The poor does save, too

The perception that poor people do not save money is a tad overblown. The fact is, they do, whenever they can.

According to the Bangko Sentral ng Pilipinas (BSP), as of end-March of this year, savings of microfinance clients reached P8.22 billion, a staggering improvement of 93 percent from P4.27 billion during the same period last year. The clients were from 186 banks with microfinance operations, which include rural banks.

No less than BSP Gov. Amando Tetangco, Jr. opined in a recent forum that it was the first time that total savings has exceeded the total microfinance loan portfolio, which is a strong indicator that the poor sector has a strong inclination to save money for future needs, particularly during emergency circumstances.

A strong proponent of microfinance in the country, rural banks serve as channels to mainly deliver basic banking services to the traditionally unbanked because they operate at the grassroots level. In effect, rural banks have become one of the most effective providers of microfinance to the poor that are mostly left unreached by bigger banks.

Rural banks believe that low-income groups are capable of lifting themselves up out of poverty if provided access to financial services. Increasing poor people’s access to better financial tools can help accelerate the rate at which they move out of poverty and help them be productive members of their community.

But as the said BSP data has shown, they are very much capable of saving for future contingencies as well, if given the chance.

The Philippines is already considered by multilateral funding institutions as one of the countries in Asia with a developed microfinance industry. Even the Economist Intelligence Unit (EIU) has described the country with “very strong regulatory regimes and good prospects for microfinance institutions to enter the sector and perform effectively” for three consecutive years, from 2009 to 2011. In 2010-2011, the country was adjudged as having the best microfinance regulatory framework among 54 countries.

Through microfinance, poor people can obtain small loans, receive remittances from relatives working abroad, and protect their savings. With access to credit at reasonable interest rates, poor people can likewise set up small businesses.

Access to financial services plays a critical role in reducing poverty incidence. Good and responsible management of very small assets can be crucial to the survival of poor people who live in ever risky conditions, due to the lack of a steady source of income, not to mention basic housing and food. To overcome poverty, the poor needs to be able to borrow, save, and grow their resources to protect themselves against risk. By providing direct access to financial services, rural banks allow poor people to progress from the “isang kahig, isang tuka” survival mode to one that can be economically self-sufficient.

Right now, admittedly, the country still has a long way to go to fill the huge demand-supply gap, especially in rural areas where delivering financial services remain a big challenge despite the unceasing efforts from the rural banking industry. Geographic barriers remain a big issue. Rural populations are usually situated over large areas with poor infrastructure. It normally costs more for banks to extend loans to a dispersed population.

In addition, rural folks are often dependent on agriculture and related activities for their sources of income. This income is often seasonal and very hard to predict because it is dependent on weather, which makes them largely unattractive to larger banks to serve.

Fortunately, rural banks have leaned on mobile banking to offset the geographical hindrances. Also, the industry—through the training programs of the Rural Bankers Association of the Philippines—has offered seminars on financial literacy, consumer protection, and accountability to customers for both bank staff and clients to ensure sound microfinance practice. Finally and more importantly, the rural banking industry has tailor-fitted its financial services and requirements to meet the capability of the poor sector, to at least minimize the risks associated with this market.

Published in The Manila Times, 17 July 2013