Report and Recommendation of the President

to the Board of Directors

Project Number: 51309-001

August 2018

Proposed Programmatic Approach and Policy-

Based Loan for Subprogram 1
Republic of the Philippines: Inclusive Finance
Development Program

Distribution of this document is restricted until it has been approved by the Board of Directors.
Following such approval, ADB will disclose the document to the public in accordance with ADB's
Public Communications Policy 2011 after excluding information that is subject to exceptions to
disclosure set for the in the policy.
 CURRENCY EQUIVALENTS
(as of 27 August 2018)

Currency unit = peso/s (₱)

₱1.00 = $0.01875
$1.00 = ₱53.3410

ABBREVIATIONS

ADB – Asian Development Bank

BSP – Bangko Sentral ng Pilipinas (Central Bank of the Philippines)
DOF – Department of Finance
IFC – International Finance Corporation
IC – Insurance Commission
MSMEs – micro, small, and medium-sized enterprises
MNGO – microfinance nongovernment organization
NIS – national identification system
NSFI – National Strategy for Financial Inclusion
PDP – Philippine Development Plan
SEC – Securities and Exchange Commission
TA – technical assistance

NOTE

In this report, "$" refers to United States dollars.

Vice-President Stephen Groff, Operations 2
Director General Ramesh Subramaniam, Southeast Asia Department (SERD)
Directors Kelly Bird, Country Director, Philippines Country Office, SERD
Sona Shrestha, Public Management, Financial Sector and Trade
Division, SERD

Team leaders Kelly Hattel, Senior Financial Sector Specialist, SERD

Stephen Schuster, Principal Financial Sector Specialist, SERD
Team members Joven Balbosa, Principal Country Specialist, Philippines Country
Office, SERD
Arup Chatterjee, Principal Financial Sector Specialist, Sustainable
Development and Climate Change Department (SDCC)
Jenamae Dajay-Java, Operations Assistant, SERD
Poornima Jayawardana, Financial Sector Specialist, SERD
Laurence Levaque, Social Development Specialist (Gender and
Development), SERD
Takako Morita, Senior Counsel, Office of the General Counsel
Hanif Rahemtulla, Senior Public Management Specialist, SDCC
Sabine Spohn, Senior Investment Specialist, Private Sector
Operations Department
Peer reviewer Cigdem Akin, Senior Public Management Economist, South Asia
Department
In preparing any country program or strategy, financing any project, or by making any designation
of or reference to a particular territory or geographic area in this document, the Asian
Development Bank does not intend to make any judgments as to the legal or other status of any
territory or area.
 CONTENTS

Page
PROGRAM AT A GLANCE
I. THE PROPOSAL 1
II. PROGRAM AND RATIONALE 1
A. Background and Development Constraints 1
B. Policy Reform and ADB’s Value Addition 4
C. Impacts of the Reform 8
D. Development Financing Needs and Budget Support 9
E. Implementation Arrangements 9
III. DUE DILIGENCE 9
IV. ASSURANCES 10
V. RECOMMENDATION 10

APPENDIXES
1. Design and Monitoring Framework 11
2. List of Linked Documents 13
3. Development Policy Letter 14
4. Policy Matrix 15
 Project Classification Information Status: Complete

PROGRAM AT A GLANCE
1. Basic Data Project Number: 51309-001
Project Name Inclusive Finance Development Department/Division SERD/SEPF
Program (Subprogram 1)
Country Philippines Executing Agency Department of Finance
Borrower Philippines
2. Sector Subsector(s) ADB Financing ($ million)
Finance Inclusive finance 300.00
Total 300.00

