The World Bank’s Board of Executive Directors has recently approved a financing program to support the Philippine government’s efforts to boost the resiliency and sustainability of its financial services sector and strengthen the country’s economic recovery from the COVID-19 pandemic.
In a press release, the World Bank said that the US$600-million Philippines Second Financial Sector Reform Development Policy Financing is meant to provide continuing support to three policy reform areas. These include strengthening financial sector stability, integrity, and resilience; expanding financial inclusion for individuals and firms, especially micro-, small-, and medium-scale enterprises (MSMEs); and catalyzing climate and disaster risk finance to help protect Filipino families from the impacts of climate change and natural disasters.
“Policy actions that strengthen the stability of the financial sector – including banks and insurance companies – will help Filipino families, businesses, and investors withstand financial shocks and enhance their resilience by ensuring that problems in these financial institutions are detected at an early stage without severe disruptions to the economy,” said Ndiamé Diop, World Bank Country Director for Brunei, Malaysia, the Philippines, and Thailand.
According to Diop, in spite of continuing progress, only 51 per cent of Filipinos aged 15 and above have a transaction account with a financial institution, which is below the East Asia and Pacific regional average of 80 per cent.
At the bottom 40 per cent of the population, only 34 per cent of adults have an account. Supporting reforms for financial inclusion or enhancing Filipinos’ access to financial services is therefore an important part of this financing operation.
“Financial inclusion can be a key enabler to speed up poverty reduction and strengthen recovery from the pandemic,” stated Diop. “Filipinos who have accounts with financial institutions such as banks will have opportunities to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or health of their children, manage risks, and weather financial shocks, which can improve the overall quality of their lives.”
Diop said an equally important part of the new program is developing the catastrophe insurance market in the Philippines to prevent people from falling into poverty following natural disasters. Catastrophe insurance products are designed to protect households, assets, and businesses against natural disasters like floods and earthquakes.
He said increased use of catastrophe insurance will allow the government to focus financial resources on supporting people who need them the most — for example, through actions like increasing post-disaster cash transfers and subsidizing insurance premiums for the most vulnerable populations.
To expand access to finance by individuals and firms, the program also supports reforms promoting innovative financial services by harnessing digital technologies, strengthening the framework to build consumer trust in the financial sector, and improving the quality of the credit information infrastructure to support MSME access to finance during the recovery.
Under its strengthening financial sector stability, integrity, and resilience pillar, this Development Policy Loans (DPL) series supports reforms that aim to strengthen the legal and institutional framework to improve financial sector oversight and integrity, enhance crisis management and resolution framework in the sector and improve the availability of long-term finance.
Finally, this DPL also supports the financial sector’s resilience to climate-related shocks by integrating climate and environmental risks in financial institutions’ risk management frameworks and mobilizing private sector financing for green investments by encouraging banks to incorporate sustainability principles into their investment activities.
DPLs also provide quick-disbursing assistance to countries undertaking reforms. These types of loans typically support policy and institutional changes needed to create an environment that is conducive to equitable growth, as defined by countries’ own development priorities.