Financial inclusion

Not too long ago I asked a messenger to deposit in a bank my cash payment for something I bought. I gave the payee’s account name and number. But the messenger returned and said the deposit was not possible.

I sent another messenger familiar with the bank and the money was deposited without a hitch.

It turned out that the first messenger was directed by someone at the bank to get a deposit form to fill out. And it turned out he was just a bit better than functionally literate, and found the array of deposit and withdrawal forms bewildering.

Either there were too many clients at the bank, or he was too embarrassed to ask for help. So he just gave me back the money.

I know quite a number of other people like him – individuals who slogged through grade school barely understanding what was being taught, failing to make it to graduation or dropping out from high school.

Several of them have no birth certificates and have no idea where to get one. Some do not know their exact date of birth.

Despite such impairments, they are earning a living in the provinces or eking out a living in Metro Manila. The men do farm-related work or learn to drive, graduating from motorcycles to jeepneys and buses. They can get a driver’s license with minimal hassle, as long as they have a bit of grease money to oil the wheels of government. Impoverished drivers get a break; crooks in the bureaucracy practice socialized graft.

Men and women alike sell anything that offers reasonable profit. Wholesalers unload their goods on this massive pool of grassroots retailers. Visit Divisoria and you might chance upon the wholesalers distributing their products to vendors who then hawk the goods by small piles or tumpok on pushcarts or bilao perched on top of tin cans, turning a small profit per tumpok. But even the poor need to fork out some cash for this type of micro retail.

This is where informal lenders serve a purpose. Wet market stallholders, sidewalk hawkers, ambulant vendors of balut and taho and owners of home-based enterprises aren’t going to get their daily financing needs from a commercial bank. Never mind if the interest is a usurious 20 percent – the notorious “5-6” scheme. No bank will provide funding for such nano enterprises.

* * *

As of 2014, an overwhelming 86 percent of Philippine households did not put their money in banks. This was the result of the Consumer Finance Survey conducted by the Bangko Sentral ng Pilipinas, which said it was consistent with the results of the National Baseline Survey on Financial Inclusion taken in the same year.

The main reason cited in the 2014 Consumer Finance Survey, which covered 18,000 households, was that the respondents didn’t have enough money to put in banks.

Other reasons cited were that the respondents didn’t need and couldn’t manage a bank account, banks were too far, they found service charges steep, and they simply didn’t trust banks.

For many of the poor, the first handicap in dealing with banks is the limited capability to read and write. The impairment makes them leery of paperwork – something that abounds in banks.

In case they can fully comprehend the fine print, the next hurdle is the required documentation. Studies have shown that there are still quite a number of Filipinos without birth certificates, particularly persons who were delivered at home by self-taught midwives or village herbolarios.

The third hurdle is sticker shock: banking fees tend to strike nano entrepreneurs as unreasonable.

A fourth hurdle, as the survey showed, is trust: unlike banks, informal lenders personally know borrowers and don’t require good grooming from clients.

Such borrowers aren’t ready to join President Duterte in bidding “goodbye, Bombay” to 5-6. The phrase is not even accurate, because today many 5-6 lenders are Filipinos without a trace of Indian ancestry.

The 5-6 lenders give nano entrepreneurs access to ready cash, with hand-drawn IOUs the only paperwork between borrower and lender, with no taxes or miscellaneous fees imposed, and with the lender taking the full risk of the borrower disappearing with the money.

* * *

I call the borrowers nano entrepreneurs because “micro” seems inadequate to describe them under our laws.

The 2008 Republic Act 9501, which amended RA 6977 or the Magna Carta for Small Enterprises and RA 8289, defines a “micro” business as one with total assets (excluding land) of up to P3 million. A “small” enterprise has assets ranging from more than P3 million up to P15 million while “medium” is from over P15 million to P100 million.

Technically, even P1,000 is below P3 million and may be covered by the law. But how many banks will bother with financing ambulant vendors who need to borrow P1,000 daily?

Filipinos are hardworking, but many lack funds to get any business going. Access to nano financing can contribute to making economic growth inclusive.

Even those legally defined as micro entrepreneurs can be intimidated by banks. Many are also intimidated by leasing shopping mall space and seeing their life savings eaten up by rent. Apart from providing improved access to nano financing, the government should review zoning rules to promote the growth of home-based enterprises.

This can also boost the development of artisanal products. We have a lot of fine products from home-based enterprises. They can use help in terms of technical improvement, packaging and marketing and even possible export. For all of these they need funds.

In the countryside, artisanal shops and small-scale farms can be a boon to tourism. Travelers like looking for products unique to each destination, and they don’t want to find these in shopping malls. Du30 should be familiar with some of the artisanal enterprises – Davao is gaining renown for its fine local chocolate and Mt. Apo coffee.

Working in such enterprises can even be part of rehab or detox programs for drug abusers. But such enterprises can use better access to funds. We need not just inclusive growth but also financial inclusion.