Bangko Sentral ng Pilipinas Governor Nestor Espenilla has coined a new word that blends the Duterte administration’s focus on infrastructure and the monetary authority’s thrust of financial inclusion: FINfrastructure.
It will open up credit to more people, reach out to 80-million Filipinos not served by banks, and help 99 percent of all enterprises, the small and medium industries.
“It’s original !” the BSP chief says of finfrastructure. “I Googled this and the search did not turn up any results.”
Actually, Google “finfrastructure” and the result is “infrastructure”, what defines as “the basic physical and organizational structures and facilities (e.g., buildings, roads, and power supplies) needed for the operation of a society or enterprise.”
Espenilla merely prefixed one letter—f– to the word and voila, he has a new mantra—FINfrastructure.
The “f” is supposed to stand for finance, which is what the government badly needs to push infrastructure.
“Infrastructure development is all about building networks of viable, productive and meaningful connections. The goal of having sound and reliable infrastructure is to include more and more people into development,” explains Espenilla.
The Duterte administration says it needs $160 billion for infrastructure over the next five years. Of the infra projects, 75 have been identified as priority. Yet, only three of those 75 have the best chance of completion during the remaining five years of President Duterte. Why? Lack of money. Plenty of money. Without that money, the infra program runs the risk of being a victim of a four-letter word that starts with the letter f. F—.
Thankfully, Governor Espenilla has another f in mind—the financial sector. Finance sector infrastructure, specifically, access to credit and digital financial system.
At BSP, “our thrust is to ensure that the business and operating environment is sound and stable,” says Espenilla. “And that our policies and regulations encourage the build, build, build of a progressive and inclusive financial infrastructure.”
“We do not ourselves build the FINfrastructure,” clarifies the BSP governor. “Our task is to promote an environment for those that do… through implementation of rules and regulations, through the launching of initiatives, and through sound, prudent and progressive banking reforms.”
Espenilla says finfrastructure reforms “aim to enhance access to credit and other financial services, deepen local currency debt and foreign exchange markets, and digitalize our financial system. These are strategic and complementary reforms that reinforce sustainable economic growth and push further our financial inclusion agenda.”
The governor talks of “virtual reach.” Examples:
• “We now allow third party retail outlets to function as cash agents as well as the implementation of reduced Know-Your-Customer (KYC) rules for certain low-risk accounts and the use of technology to comply with KYC requirements.”
• Efforts to build financial infrastructure and viable ecosystems to facilitate a more equitable allocation of credit.
In recent speeches, Espenilla sounded gung-ho about technology which he says has significantly changed the business of banking and finance. “Financial transactions can conveniently be made on the move, in the comfort of one’s home, using a smart phone. There is a shorter turnaround time for financial transactions.”
“Retail financial services are further being digitized via mobile wallets, payment applications, robo-advisors, equity crowd-funding platforms for access to private and alternative investment opportunities, and online lending platforms.”
“These breakthroughs are revolutionizing the financial landscape. Sound FINfrastructure is needed to support it, the governor says.
The BSP is leading banking’s initiatives to operationalize the National Retail Payment System to enable customers to make payments and transfer funds between and among accounts using any digital device.
“The goal is transition into a cash-lite economy,” Espenilla says.
There is progress.
First, with the establishment of the payment system management body, incorporated as Philippine Payments Management, Inc., there is now an organized governance structure of retail payment systems in the country. BSP is also currently working with the industry on the formation of two priority Automated Clearing Houses (ACHs), the Batch Credit Push EFT (called PesoNet), and the Real-time EFT Credit (called InstaPay). The PesoNet is set to launch on Nov. 8, 2017.
Fintech has risks. Accordingly, “the BSP follows a test-and-learn approach that allows an enabling environment for new collaborations to prosper. We encourage bank and non-bank partnerships with fintech startups to maximize the benefits of innovative digital platforms, efficiency of gains, and cost savings,” says Espenilla.
Also, “new entrants may cause disruptions in the financial ecosystem since traditional players may be unable to immediately respond to increasing competition, he adds. Hence, we monitor fintech activities to better understand their business models, processes and systems.”
The BSP has enhanced existing regulations to ensure that non-banks such as pawnshops and money service businesses are properly supervised as they compete in delivering bank-like services. Relatedly, “we regulate entities that use virtual currency as underlying instruments for remittance,” says Espenilla.
The BSP is enhancing its information security framework to consider cybersecurity controls.
While the term, “financial Infrastructure” refers broadly to a system that allows for the effective operation of financial intermediaries, encompassing even the legal and regulatory framework, Espenilla thinks of FINfrastructure as one that addresses the very heart of why infrastructure exists: to connect people, to enable inclusion and to provide a network for more Filipinos to enjoy the benefits of economic progress and development.”
The governor wants to intercalate fintech into banking to promote financial inclusion to reach out to 80 percent of Filipinos who are unbanked and small and medium industries who lack capital but only 10 percent of whose capital needs are met by banks, despite the fact that MSMEs are 99 percent of all registered enterprises, provide 61.6 percent of the jobs, and sadly, contribute only 35.7 percent to national economic output or the Gross Domestic Product. Only 6.1 percent of total bank loans go to MSMEs.
Technology, however, is as simple as using the Internet.
Addressing La Salle students this week, Chinese techno billionaire Jack Ma noted that “1.8-billion people in the world are using Internet. In 10 years (it) should have five to six billion people in Asia we have the Internet.”
Jack arrived late Oct. 24 in Manila. “I tried to test the speed of Philippine (Internet),” he related. “It’s no good,” he exclaimed to the guffaws of his audience.
Our internet, indeed, is f*cked up.
