Finance sector needs to raise understanding of small business needs, bankers say

FINANCIAL inclusiveness should go beyond deploying fintech and move into the area of improving the understanding of the financial needs of small businesses, speakers at a regional banking forum said.

At the Asian Bankers’ Association (ABA) conference in Makati Friday, financial institutions were encouraged to tailor their offerings to better serve the micro, small and medium enterprise (MSME) sector.

“The Philippines (has) a broad financial inclusion agenda to include everyone in our financial system knowing that everyone needs to make financial transactions,” Bangko Sentral ng Pilipinas (BSP) Director for Center of Learning and Inclusion Advocacy Pia Bernadette Roman-Tayag said in a panel discussion. However, the link with the MSME is more valuable one because when we talk about inclusion for growth, you cannot leave out the small businesses.”

Ms. Roman-Tayag said the finance industry should try to get to know the sector better to address their needs.

“The problem with MSME is that we talk about it often… without nuance… and that is because there is a lack of understanding and appreciation of the realities of this sector. So, the financial institutions are constrained to get to know this market more,” she said.

She also cited efforts from financial firms that have tried to amplify inclusion methods through technology.

“We have seen data intelligence, consumer insights, scoring tools, web-based loan applications. All of this is great and the Bangko Sentral as regulator sees this as very important to our approach,” she said.

Rizal Commercial Banking Corp. President and CEO Eugene S. Acevedo said that the road to financial inclusion is more than banks equipping themselves with technology.

“We think fintech alone cannot solve the problem… It is the way you look at credit for small businesses… it’s different. Much of it is socially driven. And you can’t socialize through fintech, at least not yet,” he said.

Philippine National Bank President and CEO Jose Arnulfo A. Veloso added that the human touch is still a vital ingredient in financial transactions.

“Even if it’s digital, even if it’s a face to face, they need someone because at the back of their mind, they know that there is somebody responsible for the money that they would like to [access]. It is no longer going to probably be a face to face engagement, but we just need to be able to have somebody be able to face the individual digitally,” he said in an ABA news conference.

Meanwhile, Mr. Acevedo also laid out the so-called “pain points” of doing business for micro-financers that are mostly in touch with the underserved segments.

“In the Philippines, the yield in micro-finance is about 60-70% depending on where you are. Unfortunately, the cost of doing business is about 40-50% as well,” he said.

He said with the removal of troublesome processes like cash handling, the cost of doing business could fall to less than 30%.

“Hard microfinance is in the 20’s (20%) that’s why they’re profitable,” he said.

Mr. Acevedo said the ideal approach is different for each firm.

“It has to be a combination of technology, process redesign and old hardcore basic credit skills,” he said.

The ABA convened in Manila for its 36^th annual meeting and will gather next year in Sri Lanka. — Luz Wendy T. Noble