In the Philippines, money is not as difficult as it seems. The domestic market is awash with cash, with an equivalent of billions of dollars sitting in the Philippine central bank and in government debt papers.
According to the Bangko Sentral ng Pilipinas, the Philippine central bank, there is an equivalent of $38 billion invested in so-called special depositary accounts, SDAs for short.
These SDAs are special debt papers introduced by the central monetary authority to siphon off excess liquidity in the system that may be inflationary.
But as the numbers show, there’s more than enough available cash in the system. Banks, it seems, are not lending aggressively enough to the poorest of the poor, but are instead just reinvesting the funds in safe havens such as government debt papers.
The poor – they who live in remote communities and far-flung villages – continue to have very little access to microfinance that could help them set up small businesses.
In many provinces around the country, families usually set up neighbourhood retail stores as a way to earn a living. These small retail stores sell basic goods and commodities in very small sachets and sizes. For other families, running a small business such as operating a motorized rickshaw that can make up to $20 a day is already a big help.
Yet, access to microfinancing is very difficult for these individuals because they are unable to comply with the stringent documentation requirements imposed by the banks. Banks are failing the country’s poor. As the numbers show, they are simply not lending enough.
According to one banker, the loans-to-deposits ratio is currently at a low of 58 per cent. This means that for the amount of deposits in the banking system, the room to lend to consumers is still more than enough. ‘The ratio can still go up to 70 per cent,’ said Ed Francisco, president of BDO Capital and Investments Corp.
Because without access to the formal lending sector, the poor resort to loan sharks that impose a high interest rate of as much as 20 per cent for each – they who are not able to pay.
My hope is that banks would lend more to the poorest of the poor by relaxing the requirements for loan applications or by simplifying collateral requirements.
But then again, greed will always get in the way.