DAVAO CITY—The Department of Finance (DOF) is pushing a trio of initiatives to enable the rural banking system to meet the challenge of reducing the number of unbanked Filipinos in the country, given that this sector is at the frontline of the Duterte administration’s efforts to attain financial inclusion.
Finance Secretary Carlos Dominguez III said the reality that a majority of Filipinos remain unbanked to this day even when the economy is growing at a fast pace is “not a good indicator,” as this means they have neither access to financial services nor ways to participate in investments.
He said the DOF, with the help of the Bangko Sentral ng Pilipinas (BSP) and state-owned banks, are finding ways to relax requirements for deposits, introduce new financial products and increase the use of new technologies for electronic payments systems to help rural bankers in their “urgent” mission of reducing the number of unbanked Filipinos, especially in the countryside.
Dominguez said he is hoping that rural bankers would be at the forefront of national efforts to adapt to technological change, as this development would “immeasurably contribute to the dramatic transformation of our economy.”
“Technological changes will revolutionize the way we do banking. I urge you to embrace the changes that are forthcoming. This revolution in the financial sector will power our economic growth and help us be competitive into the future,” Dominguez told members of the Rural Bankers Association of the Philippines (RBAP) during the organization’s 65th national convention held at the SMX Convention Center here.
Also present at the gathering were Davao City Mayor Sara Duterte Carpio, Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla, Jr., Land Bank of the Philippines (LandBank) president Alex Buenaventura, Philippine Deposit Insurance Corporation (PDIC) president Roberto Tan, RBAP president Giovanni Gabriento, Rural Bankers Research and Development Foundation Inc. (RBRDFI) chairman Antonio Pasia, RDRDFI trustee Vittorio Almario, and Ives Nisce, chair of the RBAP Electoral Board.
To enable micro, small and medium enterprises (MSMEs) and millions of unbanked Filipinos to take advantage of the economy’s rapid growth, Dominguez said the DOF is pushing the congressional approval of the Secured Transactions Reform Bill, also known as the Financial Inclusion Bill, that would increase the use of technology in rural lending, and enable farmers and countryside entrepreneurs to tap their warehouse receipts, farm equipment and other forms of property as collateral to access credit.
On top of this measure, which has been included in the list of priority bills of the Legislative-Executive Development Advisory Council (LEDAC), the DOF is also pushing the development of a fully automated credit information system, which is almost fully established and undergoing final tests.
This system will equip financial institutions with a modern centralized credit registry under the Credit Information Corporation to facilitate lending activities, Dominguez said.
Moreover, the BSP has reactivated its Consolidation Program for Rural Banks to encourage mergers and consolidation of rural banks and further strengthen the country’s banking industry.
“I encourage all of you to take a closer look at this program, appreciate the synergies and economies of scale that integration will foster. It will make possible the most efficient use of the common infrastructure, systems, and resources of the smaller banks,” Dominguez told RBAP members during the event.
He said rural bankers can tap the financial advisory, business process improvement, and capacity-building support services offered by the BSP and assistance from the LandBank on availing themselves of these services to allow them to take part in the Consolidation Program.
Dominguez also cited the administrative reforms being introduced by the BSP that cover liquidity requirements, greater flexibility in the use of third-party cash agents and easier acceptance of small depositors to help strengthen the country’s rural and thrift banks.
“I encourage our rural bankers to study these policy amendments that will help us achieve our common goal of financial inclusion,” Dominguez said.
Dominguez also urged rural bankers to familiarize themselves with the recent advances in FinTech (financial technology) while the government rushes the completion of the digital backbone for processing payments in real time, which, he said, will alter the work of financial institutions dramatically over the near term.
“The success in achieving the mission of financial inclusion is eminently measurable. If we are able to bring down the number of the unbanked over the next few years, the banking system should have contributed towards building a more inclusive economy,” Dominguez said.
He pointed out that the Philippines is now one of the best performing economies in Asia, second only to Vietnam’s 7.4 percent and matching China’s growth rate of 6.8 percent in the first quarter of this year.
The government has also succeeded in getting the Tax Reform for Acceleration and Inclusion Act (TRAIN) implemented, which, in turn led to a dramatic rise in state revenues by 16.4 percent, nearly doubling the nominal GDP growth of 9.7 percent for the first quarter, Dominguez said.
He said both tax reform and improved tax administration led to growth in tax revenues by 18.2 percent in the first quarter, with collections by the Bureau of Internal Revenue (BIR) improving at 14.2 percent and Bureau of Customs (BOC) collections growing at 24.7 percent.
“Because of this performance by our revenue agencies, our tax effort rose from 13.44 percent of GDP to 14.47 percent. This is the highest tax effort we have ever achieved,” Dominguez said. “We are ready to match the tax effort of the best-managed economies of the region.”
Given that the government’s growth strategy relies heavily on its massive “Build, Build, Build” infrastructure program, the country’s institutions and systems need to be prepared for conditions of high growth and more intensive economic activity, which is why the DOF is pushing ahead with the succeeding packages of the Duterte administration’s Comprehensive Tax Reform Program (CTRP), Dominguez said.
These include a tax amnesty bill that the DOF hopes the Congress will pass by June this year; Package 2 of the CTRP that aims to reduce the corporate income tax and modernize investment incentives; and Package 3 and 4 covering reforms in property and capital income taxation, which are set for submission to the Congress by the third week of July, he said.
The DOF also wants the Congress to pass a bill that will shift rice trading from quantitative restrictions to tariffs in order to stabilize the supply and lower the retail price of rice, as well as approve legislation implementing a national ID system to enhance the efficiency of transactions in the economy.
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