3. Strategic Agenda Subcomponents Climate Change Information

Inclusive economic Pillar 2: Access to economic Climate Change impact on the Project Low
growth (IEG) opportunities, including jobs, made
more inclusive
Environmentally Disaster risk management
sustainable growth (ESG)
Regional integration (RCI) Pillar 3: Money and finance
4. Drivers of Change Components Gender Equity and Mainstreaming
Governance and capacity Civil society participation Some gender elements (SGE)
development (GCD) Organizational development
Knowledge solutions Pilot-testing innovation and learning
(KNS)
Partnerships (PAR) Civil society organizations
Implementation
Private Sector
Private sector Conducive policy and institutional
development (PSD) environment
5. Poverty and SDG Targeting Location Impact
Geographic Targeting No Nation-wide High
Household Targeting Yes
SDG Targeting Yes
SDG Goals SDG10
6. Risk Categorization: Complex
.

7. Safeguard Categorization Environment: C Involuntary Resettlement: C Indigenous Peoples: C

.

8. Financing
Modality and Sources Amount ($ million)
ADB 300.00
Sovereign Programmatic Approach Policy-Based Lending (Regular Loan): 300.00
Ordinary capital resources
Cofinancing 174.00
Agence Francaise de Developpement - Programmatic Approach 174.00
Policy-Based Lending (Loan) (Not ADB Administered)
Counterpart 0.00
None 0.00
Total 474.00

Source: Asian Development Bank

This document must only be generated in eOps. 23012018101404881161 Generated Date: 27-Aug-2018 11:12:51 AM
 I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on (i) a proposed
programmatic approach for the Inclusive Finance Development Program and (ii) a proposed
policy-based loan to the Republic of the Philippines for subprogram 1 of the Inclusive Finance
Development Program.

2. The proposed program complements coordinated support by the Asian Development

Bank (ADB) to develop a resilient and inclusive finance sector. The program supports the
government’s efforts to increase financial inclusion by (i) strengthening the institutional and policy
environment, (ii) improving the financial infrastructure, and (iii) increasing the capacity and reach
of service providers. The program is consistent with the Philippine Development Plan (PDP),
2017–20221 and is included in ADB’s country operations business plan, 2018–2020.2

II. PROGRAM AND RATIONALE

A. Background and Development Constraints

3. The development problem. Despite rising and sustained economic growth, the
Government of the Philippines faces a challenge of persistently high inequality. Sound economic
stewardship, and an emphasis on governance and infrastructure led to an acceleration in
economic growth – which averaged 6.2% from 2011–2017, and a decline in overall poverty
incidence from 26.6% in 2006 to 21.6% in 2015.3 However, the Philippines has one of the highest
levels of income inequality in Southeast Asia, with a Gini coefficient of 0.44 in 2015, compared
with 0.39 in Indonesia in 2017 and 0.38 in Thailand in 2013. The per capita gross regional
domestic product in the National Capital Region is the country’s highest, and is more than 12
times that in the Autonomous Region in Muslim Mindanao (ARMM). 4 In recognition of the
challenges, the PDP, 2017–2022 set ambitious objectives for inclusive growth. The rural poverty
rate is targeted to decline from 30% in 2015 to 20% in 2022, and the overall poverty rate from
21.6% to 14.0% during the same period. To achieve these targets, the government plans to create
jobs, increase incomes, and strengthen the investment climate. The government’s signature
“Build, Build, Build” program calls for $168 billion in total infrastructure investment from 2017 to
2022. Spending on education, skills, and public service delivery has been increased and the
economy has responded, with economic growth further accelerating to 6.7% in 2017, the fastest
in the Association of Southeast Asian Nations region.5

4. While higher economic growth will provide a strong foundation for reducing inequality,
more needs to be done. High inequality in the Philippines is a result of several factors, but low
levels of financial inclusion – especially in rural areas – represents a key contributor.6 In 2017,
only 34% of Filipino adults held an account at a formal financial institution, compared with 49% of
adults in Indonesia, 82% in Thailand, and 85% in Malaysia (Table 1). Only 10% of the adult

