Financial Inclusion, Stability, Integrity, and Protection

1 WORKING PAPERF inancial inclusion , stability , integrity , and Protection :Observations and Lessons for the I-SIP Approach from the PhilippinesApril 2017 IIITABLE OF CONTENTSCURRENCY AND EQUIVALENT UNITS ..IVABBREVIATIONS ..IVACKNOWLEDGMENTS ..VII1. INTRODUCTION: THE I-SIP APPROACH .. Background .. Research approach .. I-SIP research exercise in the Philippines .. This report ..52. STATE OF Financial inclusion IN THE PHILIPPINES .. The Philippines commitment to Financial inclusion .. Key access and usage data .. Definition and measurement of Financial inclusion in the Philippines ..103. ANALYSIS OF POLICY INTERVENTIONS .. Mandated agricultural credit.

2 National Strategy for Microfinance .. Electronic money guidelines .. Regulations for microbanking offices .. Draft regulations for pawnshops .. Summary of linkages in policy interventions ..524. OBSERVATIONS ON THE PHILIPPINES I-SIP AND NEXT STEPS .. Observations vis- -vis the I-SIP Propositions .. Next steps ..60 ANNEX 1. INTERVIEWS ..61 ANNEX 2. Financial SERVICES ACCESS POINTS IN THE PHILIPPINES ..65 REFERENCES ..68 IVFinancial inclusion , stability , integrity , and Protection : Observations and Lessons for the I-SIP Approach from the PhilippinesCURRENCY AND EQUIVALENT UNITS(As of February 29, 2016)Currency Unit 5 Philippine peso (PhP)

3 US$ 1 5 PhP Pantawid Pamilyang Pilipino ProgramAGFP Agricultural Guarantee Fund PoolAML Anti-Money launderingAMLCS Anti-Money Laundering Council SecretariatASEAN Association of Southeast Asian NationsATM Automated Teller MachineBAP Bankers Association of the PhilippinesBFA Bankable Frontier AssociatesBSP Bangko Sentral ng PilipinasCALG Central Applications and Licensing GroupCAMELS Capital adequacy, Asset quality, Management, Earnings, Liquidity, Sensitivity to market risksCDA Cooperative Development AuthorityCEO Chief Executive OfficerCEBG Card and e-Banking GroupCFT Combating the Financing of TerrorismCGAP Consultative Group to Assist the PoorCPIP Credit Policy Improvement ProgramDFID United Kingdom Department for International DevelopmentDOF Department of FinanceDSWD Department of Social Welfare and DevelopmentDTI Department of Trade and IndustryEMI Electronic money issuerFATF Financial Action Task ForceVFinancial inclusion , stability , integrity , and Protection .

4 Observations and Lessons for the I-SIP Approach from the PhilippinesFCPD Financial Consumer Protection DepartmentG2P Government to PersonGPFI Global Partnership for Financial InclusionGSMA GSM AssociationGXI G-Xchange, Insurance CommissionIMF International Monetary FundI-SIP inclusion , stability , integrity , ProtectionKYC Know Your CustomerLBP Land Bank of the PhilippinesLCDP Loan Collection and Disbursement PointMBO Microbanking OfficeMCPI Microfinance Council of the Philippines, Microfinance InstitutionMiDAS Microfinance Data Sharing SystemMORNBFI Manual of Regulations for Non-bank Financial InstitutionsMSME Micro, Small.

5 And Medium-Sized EnterprisesNBFI Nonbank Financial InstitutionNCCT Non-Cooperative Countries and TerritoriesNGO Nongovernmental OrganizationNPL Nonperforming LoansNSSLA Nonstock Savings and Loan AssociationNTC National Telecommunications CommissionOBO Other Banking OfficePCFC People s Credit and Finance CorporationPCIC Philippine Crop Insurance CorporationPDIC Philippine Deposit Insurance CorporationPDR People s Democratic RepublicPESO Portfolio quality, Efficiency, Sustainability, OutreachVIFinancial inclusion , stability , integrity , and Protection : Observations and Lessons for the I-SIP Approach from the PhilippinesRA Republic ActROA Return on AssetsROE Return on EquitySEC Securities and Exchange CommissionSIM Subscriber Identification ModuleSMS Short Message ServiceSSB Standard-Setting BodyTILA Truth in Lending ActTSS Technical Support ServicesUN United NationsUSAID United States Agency for International DevelopmentVIIF inancial inclusion , stability , integrity , and Protection .

6 Observations and Lessons for the I-SIP Approach from the PhilippinesACKNOWLEDGMENTSThis study was conducted at the request of Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines. The objective of the study was to analyze how the linkages among Financial inclusion , stability , integrity , and consumer Protection have been managed in the case of four existing policies (mandated agricultural credit, National Strategy for Microfinance, electronic money guidelines, and regulations for microbanking offices) and one policy to be implemented (draft regulations for pawnshops).

7 The study includes the results of a visit from a Consultative Group to Assist the Poor (CGAP) team to the Philippines 11 20 August 2015 and a follow-up analysis covering developments through February study was conducted by a joint research team from CGAP and BSP. The team was led by Olga Tomilova and included Eric Duflos, Juan Carlos Izaguirre, and Myra Valenzuela (all CGAP), and Pia Roman Tayag, Rochelle Tomas, Mary Ann Cuevas, and Mynard Mojica (all BSP). Overall guidance was provided by Timothy Lyman, Katharine Lauer, Stefan Staschen (all CGAP), and Nestor Espenilla (BSP).

8 The team wishes to express its gratitude to BSP for its strong support and assistance during this visit, and to the wide range of stakeholders from government, private, and nonprofit sectors who contributed to the study through interviews. A complete list of persons interviewed is presented in Annex endorsement of this report was sought from any party, nor should any be inferred from participation in the consultative process by which it was inclusion , stability , integrity , and Protection : Observations and Lessons for the I-SIP Approach from the Philippines1. INTRODUCTION: THE I-SIP BackgroundFinancial-sector policy makers and inter-national standard-setting bodies (SSBs) have traditionally sought to create the conditions for Financial stability .

9 Over the past two decades increasingly more attention has been paid to Financial in-tegrity ( , preventing Financial crimes through, for example, anti- money laun-dering [AML] and combating the financ-ing of terrorism [CFT] programs) and Financial consumer Protection , particu-larly in the wake of the 2008 2009 glob-al Financial crisis. Financial inclusion a more recent addition to the list of core policy objectives for Financial -sector regulation and supervision has re-ceived increasing global recognition by the United Nations, G20 Leaders and Finance Ministers/Central Bank Gov-ernors, SSBs, and other global bodies.

10 Moreover, Financial inclusion has found its way into country-level policy making. Relevant policy-making bodies in more than 50 countries around the world have committed to measurable targets for im-proving Financial inclusion domestically under the Maya Declaration, the Alliance for Financial inclusion s initiative to en-courage national commitments to finan-cial collaboration with many such actors, in 2011 CGAP embarked on a work stream aimed at understanding how policy mak-ing changes when Financial inclusion is added as a core objective and more specifically how the four policy objec-tives (I for Financial inclusion , S for finan-cial stability , I for Financial integrity .)