Amando M Tetangco, Jr: Enabling market-based solutions toward
financial inclusion
Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the
central bank of the Philippines), at the IIF (Institute of International Finance) Conference
entitled the G20 Agenda under the Australian Presidency, Sydney, 21 February 2014.
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It is an honor and a great pleasure to participate in this High-Level Public-Private Sector
Conference. I thank the organizers - the Institute of International Finance (IIF) and Australia
as President of the G20 - for inviting me to this event. Ladies and gentlemen, as mentioned
earlier, there are an estimated 2.5 Billion1 people living without access to financial services,
according to the World Bank and other sources. Three quarters of the world's poor are
unbanked. Traditional financial products and delivery channels have not been able to
address the needs of this market. There is therefore a need for new business models and
fresh thinking on how this market can be best served. This presents a large untapped market
and a source of vast opportunities.
The private sector, with its inherent agility, is well placed to respond to such opportunities
with commercial potential. It has the capacity to innovate and develop new and sustainable
business models.
Microfinance is a good example. The large numbers of low income micro entrepreneurs were
once thought to have very high credit risk to which commercial financial institutions have
traditionally been averse. With appropriately priced and designed products, microfinance
institutions have proven the profitability of serving a market that was previously viewed as
unbankable. In the last ten years, some microfinance institutions have gone public2 and
mainstream financial service providers are now in the microfinance space. In microfinance,
commercialization was seen as an accepted prerequisite to viable and sustainable
microfinance operations.3
More recently, the interest of mobile telecom operators in playing a role in the delivery of
financial services has ushered in a wave of innovative business models. According to a
McKinsey study (Beshouri and Gravråk, 2010), bringing financial services to the unbanked is
a strategic shift for mobile operators as it presents significant commercial potential.
Research4 shows that about one billion people in emerging markets have a mobile phone but
no access to banking services. The study therefore estimated that in just two years $5 billion
could be generated annually in direct revenue, primarily from fees for financial services such
as transactions and cash out, and an additional $3 billion annually in indirect revenue,
including reduced churn and higher average revenues per user for traditional voice and short
message service (SMS). In 2012, GSM Association reported over 200 mobile money
deployments globally in 83 countries.
These solutions can only flourish within an enabling policy and regulatory environment that
allows innovation and new ideas to thrive rather than stifle them. There is a need for policy
makers and regulators to fully understand the new business models to be able to provide the
appropriate and proportionate guidance.
This approach has characterized the way the Bangko Sentral ng Pilipinas crafted our policies
on microfinance and more recently on electronic money and mobile financial services.
In microfinance, our approach is to mainstream its practice in the banking system. Integral to
this approach is the safety and soundness of the bank which we believe will allow it to viably
innovate and serve new markets. With this, the application of prudential standards is not
compromised but instead tailor fitted to better address the risks in the given activity.
In our mobile financial services framework, we developed an electronic money ecosystem.
We clearly differentiated e-money from a deposit which allowed a proportionate approach
toward electronic money issuers. These efforts paved the way for an efficient retail payment
system upon which various use-cases can be developed. Examples include electronic
payment of the government conditional cash transfers (G2P) and the electronic payment of
taxes to the government (P2G). There remains vast potential for other functionalities.
Indeed, progress has been made in financial inclusion. The challenge now is to continue to
take the agenda forward by leveraging on strategic partnerships and linkages:
1) Linkages in-country which are important to ensure a coordinated approach.
Alignment of the policies and activities of relevant agencies and institutions will be
necessary to optimize linkages and reduce duplications.
2) Partnerships across countries that enable sharing of experiences and the ability to
leapfrog in developing policy solutions. Peer learning platforms such as those
enabled through the Alliance for Financial Inclusion (AFI) network make such
exchanges possible.
3) Engagement with global bodies such as Standard Setting Bodies and international
agencies as a productive means to promote a cohesive and consistent financial
inclusion global framework.
Financial inclusion brings to fore innovative models, new products and new players. While
international standards are designed to be applied flexibly in all country contexts, the
application has tended to be focused on traditional constructs and activities that cater to the
"already served" market. There is therefore a need for a commensurate evolution in thinking
on proportionality - the acceptable points of balance between the policy objectives of
financial stability, inclusion and integrity. This concept of proportionality has been aptly
identified as one of the G20 Principles of financial inclusion.
The BSP has been involved in the G20 Global Partnership for Financial Inclusion particularly
in the Sub-Group on Principles5 and Standard Setting Bodies Our involvement has allowed
the sharing of experiences particularly on balancing the risks and benefits of financial
inclusion through the application of internationally accepted prudential and supervisory
standards.
Financial inclusion is a gargantuan task which can only be achieved through well-coordinated
and meaningful partnerships. We are already seeing some evidence of success...
In Kenya, seventeen million6 are able to send and receive money through their Safaricom
mobile phones using M-PESA, a small-value electronic payment and store of value system.7
In Brazil, commercial banks have banked each of the 5,564 municipalities through their
banking agents.8 A state-of-the-art biometric enabled smart card and battery operated
authentication devise has allowed ICICI to provide micro-savings accounts to the unbanked
in India.9 In the Philippines, banks are providing microfinance loans and deposit products to
over a million clients, majority of whom claim to have never had the opportunity to save in a
formal financial institution in their lives.
At the end of the day, we are starting to see more people participate in the financial system.
With this access to finance, households are better able to manage their finances, guard
against shocks and take advantage of economic opportunities. The financial system is able
mobilize broader based savings and channel such funds to productive activities. These can
contribute not only to financial resiliency, and stability but also to inclusive growth. There is a
growing body of literature on the benefits of financial inclusion.
It is therefore important that policy makers and regulators pay serious attention to financial
inclusion side by side our traditional objective of maintaining financial stability. A stable
financial system will gain more meaning if it serves the needs of the majority, especially the
three quarters of the world's poor that have been unserved too long.
Thank you very much and good morning.