1 Government of the Philippines, National Economic and Development Authority. 2017. Philippine Development Plan,
2017–2022. Manila; ADB. 2011.
2 ADB. 2017. Country Operations Business Plan: Philippines, 2018–2020. Manila. The design and monitoring
framework is in Appendix 1.
3 Government of the Philippines, Philippine Statistics Authority. 2015. Full Year Poverty Statistics 2015. Manila.
4 Government of the Philippines, Philippine Statistics Authority. https://www.psa.gov.ph (accessed 3 July 2018).
5 World Bank. 2018. Global Economic Prospects, June 2018: The Turning of the Tide? Washington, DC.
6 Economic Intelligence Unit. 2016. Global Microscope 2016: The Enabling Environment for Financial Inclusion.
London.
2

population borrowed from and 12% saved at a formal financial institution in 2017—down from
12% and 15% in 2014—ranking the Philippines among the lowest in the region. Lower-income
households are disproportionally excluded, with only 18% of adults from the bottom 40% income
group holding an account at a formal financial institution in 2017 (the same level recorded in 2014).
Additionally, regional disparities in financial access are substantial, with bank offices concentrated
in highly populated regions such as the National Capital Region, Cavite, Laguna, Batangas, Rizal
and Quezon, and Central Luzon. As of September 2017, 35% of cities and municipalities did not
have a banking office. 7 Taking nonbank financial institutions (e.g., microfinance institutions,
cooperatives, pawnshops, and remittance agents) into account reduced the level of unserved
municipalities from 35% to 10%, but these offer only a limited range of financial products and
services. As a result, many individuals have limited access to or are completely excluded from
financial services, including savings, credit, remittances, payments, cash drawdowns, e-money
conversions, and insurance. Likewise, micro, small, and medium-sized enterprises (MSMEs),
which are typically owned by individuals, lack access to similar types of financial services. While
some indicators on access to finance indicate gender gaps in favor of women, 61% of women still
lack a bank account at a formal financial institution.

Table 1: Financial Inclusion in the Association of Southeast Asian Nations

(%)
Borrowed
Account Account from a Saved at a
Account Account Youth Poorest Financial Financial
Country Accounta Male Female (age 15-24) 40% Institution
Institution
Cambodia 22 22 22 20 53 27 5
Myanmar 26 26 26 11 30 19 8
Lao PDR 29 26 32 24 42 9 18
Viet Nam 31 31 30 34 42 21 14
Philippines 34 30 39 24 18 10 12
Indonesia 49 46 51 47 37 17 22
Thailand 82 84 80 73 78 15 39
Malaysia 85 88 82 84 81 12 38
Lao PDR = Lao People’s Democratic Republic.
Note: Indicators are defined as the percentage of people aged 15 and over who have an account.
a Number of people who have an account, on their own or with someone else, at a bank or another type of financial

institution, or have personally used a mobile money service in the past 12 months.
Source: World Bank. The Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution.
Washington, DC.

5. Binding constraints. Recognizing the challenges, the government adopted its first
National Strategy for Financial Inclusion (NSFI) in 2015 to coordinate broad-based initiatives for
greater financial inclusion. Based on an assessment of the 2015 NSFI and a stocktaking of
inclusive finance in the Philippines, three primary constraints have been identified: (i) structural
impediments limit access to finance, especially for the rural poor; (ii) financial infrastructure is
fragmented and does not provide an enabling environment; and (iii) financial institutions exhibit
limited capacity to expand outreach and increase access to finance.8

6. Structural impediments. There are four primary structural impediments that limit access
to finance: (i) lack of a national identification system (NIS); (ii) limited availability of agriculture
finance; (iii) low penetration of microinsurance; and (iv) shallow financial literacy. In 2017, 32% of

