Banking for inclusive growth
By Benel P. Lagua
THE ROLE of finance is to match the demand and supply of loanable or
investible funds. Finance also addresses the allocation of scarce
resources over time, linking the present and the future.
Classically, this function is achieved through two channels. The first
is through intermediaries such as banks, mutual funds, and pension
funds. The other is through financial markets, which include the stock
market and the bond market. In most developed economies, the financial
system is diversified, a situation that allows for safety nets in case
of stress in one of the channels. The Philippines is characterized by
heavy dependence on banking especially as viewed from the limited number
of companies listed in the stock exchange.
Domestic corporations, especially of the small and medium enterprise
(SME) varieties, depend on access to bank funds as their source for
growth, innovation, and expansion. But are the banks responsive enough?
With local interest rates at low levels, the Philippines' getting its
investment grade, and low inflation, asset/stock prices have continued
their dramatic run-up while technically bank credit expanded at
double-digit rates. But the growth in bank credit appears to be skewed.
Interestingly, the Bangko Sentral ng Pilipinas (BSP) has been closely
tracking concentration risk in bank lending especially to the real
estate sector and large borrowers. The other growth driver is
consumption loans. The BSP has been stress-testing concerns on risk of
overextending loans to large conglomerates.
Recent news shows many banks increasing profit levels at record rates.
The question is begged, however: are they doing enough for productive
lending to the real sector?
The Department of Trade and Industry statistics on SME lending shows
that the sector has not kept pace with the overall bank lending growth.
The proportion of funds raised by Philippine SMEs from banks is well
below international standards. Recent reports have also highlighted the
statistics on poverty incidence, which has improved only marginally.
Data from the National Statistics Office show an unemployment rate of
7.1% and an underemployment rate of a high 20.9%.
A paper by Stijn Claessens (2005) of the University of Amsterdam defines
access as the availability of supply of quality financial services at
reasonable costs. Usage refers to the actual consumption of financial
services. The difference between access and usage can be analyzed in a
standard demand-supply framework. Access refers to the presence of
supply and usage is the intersection of the demand and supply schedules.
The demand and supply schedules may be such that there are firms that
have access to financial service, but decide not to use the services or
are voluntarily excluded. Availability of service is a necessary, but
certainly not sufficient, condition for usage. The supply and demand
schedules may fail to intersect, in which case there will be lack of
access or involuntary exclusion. These firms may not have access
because, for example, the barriers to access the formal financial system
are too high, or costs are unreasonably high, and they do not have the
credit record.
The problem of access is indeed complex. Claessens's paper talks of at
least three dimensions of availability, reasonable costs, and the range,
type, and quality of services offered. Another author looks at
dimensions of reliability (Is finance available when needed/desired?),
convenience (What is the ease of access?), continuity (Can finance be
accessed repeatedly?), and flexibility (Is the product tailored to the
needs?).
Given these complications, banks must realize that aiming for inclusive
growth requires going out of their comfort zones and investing in a
delivery mechanism that targets the intended markets in a focused way.
It is hoped that banks, especially the big ones, will consider this
their corporate social responsibility because lending to SMEs will
require major investments in people and technology as well as a
willingness to sacrifice in the very short term for long-term growth. It
is unlike the instant gratification of earning from lending to big
business, but it should lead to a more stable and diversified loan book
that supports job growth.
This writer has taken on such a challenge and is helping build the
Development Bank of the Philippines (DBP) arsenal that will address the
goals of inclusive growth through a responsive SME access-to-finance
road map. This column serves as a public declaration of this commitment,
which we can all look back to down the road. As my new boss, DBP
president Gil Buenaventura exhorts, "Let's stop the talking and start
walking the talk!"
Benel Lagua recently joined the Development Bank of the Philippines as
its Chief Development Officer. A graduate of Harvard's MPA and AIM's
MBM, he teaches part time in the MBA Program of the Ramon V. Del Rosario
College of Business of De La Salle University. The views expressed above
are the author's and do not necessarily reflect the official position of
De La Salle University, its faculty, and administrators.
- See more at:
http://www.bworldonline.com/content.php?section=Opinion&title=Banking-for-inclusive-growth&id=70630#sthash.FMgUUSgK.dpuf
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CARLOS ANI - Consultant
Chairman of the Board - SEEDFINANCE Corporation
Mailing address: PO Box 90 UPLB Los Banos Laguna, Philippines 4031
Emails: carlosani@gmail.com , carlosani@seedfinance.net
Landline Phone: +63495010127 (PLDT)
Cellphone Numbers: +63908-1737072 (Smart)
My Websites:
CARLOSANI.COM - http://www.carlosani.com
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DEVJOBS - http://www.devjobsmail.com
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http://phildevfinance.blogspot.com
Family website - http://www.anifamily.net
Skype name: carlosaniph
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