Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla has coined a new word that blends the Duterte administration’s focus on infrastructure and the monetary authority’s thrust of financial inclusion: FINfrastructure.

“It’s original!” exults the BSP chief.  “I googled this and the search did not turn up any results.”

Actually, google finfrastructure and the result is “infrastructure”.  Google defines it as “the basic physical and organizational structures and facilities (e.g., buildings, roads, and power supplies) needed for the operation of a society or enterprise.”

Espenilla merely prefixed one letter – f– to the word and voila, he has a new mantra – FINfrastructure. 

The “f” is supposed to stand for finance, which is what the government badly needs to push infrastructure.

“Infrastructure development is all about building networks of viable, productive and meaningful connections.   The goal of having sound and reliable infrastructure is to include more and more people into development,” explains Espenilla.

The Duterte administration says it needs $160 billion for infrastructure over the next five years.  Of the infra projects, 75 have been identified as priority.  Yet, only three of those 75 have the best chance of completion during the remaining five years of President Duterte.  Why?  Lack of money.  Plenty of money.  Without that money, the infra program runs the risk of being a victim of a four-letter word that starts with the letter f. F—.

Thankfully, Governor Espenilla has another f in mind—the financial sector.   Finance sector infrastructure, specifically—access to credit and digital financial system.

BSP is the central monetary authority, supervisor of financial institutions, and guardian of the payments and settlements system. “Our thrust is to ensure that the business and operating environment is sound and stable,” says Espenilla. “And that our policies and regulations encourage the build, build, build of a progressive and inclusive financial infrastructure.”

“We do not ourselves build the FINfrastructure,” clarifies the BSP governor. “Our task is to promote an environment for those that do…  through implementation of rules and regulations, through the launching of initiatives, and through sound, prudent and progressive banking reforms.”

Access to credit and digital financial system

Thus, Espenilla says finfrastructure reforms “aim to enhance access to credit and other financial services, deepen local currency debt and foreign exchange markets, and digitalize our financial system. These are strategic and complementary reforms that reinforce sustainable economic growth and push further our financial inclusion agenda.”

The governor talks of “virtual reach”.  Examples:

— “We now allow third party retail outlets to function as cash agents as well as the implementation of reduced Know-Your-Customer (KYC) rules for certain low-risk accounts and the use of technology to comply with KYC requirements.”     

— Efforts to build financial infrastructure and viable ecosystems to facilitate a more equitable allocation of credit.

In recent speeches, Espenilla sounded gung-ho about technology. It has significantly changed the business of banking and finance. “Financial transactions can conveniently be made on the move, in the comfort of one’s home, using a smart phone. There is a shorter turnaround time for financial transactions,” he notes.

“Retail financial services are further being digitized via mobile wallets, payment applications, robo-advisors, equity crowd-funding platforms for access to private and alternative investment opportunities, and online lending platforms.”

“These breakthroughs are revolutionizing the financial landscape. Sound FINfrastructure is needed to support it, he says.

Cash-lite economy

The BSP is actively leading industry-wide initiatives to operationalize the National Retail Payment System (NRPS) to enable customers to make payments and transfer funds between and among accounts using any digital device.

“The goal is transition into a cash-lite economy,” Espenilla says.

There is progress.

First, with the establishment of the payment system management body, incorporated as Philippine Payments Management, Inc., there is now an organized governance structure of retail payment systems in the country. We are also currently working with the industry on the formation of two priority Automated Clearing Houses (ACHs), the Batch Credit Push EFT (called PesoNet), and the Real-time EFT Credit (called InstaPay). The PesoNet is set to launch on Nov. 8, 2017.

The BSP knows that fintech also poses technology-related risks. Accordingly, “the BSP follows a test-and-learn approach that allows an enabling environment for new collaborations to prosper. We encourage bank and non-bank partnerships with fintech startups to maximize the benefits of innovative digital platforms, efficiency of gains, and cost savings,” says Espenilla.

“We are also aware that new entrants may cause disruptions in the financial ecosystem since traditional players may be unable to immediately respond to increasing competition, he adds. Hence, we monitor fintech activities to better understand their business models, processes and systems.”

Moreover, the BSP has enhanced existing regulations to ensure that non-banks such as pawnshops and money service businesses are properly supervised as they compete in delivering bank-like services. Relatedly, “we regulate entities that use virtual currency as underlying instruments for remittance,” says Espenilla.

The BSP has also provided guidelines on BSP-supervised financial institutions to ensure that risks resulting from usage of social media are adequately assessed and managed.

Lastly, the BSP is enhancing its information security framework to consider cybersecurity controls.

While the term, “financial Infrastructure” refers broadly to a system that allows for the effective operation of financial intermediaries, encompassing even the legal and regulatory framework, Espenilla thinks of FINfrastructure as one that addresses the very heart of why infrastructure exists: to connect people, to enable inclusion and to provide a network for more Filipinos to enjoy the benefits of economic progress and development.”

The Gov wants to intercalate fintech into banking to promote financial inclusion to reach out to 80% of Filipinos who are unbanked and small and medium industries who lack capital but only 10% of whose capital needs are met by banks, despite the fact that MSMEs are 99% of all registered enterprises, provide 61.6% of the jobs, and sadly, contribute only 35.7% to national economic output or the Gross Domestic Product.  Only 6.1% of total bank loans go to MSMEs.

Technology, however, is as simple as using the internet.

Addressing La Salle students on Oct. 25, Chinese techno billionaire Jack Ma noted that “1.8 billion people in the world are using Internet. In 10 years, 5 to 6 billion people in Asia will have Internet.”

The Alibaba tycoon arrived late Oct. 24 in Manila. “I tried to test the speed of Philippine (Internet),” he related. “It’s no good,” he exclaimed to the guffaws of his audience.

Our internet, indeed, is fucked up.

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