7 Central Bank of the Philippines (BSP). 2017. Financial Inclusion in the Philippines: Dashboard as of Third Quarter
2017. Manila.
8 Sector Assessment (Summary): Finance (accessible from the list of linked documents in Appendix 2).
 3

the population reported not having a bank account because of a lack of necessary
documentation.9 Thus, a single NIS and an integrated national database represent a necessary
starting point for accelerating financial inclusion. International experience shows that the
establishment of an NIS, with a foundational identification card,10 can improve poor households’
access to government benefits and services by making it easier to open a bank account.11 In
addition, the legal and regulatory environment needs to be strengthened to better encourage the
finance sector to provide the financial products and services necessary for individuals in rural
households to generate income and mitigate financial risks.12 With 25% of employed persons
working in agriculture (around 10 million individuals) rural areas often rely on MSMEs and
agribusiness for growth and employment creation. 13 While agricultural lending increased 17%
from 2016 to 2017, agriculture finance overall remains underdeveloped and underutilized. Banks
struggle to comply with mandatory agricultural lending requirements, preferring to pay the
penalties for non-compliance rather than allocate part of their portfolio to the agriculture sector.
Transaction costs are high, especially in rural areas, and financial institutions lack expertise in
managing agricultural loan portfolios. Crop insurance coverage is available only from government
entities, coverage of risk is narrow, fragmentation of the market limits demand, and value chains
have not yet been developed. The number of farmers covered by the Philippine Crop Insurance
Corporation in 2017 increased to 1,040,000, but less than 2.82% of actual total damages were
paid out 2017.14 Finally, efforts to promote financial literacy have not been sufficient to ensure
that consumers, especially poorer households and MSMEs, can make well-informed financial
decisions. A coordinated financial education strategy and tailored financial literacy activities are
necessary to meet the needs of specific groups (e.g., women, farmers, fishers, youth, and
MSMEs) and for specific types of financial services, including digital financial services.

7. Fragmented financial infrastructure. There are three primary impediments to financial

infrastructure: (i) an underdeveloped payment system; (ii) lack of comprehensive credit and
collateral data; and (iii) a lack of alternative credit enhancement mechanisms. Financial inclusion
is best served through a modern, efficient, and low-cost payment system. However, the payment
system is costly, fragmented, and cannot support the efficient provision of electronic payments to
reach the underserved. Digital payments represented only 1% of total financial transactions in
2013, demonstrating the lack of effective electronic delivery channels. Achieving higher levels of
financial inclusion also depends on the ability of lenders to assess credit risks, and to compensate
with collateral if necessary. A comprehensive credit reporting registry has been established.
However, awareness of the registry among clients and financial service providers is low and
participation is limited, especially for MSMEs. Moreover, the absence of a movable collateral
registry exacerbates the lack of credit data and inhibits bank lending, as banks are unable to
mitigate their credit risk. While the government has a network of credit guarantee mechanisms,

9 The Philippines has multiple forms of identification; none are integrated, and none provide comprehensive coverage.
10 A foundational national identification registry contains basic data which can be used for multi-purposes.
11 For example, India has a biometric NIS with 1.19 billion enrolled members (as of 30 November 2017), and

approximately 99% of households in both rural and urban areas in India now have at least one member with a bank
account, up from 50% in 2011 at the inception of the NIS.P. Bhattacharya. 2016. 99% Indian households are covered
by a bank account. Mint. 9 April. http://www.livemint.com/Specials/vVKbQ0cMmiNbdwOlfd0Z4N/99-Indian-
households-are-covered-by-a-bank-account.html.
12 The agriculture sector represents 9.7% of gross domestic product and yet has a high unmet demand for more

sophisticated agriculture and agriculture value chain finance (financial products and services supporting the full range
of value adding activities required for bringing a product or service from the farm to the final customer or consumer)
and crop insurance.
13 Government of the Philippines, Philippine Statistics Authority.
https://www.psa.gov.ph (accessed 3 July 2018).
14 Legislation pending in Congress proposes to address weaknesses of the Philippine Corp Insurance Corporation

through a recapitalization of funds and by allowing engagement in index-based insurance and reinsurance.
4

the credit guarantee system is undercapitalized, inefficient, and underused. This weakness
especially limits the extension of credit to MSMEs, which usually lack collateral, particularly for
agriculture finance.

