Philippines urged to improve financial literacy of SMEs

MANILA, Philippines – The Philippines must institute policy reforms to improve financial education and literacy of small and medium enterprises (SMEs) in preparation for the Asean Economic integration.

Former president of the Philippine Institute for Development Studies (PIDS) Mario B. Lamberte and research associate Ammielou Q. Gaduena recommended the reduction of intermediate taxes or reserve ratios.

“That would incentivize and enable the banking system to perform its financial intermediation function much better,” they said in a report titled “Enhancing Access to Financial Services through a More Competitive Financial System.”

The authors said implementing policy reforms to encourage opening up to foreign players especially in the insurance and capital markets would facilitate further liberalization.

Supporting a stronger merger and consolidation policy would also help.

At the start of the second semester this year, RA 10641 was signed into law, allowing the full entry of foreign banks in the local banking industry. As of presstime, 10 foreign banks have either opened a full branch, are in the process of opening one, or have already been issued a license to operate.

But the level of competition brought by the foreign banks remain in the wholesale banking operations compared to retail banking and development banking, since foreign banks initially catered to larger, higher-margin accounts that comprised wholesale banking.

Among the specific products and services highly affected were foreign exchange transactions, fund transfers, lending services, investment banking, and money market placements.

The effects of liberalization were also felt in the sourcing of funds, hiring and retaining of productive employees, and changes in information technology.

Thus the main focus of the policy reforms must be support for increasing the competitiveness of SMEs. SMEs make up 90 percent of the country’s business sector.

Meanwhile, the study examined the role and contribution of banking, insurance and capital markets to the economy.  It also gauged the competitiveness of the country’s financial system compared with neighboring Asean countries.