherein there is effective access to a wide range of financial products and

services by all

3

Financial Inclusion: Global Ranking

Source: The Global Microscope on Financial Inclusion, 2015

Rank / 55

countries

Score

/100

Change

in Score

Average 48 +2

1 Peru 90 +3

2 Colombia 86 +1

3 Philippines 81 +2

4 ▲1 India 71 +10

5 ▲2 Pakistan 64 +6

=6 ▼2 Chile 62 -4

=6 ▲3 Tanzania 62 +6

=8 ▼1 Bolivia 60 +2

=8 ▼3 Mexico 60 -1

10 ▲8 Ghana 58 +7

Rank / 55

countries

Score

/100

Change

in Score

=11 Indonesia 56 +1

=11 Kenya 56 +1

=11 ▲3 Uruguay 56 +3

=14 ▼5 Cambodia 55 -1

=14 ▲3 Morocco 55 +3

16 ▼5 Rwanda 54 -1

=17 ▼3 Brazil 53 0

=17 ▲1 Nicaragua 53 +2

19 ▼5 Paraguay 52 -1

=20 ▲3 Bosnia and

Herzegovina 51 +3

=20 ▲3 Dominican

Republic 51 +3

=20 ▲3 Ecuador 51 +3

Note: “=“ denotes tied rank between two or more countries “” No change in rank

Source: The Global Microscope on Financial Inclusion, 2015

Microscope Indicators, 2015

0 20 40 60 80 100

1. Government Support

2. Reg & Supervisory Capacity

3. Prudential Regulation

4. Credit Portfolios

5. Deposit-Taking Activities

6. Insurance Low-Income Pop

7. Branches & Agents

8. Non-Regulated Lenders

9. Electronic Payments

10. Credit Reporting Systems

11. Market Conduct Rules

12. Dispute Rules

Philippines (2015) Regional average (2015)

6

Source: Global Findex, World Bank, 2014 *no 2014 data for Lao PDR

Account at a formal financial institution (% age 15+)

Financial Inclusion: ASEAN

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

Cambodia

Philippines

Vietnam

Indonesia

Thailand

Malaysia

Singapore

East Asia and the Pacific

World

2014 2011

7

Loan from a financial institution in the past year (% age 15+)

Source: Global Findex, World Bank, 2014 *no 2014 data for Lao PDR

0 5 10 15 20 25 30

Philippines

Indonesia

Singapore

Thailand

Vietnam

Malaysia

Cambodia

East Asia and the Pacific

World

2014 2011

8

Saved at a financial institution in the past year (% age 15+)

Source: Global Findex, World Bank, 2014 *no 2014 data for Lao PDR

0.0 10.0 20.0 30.0 40.0 50.0 60.0

Cambodia

Vietnam

Philippines

Indonesia

Malaysia

Thailand

Singapore

East Asia and the Pacific

World

2014 2011

9

Mobile phone usage (% age 15+)

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Vietnam

Cambodia

Philippines

Indonesia

Thailand

Singapore

Malaysia

Laos

East Asia and the Pacific

World

Mobile phone used to send money (% age 15+)

Mobile phone used to receive money (% age 15+)

Mobile phone used to pay bills (% age 15+)

