Notes from the Field: Philippines

Quick Facts & Figures Economically active population: 50 million Total bank branches: 7,612 Population per bank branch: 10,929

In this Section: Terms of Reference (draft) Savings Assessments Benin Bosnia Mexico Philippines Uganda

In this second road-test of the country-level savings assessment tool, four reviewers met almost 90 individuals in the areas of policy making, regulation, banking/microfinance, research, and technical assistance. After two weeks of interviews, focus groups, and a rural banking conference, the reviewers held a debriefing workshop to present their preliminary findings back to interviewees, where they received an enthusiastic response. Those findings are outlined in the presentation that was made during the debriefing, and are summarized below in comparative context to findings from the Mexico assessment.

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» Client Level: Despite Skepticism, Signs of Untapped Demand

Informal savings: Savers cut a slit in one of the bamboo poles in their homes and stuff in their cash. When they need to withdraw they cut a slit in the bottom and the money comes out like a slot machine.

Like in Mexico, and despite widespread skepticism about the desire/capacity of the poor to save, there was strong evidence of untapped demand for small-balance savings services. Data on client demand was sparse, but one source indicated that those rural poor who saved, saved substantial amounts (28% and 40% of monthly income in one survey, compared to the national savings rate of 19.8%).

Informal savings mechanisms are common, including ROSCAs, self-help groups, and more unusual mechanisms like the alcancia bamboos. The enormous inflow of remittances to the Philippines could also fuel demand for savings and transfer services (an astounding $8.5 billion through formal channels in 2004, with an equal amount thought to flow through informal channels).

» Micro Level: Bringing the Right Products and Services to the People

The experiences of a few institutions focused on providing quality service delivery further supports the idea that proximity and appropriate products can be used to address the needs of small-balance savers. For example, cooperatives working with the USAID/WOCCU project CUES (Credit Union Empowerment and Strengthening ) increased their membership over 7 times and their shares and savings over 3 times since the project’s inception in 1997. One Network Bank saw both its deposits and depositors shoot up almost 10% in 3 months after completing the merger that gave it the largest rural banking network in the country. And Banco de Oro, the only commercial bank seemingly interested in the mass market, has issued over 700,000 payroll cards in the last few years. Like Banco Azteca in Mexico, it is owned by a major retail operation, and is both piggybacking off its retail infrastructure and targeting its retail clients. Coincidence? We don't think so.

» Meso Level: More Echoes of Mexico – Over-liquidity & Disincentives

So, as in Mexico, it is precisely those institutions that are best-placed to mobilize small-balance savings, which have least incentive to do so.

Despite apparent demand, financial institutions' appetite for small-scale savings mobilization is being dampened by excess liquidity. This phenomenon is exacerbated by conservative lending practices; a perception of few good investment opportunities (T-bills offer negative real returns); the lack of liquidity management mechanisms for rural banks and cooperatives; as well as a lack of direct access to payment systems (which also hampers savings mobilization in its own right, as clients prefer to access their savings in various parts of the country, and to remit directly into their own or others' accounts).

FIs that are most accessible to the poor (rural banks and cooperatives) appear to be the weakest in terms of governance, management, and the range of services offered. There are currently 400 rural banks in liquidation (as compared to 763 currently operating), and non-performing loans among CUES cooperatives averaged 55% when the project began – and these co-ops were considered among the most promising in the sector. The strongest institutions are the target of aggressive marketing by government on-lending funds from multilateral development banks. Although most of these are offered at market rates, many rural bankers feel they are easier to obtain compared to the time, effort, and all-in cost of deposit mobilization. So, as in Mexico, it is precisely those institutions that are best-placed to mobilize small-balance savings, which have least incentive to do so.

Unlike Mexico, however, there is a lot of activity around linking financial institutions to ATMs and mobile banking solutions. Mobile phone providers, SMART and Globe, both offer e-payment and banking services via SMS and over 50,000 "encashment centers" throughout the country. These services process some 3 million transactions per day. At least for low-value retail payments, mobile banking may bypass the traditional payments system entirely.

» Macro Level: Framework Enlightened but Flawed

The Philippines differed most strikingly from Mexico on the policy front. First, the tiered banking structure allows regulated institutions to have much wider outreach in the Philippines. The main flaws of this mostly enlightened regulatory framework have to do with the Central Bank's tendency to favor operational regulations as opposed to risk-based supervision. The best example is the highly contentious moratorium on new bank branches, which has engendered "guerilla branching" and regulatory arbitrage as banks form foundations and NGOs to qualify for microfinance-oriented exemptions. Banks and NGOs alike also engage in mobile deposit-taking – although prohibited by law, Philippine clients often demand doorstep collection that mirrors the practices of local money lenders.

While savings mobilization by banks is perhaps over-regulated, the opposite is true for NGOs and co-ops. The Central Bank turns a blind eye to NGOs that mobilize deposits worth less than 50% of their loan portfolio, but there is no solid reporting mechanism to monitor this standard. Co-ops lack effective supervision; the main government agency in charge is promotional rather than regulatory in nature.