8. Limited capacity of financial institutions. The limited capacity of financial service

providers prevents wider outreach and constrains access to finance, especially in rural areas. The
microfinance sector has approximately 1,400 operating microfinance institutions, including
microfinance nongovernment organizations (MNGOs), rural banks, thrift banks, and cooperatives
serving about 7 million active clients. As of 2017, the banking sector alone had 164 operating
microfinance banks serving 1.8 million clients with outstanding loans amounting to around
$279 million. 15 Despite this growth, MNGOs—which serve the most excluded populations,
including poor women—are unable to meet existing demand. With the passage of the
Microfinance NGOs Act in 2015, registered and accredited MNGOs now pay only 2% tax. The
cost savings from the reduced tax burden can be translated into new product development, lower
interest rates, and expanded outreach. However, MNGOs have not been subjected to a
comprehensive regulatory structure, including social and governance performance standards and
regular monitoring, which would ensure their financial sustainability and better protect their clients.
Rural banks, which are best placed to reach MSMEs and agricultural enterprises in rural areas,
also exhibit limited financial and operational capacity. Without cost-effective credit assessment or
enhancement mechanisms, most rural banks limit their risk exposure, resulting in lower outreach.
Financial technology has the potential to rapidly expand and scale financial services. However,
most financial institutions lack the financial resources or ability to innovate. Finally, gaps in the
legal and regulatory framework for Islamic finance have slowed development of Islamic financial
services, particularly in the ARMM, limiting financial inclusion in that region.

B. Policy Reform and ADB’s Value Addition

9. The government’s reform agenda. Expanding financial services across the country,
including regions with the highest levels of poverty, is critical to achieving the government’s
agenda of promoting inclusive growth. On 1 July 2015, the government launched the Philippines’
first NSFI to coordinate broad-based initiatives for greater financial inclusion.16 The NSFI serves
as a guide for stakeholders to systematically accelerate financial inclusion in the Philippines. The
objective of the NSFI is to achieve a regionally responsive, development-oriented, and inclusive
financial system that provides for the evolving needs of a diverse Filipino public. The four key
areas of the strategy are (i) policy and regulation, (ii) financial education and consumer protection,
(iii) advocacy programs, and (iv) data and measurement. NSFI initiatives and areas of policy
reform cover (i) digital finance, (ii) financial literacy, (iii) credit information systems,
(iv) development of a movable collateral registry, (v) diversification of financial products and
services, and (vi) strengthening of the capacity of financial service providers. The NSFI has been
embraced by the PDP, 2017–2022, which calls for the development of inclusive business models
and social enterprises to better engage MSMEs and to increase their access to finance.

10. Proposed policy reforms. The use of a programmatic approach with a policy-based loan
and technical assistance (TA) provides for comprehensive and flexible support to the
government’s reform program over the medium to long term. Subprogram 1, which is the first of
two subprograms, contains 14 high-impact reforms, including seven policy triggers and seven

15 A microfinance bank is defined as either a rural or thrift bank with more than 50% of its portfolio in microfinance.
BSP. 2017. Financial Inclusion in the Philippines: Dashboard as of First Quarter 2017. Manila.
16 Government of the Philippines. 2015. National Strategy for Financial Inclusion. Manila.
 5

policy milestones.17 All policy actions have been accomplished. The program will support the
government’s efforts under the NSFI to increase financial inclusion by (i) strengthening the
institutional and policy environment, (ii) improving the financial infrastructure, and (iii) increasing
the capacity and reach of service providers with a focus on nonbank financial institutions in rural
areas. TA will support policy reforms proposed under subprogram 2 and the medium-term results
framework.18 The scope of the TA includes (i) development of a road map for agriculture finance,
(ii) development of diverse microinsurance products and services through public–private
partnerships, (iii) promotion of digital financial services, (iv) a strategic plan for financial literacy
initiatives, (v) strengthened capacity of financial service providers, and (vi) gender-responsive
strategies to support key policy reforms. Subprogram 2 may include a TA loan. A medium-term
direction and expected results policy framework covering 2016–2022 provides a structure for
continued policy reforms and ongoing dialogue with government.