Source: Global Findex, World Bank, 2011 *no 2014 data available

The Philippine Financial System

10

Source: Bangko Sentral ng Pilipinas

0%

2%

4%

6%

8%

10%

12%

0

2,000

4,000

6,000

8,000

10,000

12,000

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Gro

wth

Rate

N

um

be

r o

f B

anki

ng

Off

ice

s

Rural and Cooperative Banks Thrift Banks

Universal and Commercial Banks Growth Rate

Number and Growth of Banking Offices, 2006-2015

Number of Banks per 10,000 Adults

11

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Ban

ks p

er

10

,00

0 A

du

lts

2011 2012 2013Source: Bangko Sentral ng Pilipinas

12

Source: Bangko Sentral ng Pilipinas

Banked and Unbanked

13

2,500

5,000

7,500

10,000

12,500

15,000

17,500

20,000

22,500

NC

R

CA

R

Iloco

s R

egio

n

Cag

ayan

Val

ley

Cen

tral

Lu

zon

CA

LAB

AR

ZON

MIM

AR

OP

A

Bic

ol R

egio

n

Wes

tern

Vis

ayas

Cen

tral

Vis

ayas

East

ern

Vis

ayas

Zam

bo

anga

Pen

insu

la

No

rth

ern

Min

dan

ao

Dav

ao R

egio

n

SOC

CSK

SAR

GEN

Car

aga

AR

MMN

um

ber

of

Dep

osi

t A

cco

un

ts (

in t

ho

usa

nd

s)

2011 2012 2013

With NCR

1,000

2,000

3,000

4,000

5,000

6,000

7,000

CA

R

Iloco

s R

egio

n

Cag

ayan

Val

ley

Cen

tral

Lu

zon

CA

LAB

AR

ZON

MIM

AR

OP

A

Bic

ol R

egio

n

Wes

tern

Vis

ayas

Cen

tral

Vis

ayas

East

ern

Vis

ayas

Zam

bo

anga

Pen

insu

la

No

rth

ern

Min

dan

ao

Dav

ao R

egio

n

SOC

CSK

SAR

GEN

Car

aga

AR

MM

2011 2012 2013

Source: Philippine Deposit Insurance Corporation

Deposit Accounts

Without NCR

14

-

5,000

10,000

15,000

20,000

25,000

30,000

De

po

sit

Acc

ou

nts

pe

r 1

0,0

00

Ad

ult

s

2011 2012 2013

Deposit Accounts per 10,000 Adults

Source: Philippine Deposit Insurance Corporation

15

Source: Bangko Sentral ng Pilipinas

Access points Filipinos are most aware of Access points Filipinos are least aware of

Banks 98.3% Microfinance nongovernment organizations

30.5%

Pawnshops 95.7% E-money agents 25.6%

ATMs 93.5% Non-stock savings and loan associations

13.6%

Awareness of Access Points: Demand Side

16

39.7%

57.6%

2.7%

Rural

Bank User Not Bank User

No Answer

54.0% 44.9%

1.1%

Urban

56.0%

43.0%

1.0%

NCR

56.0%

43.0%

1.0%

Balanced Luzon

34.0%

61.0%

5.0%

Visayas

42.0%

57.3%

0.7%

Mindanao

Bank Usage (1)

17

100.0%

AB Dwelling

Bank User Not Bank User

No Answer

71.7%

25.0%

3.3%

C Dwelling

50.5% 48.1%

1.4%

D Dwelling

24.3%

72.0%

3.7%

E Dwelling

44.8%

52.7%

2.5%

Male

49.2% 49.5%

1.3%

Female

Bank Usage (2)

18

20.1%

74.7%

5.2%

No Formal Education

Bank User Not Bank UserNo Answer

31.2%

66.7%

2.2%

Elementary

55.2% 43.9%

0.9%

Highschool

62.7%

35.8%

1.5%

Vocational

85.7%

13.6%

0.7%

College

100.0%

Post College

Bank Usage (3)

19

25.9%

71.6%

2.5%

Part-time/Seasonal Worker

53.4% 45.2%

1.4%

Self-Employed

57.1%

41.1%

1.7%

Employed

Bank User Not Bank User

No Answer

17.6%

81.1%

1.4%

Student

85.7%

14.3%

Retired

40.7%

56.7%

2.5%

Unemployed

Bank Usage (4)

20

40.0%

56.7%

3.3%

Quintile 1

Bank User Not Bank User

No Answer

35.6%

61.3%

3.1%

Quintile 2

48.2% 50.3%

1.6%

Quintile 3

60.5%

39.5%

Quintile 4

83.5%

16.5%

Quintile 5

Bank Usage (5)

50.9% 46.3%

2.7%

Rural

Accessible Not Accessible

No Answer

83.1%

15.8%

1.1% Urban

89.0%

10.0%

1.0%

NCR

78.7%

20.3% 1.0%

Balanced Luzon

42.3%

52.7%

5.0%

Visayas

59.7%

39.7%

0.7%

Mindanao

21

Bank Access (1)

