A PHL strategy on financial inclusion: More on the means than reversing mindsets?

This post is the first in a series by IMTFI Researchers Jeremaiah M. Opiniano and Alvin P. Ang. Stay tuned for future posts about financial inclusion and savings behaviors in the Philippines. 

Guiguinto Hometown Conference banner (Photo by Anna Jesuza Louise Estrada)

This July 1st, the Philippines’ Central Bank (Bangko Sentral ng Pilipinas) will launch its National Strategy for Financial Inclusion (NSFI). The forthcoming policy framework, to be collectively signed by 13 national government agencies, represents the Philippines’ efforts at bolstering the creation of a savings habit (CASH), and letting as many Filipinos as possible—especially the poor—be included in the formal financial system.

In essence, the NSFI envisions this for Philippine financial inclusion: “A state wherein there is effective access to a wide range of financial products and services by all.”

The NSFI formalizes the policy showcase of the Philippines as one of the more accommodating countries for financial inclusion; it ranks first in Asia and third worldwide according to a 2014 survey of The Economic Intelligence Unit (EIU). Admittedly, however, the archipelagic nature of the Philippines physically challenges efforts at financial inclusion; of some 1,300-plus municipalities nationwide, around 36% do not have a banking office, leaving roughly 15% of the Philippine population unbanked.

Citing recent data from the World Bank, covering the years 2010 to 2014 (the sunshine period of the Philippine economy that continues to this day), the Philippines’ five-year gross domestic savings rate is 15.6%, lower than the rates in neighboring Southeast Asian countries. Not even recent years of macro-economic growth for the country, a situation the Philippines long dreamed of having, have pushed people to improve their savings habits.

Some data on the Philippines from the World Bank’s Global Financial Inclusion Index (Findex) further illustrate these concerns. The Findex is a worldwide survey of over 150,000 people asking questions related to financial inclusion, from saving, to borrowing, to opening bank accounts. Some 1,000 Filipinos were surveyed in the Findex's two survey rounds in 2011 and 2014. A source of good news is that the number of adults aged 15 and above with accounts at formal financial institutions increased to 31.3% in 2014 from 26.6% three years before. There was also an increase in account-bearing Filipinos who are living in rural areas, from 19.5% to 27.5%.

But the number of Filipinos over 15 years old who saved at a formal financial institution increased only negligibly, from 14.7% in 2011 to 14.8% in 2014. This is baffling since Filipinos who “saved any money,” be it kept on their own or placed in financial institutions, rose to 67.3% in 2014 from 45.5% in 2011, according to the Findex survey data. And the past decade has seen the resurgence of a lot of financial literacy seminars, books, and training events.

Preliminary survey findings from our research project in the Philippines using a tool called the Remittance Investment Climate Analysis in Rural Hometowns (RICART), even if done only in a solitary municipality (Guiguinto), affirm national-level observations. Guiguinto, found in Bulacan province (an hour outside of Manila), is still outside of the ambit of cities, even if the town’s first-class income status makes it look like a city already. But not even the presence of some four commercial banks, two rural banks, a thrift or savings bank, and some five cooperatives have pushed many people to save.

Members of the Overseas Filipino Workers Family Circle of Guiguinto 

answer a financial temperament test developed by Dr. Alvin P. Ang 

(Photo by Anna Jesuza Louise Estrada)

In the RICART survey (n=227 respondents, broken down into 118 migrant families, 36 overseas
migrants, and 73 non-migrant families), the number of people bitten by the savings bug had not even reached half. Only 41.3% of migrant families, 44.4% of migrant remitters, and 26% of non-migrant families in Guiguinto have savings accounts in formal financial institutions.

When asked why, some residents (especially migrant families) cited familiar reasons: their incomes were “not enough” for daily needs, they had accumulating and cyclical debts (the latter covering borrowing money to pay off a current debt), among others. The RICART survey in Guiguinto showed that people “know” about financial management and “do not need any help” in relation to handling money, but these qualities are not reflected in their practices. Most of the surveyed respondents do not  record their expenses, although they are aware of the money that they have coming in. Most respondents answered that unspent money from previous paychecks is spent on daily needs. And for many respondents, when the household is drained of cash, it’s time to borrow.

RICART analyses had been done in previous years in three other municipalities across the Philippines. Including the current round in Guiguinto, supported by the Institute for Money, Technology and Financial Inclusion (IMTFI) of the University of California, Irvine, the story is the same: local and overseas-based income earners and remittance-possessing households claim to “know” finance, but their practices contradict what they’re supposed to do given what they “know.”

Yes, municipal-level results of previous and current RICART surveys are not generalizable nationally (previous RICART studies were done in Magarao, Camarines Sur; Maribojoc, Bohol; and Pandi, Bulacan). Still, these attempts give a good snapshot of the environment for savings and investment, at least by rural folks. If RICART will be done in other places, the answer to the money handling question may remain the same: people “know,” but practices do not align with what "should" be done.

Financial education and consumer protection is the second pillar of the NSFI. The mechanics of advocating financial education are things financial inclusion stakeholders know already, like budgeting sheets, or answering risk profile questionnaires, or even giving out piggy banks (known as alkansya in the Philippines). Financial literacy messages have now penetrated social media.

But with the delivery of these approaches to improving people’s financial management skills comes a certain tone, which may have to hit the mindset of Filipinos. One may know about budgeting, but if the Filipino mindset is still to spend when there’s plenty (or even when there’s little), will behavioral change happen?

Financial inclusion is a behavioral economics issue, and, more importantly, a cultural challenge. Communicating clear messages that strike a chord with the Filipino’s money mindset may have to be the next step in improving the state of Filipinos’ access and usage of money and financial services.

RICART in Guiguinto was made possible with the help of research assistants Andrew Lacsina, Anna Jesuza Lourisse Estrada, and Jumaine Christene Doctolero, graduates of the University of Santo Tomas.