11. Institutional and policy environment for financial inclusion. This reform area reflects
the implementation of institutional measures to improve access to finance among poorer
households and MSMEs. Accomplishments under subprogram 1 included the government’s
submission of draft legislation to Congress for the development of a NIS with an identification
card, and a commitment of $40 million to support implementation through the General
Appropriations Act for 2018–2020. Over time, the NIS will increase the reach of the government’s
financial inclusion efforts and improve data availability, leading to increased financial inclusion,
especially among the poorest and most excluded segments of the population who are most likely
to lack the identification needed to open a bank account or borrow from a financial institution. The
government also adopted complementary regulatory reforms to expand the availability of products
and services. The Central Bank of the Philippines (BSP) issued regulatory guidelines to support
agricultural value chain finance and provided incentives to banks to offer agriculture finance
products, including an increase of related single borrower limits. In addition, the government,
through the Insurance Commission (IC), revised the regulatory framework to enable a broader
distribution of microinsurance to reach a wider range of clients. Specifically, the new regulations
allow licensed microinsurance general agents, brokers, cooperative insurance societies, and
mutual benefit associations to contract services of microinsurance providers, drastically
increasing the potential for opening new accounts. Finally, Congress passed legislation
establishing an annual Economic and Financial Literacy Week to increase financial literacy across
the country. Under subprogram 2, the government will launch development of the NIS and will
provide a road map for the design and introduction of an identification card. The government will
develop and implement a gender-sensitive agriculture finance road map and will roll out a new
microinsurance scheme to increase coverage, especially for farmers. A financial education
stocktaking assessment will support the development and of an enhanced financial learning
program with tailored approaches for specific population segments, including women and youth.

12. Infrastructure for financial inclusion. This reform area reflects the government’s efforts
to directly increase financial inclusion through investment in support systems and support
networks. Accomplishments under subprogram 1 included the BSP’s actions to upgrade the
national retail payment system to provide a more varied and a safer means of payment, especially
for lower-income customers. As part of the upgrade, the BSP established two clearing houses:
(i) PESONet, which launched direct business-to-business and customer-to-business payments
and enabled the digitization of government-to-government and person-to-government
transactions; and (ii) InstaPay, which makes it easier and less costly for individuals and

17 Prior actions are considered loan disbursement conditions, and policy milestones strengthen the program.
18 ADB. 2016. Technical Assistance to the Republic of the Philippines for Financial Inclusion Framework Strengthening.
Manila.
6

businesses to make real-time electronic payments of less than $1,000 (without a daily limit) by
eliminating the need to transact at bank branches or payments counters. In addition, the
Securities and Exchange Commission (SEC) integrated microfinance credit information into the
national credit information registry, which will expand access to credit for individuals and MSMEs.
The government also submitted legislation to Congress to provide an updated legal framework
for a national secured transaction registry, which will provide individuals and MSMEs with the
ability to pledge movable collateral, thereby increasing their access to credit and reducing its cost.
The government also completed an action plan to improve the existing credit guarantee schemes
by consolidating and strengthening their management and governance. Under subprogram 2, the
BSP will (i) continue enhancing the national retail payment system to support the expansion of
digital payments, (ii) issue additional financial technology licenses, and (iii) increase the ability of
banks to reach the underserved through agents and off-premise cash and deposit services.
Coverage of the national credit information registry will continue to increase, and the Land
Registration Authority will establish a collateral registry. Finally, the government will launch its
plan to improve existing credit guarantee schemes.

