People-Powered Economy Making a More Robust Philippines
Despite President Duterte picking fights with both the USA and the UN over his war on drugs, his Administration has led the Philippines to be the fastest growing economy in Association of Southeast Asian Nations 6 (ASEAN-6)[i]. The Philippines economy grew by 6.9% in 2016, and is expected to grow by 6.7% in 2017.
“The government will remain steadfast in its work, making sure that economic growth is built on people-centred and people-powered policies, stable macroeconomic fundamentals, and strong partnerships with other countries,” Socioeconomic Planning Secretary, Ernesto Pernia, said.
“Given this growth in 2016, we believe that the target of 6.5 percent to 7.5 percent for 2017 is highly likely.”[ii]
This is reportedly due to “robust” infrastructure spending, as well as a combination of low inflation and low interest rates[iii]. Pernia also stated that he expected per capita home income to “rise by over 40%” in the next six years. This was due, he said, to increased consumer confidence and consumption in-country.
These changes to the Filipino landscape would allegedly lift 6 million Filipinos out of poverty. In 2015, 69% of adults in the Philippines were unbanked[iv]. While the government is doing its part, FinTech companies are trying to shrink this number as well. This is not an unattainable goal, considering the high number of mobile phone[v] users in the South-East Asian nation.
Ant Financial, controlled by Jack Ma’s Alibaba, is investing in a 45% stake in Globe Fintech Innovations Inc. (Mynt), a unit of Globe Telecom Inc. The aim is to help accelerate financial inclusion in the Philippines[vi]; they operate a micro-payment service, as well as a loan platform for unbanked and underserved people.
In fact, the number of deals in the FinTech sector in South East Asia was at a record high over 2016. A total of 71 deals were made, a rise of 29% from the previous year. However, the actual dollar amount of the deals fell by almost $20 million. This suggests some early-stage funding for small businesses. The Philippines captured 14% of this funding[vii].
Increased financial freedom for people in the Philippines will not only improve the quality of life all around for the population, but will also work towards boosting the economy, like the growth they’re currently seeing.
Naturally, regulators are trying to catch up with the new and growing technologies, wanting to stamp out any criminal elements taking advantage of citizens. Regulators all over the world are under pressure to let the new emerging innovators flourish, especially if they can “give the millions of ‘unbanked’ first-time access to bank loans”[viii]. There is similar pressure on the other side, from banks and established financial institutions, to put more regulations on FinTech companies to assure a “level playing field” for everyone.
The Philippines Central Bank (BSP) has just issued some new circulars regarding FinTech regulations. The first states that any “non-bank entity” that is “engaged in remittance, money changing, or foreign exchange dealing” need to register with the BSP, as well as with the Anti-Money Laundering Council Secretariat. Foreign remittance platform providers (RPPs), must also do business “through a locally incorporated subsidiary”. They must also obtain BSP’s approval prior to any change in control of the corporation. The second circular made similar restrictions for virtual currency providers[ix].
The close-to-instantaneous way that FinTech companies are able to do business is having an effect on banks as well. Under previous Department of Finance (DOF) and Bureau of Revenue (BIR) regulation, taxpaying citizens were liable if their authorized banking institution failed to process their tax payment on time through to the BIR. Now, the regulation has been amended to make the banks themselves liable, marking that taxes paid by cards will be deemed paid on the date shown on the confirmation receipt from the bank[x].
It’s not all bad news for the banks, however, as the BSP has also eased the liquidity rules for the major banks within the Philippines, ahead of the implementation of liquidity coverage. They are setting aside the previous guidelines which required banks to maintain “liquid assets equivalent to at least half of government deposits and liabilities”. The change is to make sure that these institutions can survive any short-term liquidity disruptions[xi].
The financial landscape of the Philippines is evolving, and one thing is clear: FinTech is here to stay, and it’s bringing with it a new way of doing things.
[i] Chrisee Dela Paz for Rappler, “PH seen to remain fastest-growing economy in ASEAN-6 for 2017”, January 25 2017.
[vii] Jonathan Nieh for Crowdfund Insider, “Fintech Deals in South East Asia Hit Record Numbers in 2016”, March 23 2017.
[viii] David Dodwell for South China Morning Post, “Fintech a boon for the unbanked but a nightmare for regulators”, February 28 2016.
[x] ASEAN Briefing, “Philippines: Regulation holds banks responsible for late tax payments”, March 1 2017.