PH collaborates with World Bank Group, OECD, business sector to revolutionize financing in Asia-Pacific

MAKATI CITY, PHILIPPINES – The Philippines, host to the 2015 meetings of the Asia-Pacific Economic Cooperation (APEC), is collaborating with leading international organizations to help transform financial systems in the Asia-Pacific, expanding the reach of credit and other financial-services for a more inclusive regional economy.

The collaboration is formalized through the establishment of the Financial Infrastructure Development Network (FIDN), a multi-sectoral platform for promoting initiatives to make financial services in the region more accessible, especially to micro, small, and medium enterprises (MSMEs).

The establishment of the FIDN, launched on November 12 in this city, comes at a time when Asia-Pacific continues to face the challenge of making financial services accessible to more MSMEs and low-income households.

Although the region is a driver of the global economy, poverty remains a serious issue, and boosting the MSME sector is believed to significantly help accelerate the process of poverty reduction.

Besides the Philippines, which represents other APEC member economies, the FIDN is also composed of the following institutions: International Finance Corp. (IFC), a member of the World Bank Group; the APEC Business Advisory Council (ABAC); the SME Finance Forum; and the Organisation for Economic Co-operation and Development (OECD). It is supported by leading global financial industry associations and firms that have joined the Asia-Pacific Financial Forum (APFF), a platform established by APEC Finance Ministers in 2013 to develop and integrate the region’s financial markets.

The Philippines’ participation in the FIDN is made active through representation by and inputs from the Department of Finance, the Bangko Sentral ng Pilipinas, the Securities and Exchange Commission, and the Credit Information Corp.

Finance Secretary Cesar V. Purisima said, “We’ve always said MSMEs are the life-force of the regional economy, contributing to over 60% of total employment, over 40% to GDP and over 15% to total exports among APEC economies. However, about 40% of the financing needs of MSMEs are unserved. At the same time, we are fully convinced of the power of finance as a tool to reduce poverty. We are putting our money where our mouth is in putting more fuel to Asia-Pacific’s growth engine.” Purisima served as chair of the APEC Finance Ministers’ Process that produced the Cebu Action Plan last September.

SEC Chair Teresita Herbosa said, “The Securities and Exchange Commission agrees there is a pressing need to integrate more people and enterprises to capital markets so they become part of the formal sector. There is no true capital market development – and there is no meaningful economic progress – if many are left out. It is with earnest drive that the SEC, together with the other participants, will work toward the vision of a more financially integrated Asia-Pacific through the FIDN.”

Initiatives to be promoted through the FIDN across the Asia-Pacific will be geared toward four areas: (1) credit information systems, (2) secured transactions frameworks, (3) insolvency frameworks, and (4) factoring. Initiatives may include proposed legislation and regulations that will create an enabling environment that facilitate greater access to credit.

Under the first area – credit information systems – FIDN will push for proposals that will help establish more credit information bureaus across the region and to make their operations more efficient.

A credit information bureau is a repository of various information on credit history and creditworthiness of individuals and enterprises. It is believed that with sufficient credit information, such as those that can be provided by credit information bureaus, banks will be more inclined to lend to small borrowers who have good “reputational” collateral.

Under the second area – secured transactions – FIDN will promote legal and policy reforms that will enable banks and other financial institutions to accept other forms of collateral, besides real properties, in extending loans. These include accounts receivables, inventory, and intellectual property, among other assets.
At present, many MSMEs find difficulty acquiring loans because they do not have real properties to serve as collateral.

Under the third area – insolvency systems – FIDN will push for guidelines on how to deal with insolvency in a manner that respects the rights of both creditors and borrowers. With this kind of protection, banks and other financial institutions will be more confident in extending loans to small borrowers with good credit standing.
Under the fourth area – factoring – FIDN will call for initiatives that will make “factoring” a common practice.

“Factoring” is the selling of accounts receivables at a discount. This is one way of helping enterprises raise funds and meet immediate need for cash.

“The establishment of comprehensive credit information system and modern secured transactions and movable asset finance system will help micro, small and medium enterprises (MSMEs) improve access to finance, and therefore contribute to a more competitive and sustainable economy,” said Yuan (Jane) Xu, IFC Philippines Country Manager. She indicated further that “IFC, as part of the World Bank Group, is committed to work with its partners to promote the further development of financial infrastructure and to deepen financial inclusion in the country.”

“By pooling together the vast knowledge and resources within governments, business and multilateral agencies, the FIDN can more effectively accelerate reforms to create an enabling environment for expanding MSMEs’ access to finance,” said Hiroyuki Suzuki, chair of the Asia-Pacific Financial Forum and ABAC’s Finance and Economics Working Group.

The establishment of the FIDN is one of the deliverables under the Cebu Action Plan (CAP), a finance-related development roadmap for the Asia-Pacific that was drafted by the Philippines with inputs from other APEC member economies.

CAP has four pillars: (1) financial integration, (2) fiscal reforms and transparency, (3) financial resilience, and (4) infrastructure development and financing. As a deliverable under the first pillar of the CAP, the establishment of the FIDN seeks to promote an enabling financing environment for MSMEs, including trade, supply chain, and alternative financing mechanisms. CAP was launched on September 11 in Mactan, Cebu, during the APEC Finance Ministers’ Meeting.