13. Capacity of financial service providers. This reform area reflects actions taken to
improve the capacity of MNGOs and to expand the reach of rural banks. Accomplishments under
subprogram 1 included the establishment of a Microfinance NGO Regulatory Council with the
SEC as chair. The council subsequently adopted accreditation standards to strengthen the
financial and social performance standards and governance practices of MNGOs. The program
also pilot-tested new technological innovations to improve the operational efficiency and outreach
of rural banks. Finally, the government submitted legislation to Congress to establish a strong
legal and policy framework for the development of Islamic finance to expand access to financial
services in the ARMM in particular. Under subprogram 2, the council will accredit and monitor
MNGOs and provide training programs to help build their capacity for compliance. Support for
technical innovation will continue with the mainstreaming of cloud-based core banking solutions
in the banking industry. The BSP will support passage of legislation, conduct gender-sensitive
awareness-raising and capacity-building campaigns, and formulate regulations for issuance of
sukuk (sharia-compliant bonds).
 7

14. ADB experience. A strong government commitment, complemented by ADB’s support,

has created a vibrant microfinance industry and a conducive regulatory framework. The Rural
Microenterprise Finance Project laid the foundation for successful microfinance wholesale lending
operations and contributed to the growth of microfinance. 19 The Microfinance Development
Program improved the microfinance regulatory environment, strengthened regulatory and
operational capacity, and implemented the national microfinance literacy program. 20 These
programs were complemented by the Developing Financial Cooperatives Project, which improved
the regulatory environment for credit and savings cooperatives.21 The Developing Microinsurance
Project helped the government set up a suitable regulatory environment and launch the National
Strategy for Microinsurance in 2010.22 The Capacity Building for Microinsurance Project produced
the regulatory framework necessary to support the development of microinsurance. 23
Complementing this support, the Encouraging Investment through Capital Market Reforms
Program, approved by ADB in 2015, has supported reforms to deepen the capital market and
expand the institutional investor base to increase access to long-term finance, opening the door
for ADB’s shift to expanding financial inclusion. 24

15. Lessons learned. ADB’s long engagement in the microfinance sector has informed the
program design through four key lessons. First, increasing broad access to financial services
requires a comprehensive strategy. This strategy must cover the institutional and policy
environment, the types and accessibility of products and services offered, the infrastructure and
payment system, and the capacity of financial service providers. Second, there should be strong
government ownership of the reforms and widespread political will to implement them. This is
especially important considering that certain barriers to financial inclusion (through initiatives such
as an NIS, credit and collateral registries, and Islamic financial services) have not been addressed
through earlier reforms because of the concerns of various stakeholders. Third, pilot projects
testing new strategies through a regulatory “sandbox” approach (i.e., a test-and-learn approach)
represent an important part of policy development and help build stakeholder support for
institutional reforms. 25 Fourth, building capacity should include close ADB involvement with
government and national and local government ownership of interventions.

16. ADB’s value addition to program design and implementation. The program design
benefited from the explicit commitment of the government through the NSFI. The program also
incorporates knowledge gained from sustained ADB policy dialogue with key stakeholders as well
as previous and ongoing TA implementation. Most recently, ADB has worked closely with the
BSP to identify priority areas of reform and has helped identify ways to strengthen agriculture
finance, improve coordination of financial literacy, and explore innovation in the banking sector.

19 ADB. 1996. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical
Assistance Grant to the Republic of the Philippines for the Rural Microenterprise Finance Project. Manila.
20 ADB. 2005. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical

Assistance Grant to the Republic of the Philippines for the Microfinance Development Program. Manila.
21 ADB. 2006. Grant Assistance Report: Proposed Grant Assistance to the Philippines for the Developing Financial

Cooperatives Project. Manila.

22 ADB. 2008. Grant Assistance Report: Proposed Grant Assistance to the Republic of the Philippines for the

Developing Microinsurance Project. Manila.

