Loan sharks remain popular among low-income Filipinos

Filipinos continue to seek credit from loan sharks and other informal lenders than go to banks for their financial needs, according to the results of a World Bank survey.

The World Bank also found that Filipinos still use piggy banks and other informal means to save money for the proverbial rainy day.

Data show that 38 percent of the survey’s respondents rely on informal sources of credit such as a money lender, a family member or a friend as sources of financing.

Further, some 34 percent of respondents resort to informal savings such as those kept in households.

“Largely, Filipinos rely mostly on informal sources of financing and informal savings,” Nataliya Mylenko, World Bank senior financial sector specialist, said in a briefing on Wednesday.

Mylenko added that when they look at the data closely, some 56 percent of those surveyed said they used informal credit and the remaining 44 percent used a mixed of formal and informal sources of credit.

Data show that 13 percent used microcredit only; 4 percent used formal sources of credit only; 5 percent combined informal, microcredit, and formal sources; 10 percent used combined informal and micro credit; and 12 percent used both formal and informal credit sources to borrow money.

In terms of savings, some 61 percent of respondents use informal savings, while 19 percent used only formal savings. Around 20 percent said they used both formal and informal savings.

“There are no major differences by income among those who rely on formal and informal credit and savings products, though those earning P20,000 to 50,000 are more likely to have access to formal credit,” the bank said.

“There are no differences in the use of formal and informal financial services by employment type,” it added.

Meanwhile, to better improve Filipinos use of formal financial services, the World Bank said mobile technology can make a significant contribution.

Mylenko said the Philippines is actually one of the pioneers of mobile cash technologies. Through GCash and Smart Money, Filipinos are able to transfer funds to loved ones wherever they are in the country.

However, there is a slow uptake in the use of these mobile-payment systems. Mylenko said one of the ways to improve this is to allow sending money across mobile networks.

Mylenko said there is a need to work on inter-operability of the systems used by the two major telecommunication service providers. This will not only entail cooperation between the two firms but also the banks and the Bangko Sentral ng Pilipinas. “It takes two to tango but in this case it’s much more than two so it’s not just the telcos, it’s not just the banks, it’s not just the regulator, it’s not just the technology providers, a whole bunch of people have to come together and agree on things,” Mylenko said. “And that I think has been difficult but, at the same time, I see change is coming in these conversations.”

The survey also revealed that about six of 10 Filipinos, or 59 percent, say that they plan how they spend the money they earn or receive.

Some 57 percent of those who plan or budget their expenses say that they have money left after paying for basic expenditures, compared to 42 percent of those who do not plan their spending.

Financial inclusion refers to the ability of individuals or families to access banking and other formal financial services.

The survey found that about 20 million Filipino adults report that they save money. Of this number, only 10 million have bank accounts.

The survey on financial inclusion and capability in the Philippines conducted from February to September 2014.

It aims to assess people’s financial literacy or capability in managing their day-to-day finances, as well as their access to formal financial institutions like banks. –Cai Ordinario, Businessmirror