Philippines Country-Level Savings Assessment

Read the results of CGAP's second country-level test diagnostic of small-balance
savings mobilization.

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Executive Summary

This report summarizes the results of the second test of CGAP’s Country Savings Assessment Toolkit, which took place in the Philippines. The purpose of the toolkit is to help government agencies, donors, and others identify opportunities and constraints in increasing poor people’s access to high-quality deposit services in various countries. The methodology examines four levels of the financial system: clients, financial institutions (micro), supporting infrastructure (meso), and policy (macro). It concludes with suggestions for possible strategies to improve the quality and quantity of deposit services available to poor and low-income households.

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Despite a widespread belief that poor Filipinos do not save, the review team found substantial anecdotal evidence that savings capacity does exist among low-income clients. Research on savings behavior (although scarce) confirmed the existence of savings practices among the poor. Rapid growth in deposits by institutions that have made concerted efforts to reach poor clients also reinforced the idea of significant latent demand. Another potential source of savings––remittances––has begun to spur even mainstream banks to target low-income clients.

At the micro level, a variety of institutional types serve different market niches. However, deposit products appear to be unaffordable and physically inaccessible to the poorest clients, and those institutions closest to the poor also demonstrate the weakest performance. At the meso level, plentiful donor-funded credit lines, excess liquidity in the banking system, and a lack of investment opportunities, all reduce the incentives for stronger institutions to collect small deposits. An underdeveloped financial infrastructure, such as payment and liquidity management systems, pose further obstacles for some financial institutions. However, new mobile phone banking applications offer a cost-effective, accessible way for institutions to process low-value payments. At the macro level, although the government’s commitment to market-led microfinance and the overall regulatory structure facilitates serving low-income clients, certain overly conservative operational restrictions may limit the outreach of regulated institutions. In the meantime, cooperatives suffer from an almost total lack of oversight.

In light of these findings, the following nine areas could provide promising avenues for intervention to improve the mobilization of small-balance deposits in the Philippines.

1. Collect more data on clients’ savings patterns and preferences to inform policy debates and support the business case for small-balance savings mobilization.
   
   
2. Expand financial literacy efforts for residents, leveraging experiences with Overseas Filipino Workers and their families.
   
   
3. Institutionalize and expand successful technical assistance programs on a sustainable basis to ensure their effectiveness beyond the life of any single donor project.
   
   
4. Build on existing monitoring systems and rationalize ratings to enhance transparency and client confidence.
   
   
5. Evaluate alternative electronic banking and payment services for rural banks and cooperatives to increase poor clients’ access to savings accounts and money transfers.
   
   
6. Strengthen financial cooperative supervision to better ensure the safety and soundness of poor people’s money.
   
   
7. Re-evaluate the need for program loan funds, and continue phasing out directed credit programs as part of a strategy of incentives for large-scale small deposit mobilization.
   
   
8. Shift the supervisory framework for banks from operational restrictions toward risk-based supervision to better balance the twin objectives of control and access.
   
   
9. Update the national microfinance policy to more fully incorporate deposit mobilization.