BSP sets focus on digital innovation

CEBU, Philippines — The Bangko Sentral ng Pilipinas is looking into the continued adoption of digital innovation in the financial industry.

"Building on the gains of our policy initiatives over the years, we are setting our sights on digital innovation," BSP Governor Nestor Espenilla Jr. recently said in a business conference.

The central bank chief said digital solutions "not only present opportunities for cost savings and efficiency gains, but also provide potential break-through in reaching the unserved and underserved markets on a massive scale."

The BSP’s approach has been to scale regulations according to the risks involved to ensure that beneficial innovations and efforts for financial inclusion are not hampered by unwarranted compliance burden.

Currently, the central bank is working closely with various innovators on the launch of additional digital financial services covering mobile financial services via social network, online micro-investment platform, and use of digital cash.

Espenilla said the BSP has been working closely with the national government for the implementation of a biometric-based digital identity system.

"The initiative is envisioned to facilitate the provision of more efficient, transparent and equitable government and financial services, especially to those who have been disenfranchised due to lack of an acceptable ID," he said.

Moreover, the central bank is currently working with the industry towards enabling more Filipinos to have access to a transaction account to send and receive payments via any electronic device through the National Retail Payment System (NRPS).

The NRPS, and the payment ecosystem that is envisioned to arise from it, is positioned to be a platform for fintech innovations.

This can dramatically lower the cost of doing business for micro, small and medium enterprises, as well as enable more  e-commerce, he said.

While much has been accomplished, Espenilla also mentioned the figures on MSME financing show that more needs to be done.

"An MSME finance ecosystem that services the needs of MSMEs at various stages of their growth path must be in place. These services are not exclusively bank credit but involve a mix of providers and products  that are suited to the MSMEs needs and capacities," he said.

There is an urgent need to develop financial infrastructure to support MSME financing.

This includes a credit information system, efficient secured transaction registries and a well-run credit guarantee system.

"We are also very focused in pursuing ambitious reforms to deepen our domestic debt market and to further liberalize our foreign exchange regime to make doing business generally easier," the BSP official said.

He said coordination and collaboration of multiple players is needed.

"Only through our cumulative efforts will MSMEs be provided greater and affordable access to capital and finance. This will allow them to engage in more productive, innovative, and profitable activities contributing to national development," he added.

MSMEs comprise 99.5 percent of all registered business firms nationwide and contribute the largest share of total jobs generated at 61.6 percent. However, MSMEs account for only 35.7 percent of the country’s gross domestic product.

MSMEs are unable to reach their full potential due to a range of barriers, including financial access, characteristic of MSMEs even in other countries.

Indeed, bank lending to MSME leave much to be desired, comprising only 6.1 percent of total loan portfolio. 80 percent of SME investments are internally financed compared to only 10 percent that are bank financed.