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Philippine Central Bank Pushes Digital Transformation for Microfinance Institutions

Innovation is key to the success of any enterprise. Knowing how much it can make services in the private sector available to the masses, the nation’s central bank is advocating microfinance institutions (MFI) undergo digital transformation.

The Bangko Sentral ng Pilipinas (BSP) has highlighted the contribution of microfinance institutions (MFIs) in making financial products and services more accessible to micro and small enterprises, especially in less-developed rural areas. However, BSP Governor Benjamin Diokno detailed that these financial institutions should not stop there. Rather,  MFIs should go a step further and expand their reach more through digital transformation.

Diokno disclosed that MFIs are strategic partners of the government to achieve financial inclusion as 84% of local government units (LGUs) have access to MFIs. Moreover, more than half (57%) of unbanked LGUs also have an MFI presence.

Today, 144 banks are engaged in microfinance. They provide safe and affordable financial services to around 2 million borrowers with a total microfinance loan portfolio of PHP26 billion. With that, the BSP recognises the potential of technology as a game-changer for microfinance. 

– Benjamin Diokno, Governor, Bangko Sentral ng Pilipinas

The BSP chief added that non-bank MFIs, such as cooperatives, have assisted 8.8 million members by providing PHP288 billion (USD 5,502,504,960) worth of outstanding loans this year. On the other hand, microfinance non-governmental organisations served 6.2 million clients with a total loan of PHP50 billion (USD 955,296,000.00).

Diokno cited there is growing traction on the use of digital loan disbursement and collection as well as online payment gateways. In addition, he showed how much mobile has been instrumental in the nation’s digital adoption. He added mobile applications provide a seamless experience for self-service options to access account information and availing of online financial services.

Innovation has also been pursued in back-end operations of MFIs, such as automated financial management systems, as well as credit scoring and decision-making models, Diokno said. He said embracing digitalisation will facilitate transitioning microfinance clients from cash to digital transactions that will support the BSP goals on digital payments. The central bank governor added that collaboration is instrumental in the establishment of shared digital platforms or facilities among MFIs to create a multiplier effect on the microfinance sector.

Digital adoption has certainly changed the banking picture for the better in the Philippines. Not too long ago, Diokno also reported how the country’s digital banks have pushed the envelope, allowing people from remote areas and other hard-to-access places the chance to benefit from banking without having to go to a physical bank. In short, digital banks have created greater banking opportunities for the Asian nation.

Digital transformation, indeed, is the way for the Philippines. Over the years, it’s been pursuing digitalisation for almost all government services. Recently, Manila detailed how space technology (e.g., satellites) can strengthen its national sovereignty. To that end, it is pursuing the hiring of apt manpower, described as T-shaped people.

The good news about digital transformation is everyone on the archipelago should be able to make the most out of it. Digital technology can provide better ways to serve its people. A concrete example is a fight against natural disasters. As a nation that’s prone to typhoons and earthquakes being part of the Pacific Ring of Fire, the Philippines must constantly be on the lookout for natural disaster risks. It’s a taxing job seeing how much damage a calamity could induce to the general populace. ICT has provided ways so the country can have the upper hand in its battle against natural disasters as reported on OpenGov Asia.

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