22

80.0%

20.0%

AB Dwelling

Accessible Not Accessible

No Answer

70.0%

26.7%

3.3%

C Dwelling

70.7%

27.9%

1.4%

D Dwelling

52.8% 43.6%

3.7%

E Dwelling

66.0%

31.5%

2.5%

Male

68.8%

29.8%

1.3%

Female

Bank Access (2)

23

46.6%

48.3%

5.2%

No Formal Education

Accessible Not Accessible

No Answer

62.3%

35.5%

2.2%

Elementary

75.8%

23.3% 0.9%

Highschool

76.1%

22.4% 1.5%

Vocational

74.3%

25.0%

0.7%

College

100.0%

Post College

Bank Access (3)

24

68.5%

29.7%

1.7%

Employed

Accessible Not AccessibleNo Answer

65.1%

33.5%

1.4%

Self-Employed

67.9%

29.6%

2.5%

Part-time/Seasonal Worker

64.9%

33.8%

1.4%

Student

85.7%

14.3%

Retired

67.2%

30.3%

2.5%

Unemployed

Bank Access (4)

25

55.3% 41.3%

3.3%

Quintile 1

Accessible Not Accessible

No Answer

61.9%

35.0%

3.1%

Quintile 2

69.1%

29.3%

1.6%

Quintile 3

70.4%

29.6%

Quintile 4

82.0%

18.0%

Quintile 5

Bank Access (5)

26

35.4%

23.7%

9.7%

9.7%

8.6%

4.3%

3.6%

2.5% 1.8% 0.7% Not needed

Lack of money

Lack of documentaryrequirementsLack of knowledge

Not preference

No account

Others

Lack of trust

Inaccessibility

High costs

Reasons for not transacting with banks

Impact on households

What factors affect household decision to participate in the formal financial markets?

Does financial inclusion increase/improve household incomes?

Our estimation used micro-data from the Annual Poverty Indicators Survey.

27

Econometric techniques used

Using the Heckman selection model estimation, the likelihood of availing of loans regardless of the source of loans—that is, loans from formal institutions or informal lenders—was first tested, followed by the likelihood of getting a formal loan (access to formal credit), as a series of Probit models for households.

The second step is to test whether or not financial inclusion helps improve household income using a two-stage instrumental variable approach

28

Empirical findings (1) What matters to households in getting a loan, regardless of the source of loans? Age of the household head, bigger family size and a high dependency ratio lead household heads to borrow. Being employed is also a significant factor.

The presence or availability of banks does not necessarily matter in household decisions to borrow. The source of loans could be informal lenders, which, as the literature shows, are mostly the source of loans for poor households.

29

Empirical findings (2)

Shifting to a formal loan source (a bank) household decision to use financial services is positively and significantly correlated with family size, sex, age, marital status, and educational attainment of the household head.

Income and education are key demand side determinants of access to formal banking.

The empirical findings from a two-stage instrumental variable estimation supports the hypothesis that financial inclusion improves household income.

30

Concluding Remarks (1) •Current policy discussions hold that financial inclusion is important for inclusive growth and poverty reduction

•Empirical findings showed robust and significant correlation between household decision to use financial services on the one hand, and the age of the household head, marital status, family size, and education attainment of the household hear, on the other

•Findings also supports the hypothesis that financial inclusion improves household income

31

Concluding Remarks (2) •Policy Implications: expanding access to and use of financial services by

low-income households/individuals have a positive effect on household/individual welfare

a key measure to address the financial exclusion of poor households is financial education

BSP and financial institutions are on the right path, and should be supported in this endeavor.

32

Philippine Institute for Development Studies

Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

Service through policy research

33

WEBSITE: www.pids.gov.ph FACEBOOK: facebook.com/PIDS.PH TWITTER: twitter.com/PIDS_PH EMAIL: gllanto@mail.pids.gov.ph

Thank you!