23 ADB. 2012. Grant Assistance Report: Proposed Grant Assistance to the Republic of the Philippines for Capacity

Building for the Microinsurance Project. Manila.

24 ADB. 2015. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical

Assistance Grant to the Republic of the Philippines for the Encouraging Investment through Capital Market Reforms
Program. Manila.
25 A regulatory “sandbox” approach (i.e., a test-and-learn approach) is a framework set up by a finance sector regulator

to allow small-scale live testing of innovations by private firms in a controlled environment (operating under a special
exemption, allowance, or other limited, time-bound exception) under the regulator’s supervision.
8

Through TA support, ADB has built on the lessons learned and is supporting the BSP’s test-and-
learn approach with a rural bank in Mindanao by funding the migration of its core banking system
to a cloud-based core banking solution. 26 Based on previous ADB research, ADB TA is
supporting a follow-on assessment to identify how an NIS can accelerate financial inclusion in the
Philippines, particularly among the most marginalized population.27 Together, ADB and the IC
have worked to further develop microinsurance, including exploration of public–private
partnerships to expand agriculture insurance. ADB has also worked closely with the SEC to
develop financial, social, and governance standards for MNGOs and an accreditation framework
to professionalize and scale their operations. ADB is also supporting the development of a
regulatory framework for Islamic finance.28

17. Development partner coordination. Since 2000, ADB has worked closely with the
government and other development partners to support the government’s goal of increasing
financial inclusion in the Philippines. Since 2015, the NSFI steering committee, chaired by the
BSP, has coordinated development partner support. Key development agencies actively involved
in supporting financial inclusion include Agence Française de Développement (AFD). ADB and
AFD are working closely to align technical assistance to support implementation of the Inclusive
Finance Development Program. In addition, the AFD is exploring the possibility to provide parallel
collaborative cofinancing for subprogram 2. Other development partners include German
development cooperation through Deutsche Gesellschaft für Internationale Zusammenarbeit, the
International Finance Corporation (IFC), the International Labor Organization, the United Nations
Development Programme, the United States Agency for International Development, and the
World Bank. Within this framework, ADB and the World Bank are closely collaborating to support
implementation of the NSFI, including an expansion of agriculture finance and insurance. ADB
has worked closely with Deutsche Gesellschaft für Internationale Zusammenarbeit to develop a
strong regulatory framework and financial literacy for microinsurance. The IFC has worked with
the Credit Information Corporation to establish a credit information system and has supported the
development of an updated regulatory framework for secured transactions, including an online
collateral registry. ADB and the IFC are collaborating on ways to raise awareness of the credit
and collateral registries. The United States Agency for International Development has long
supported innovation in the rural banking sector and the promotion of electronic money. Recent
discussions with ADB have focused on coordinated support for Islamic finance in Mindanao.

C. Impacts of the Reform

18. Economic impact of the program. The program impact assessment estimates the
potential net present value of benefits (benefits minus costs) of the program to range from $1.5
to $4.6 billion. Benefits arise primarily out of reforms which will increase the number of account
holders and the average savings of the new account holders, which together boost GDP. The
present value of the costs arise primarily from the adoption of a national identification system. In
addition to the economic growth, the reforms supported by the program yield other economic
benefits such as a reduction in poverty and increased participation in the formal economy.29

26 ADB. 2017. Technical Assistance for Unlocking Innovation for Development. Manila. Through this TA and the TA
referenced in footnote 18, ADB is financing a pilot cloud banking project for a rural bank in the province of Mindanao,
Philippines. Cloud-based banking involves full migration from a hardware-based core banking system to cloud
infrastructure, reducing costs and improving efficiencies.
27 ADB. 2016. Identity for Development in Asia and the Pacific. Manila.
28 ADB. 2017. Technical Assistance to the Republic of the Philippines for Islamic Finance in the Philippines. Manila.
29 Program Impact Assessment (accessible from the list of linked documents in Appendix 2).
 9

D. Development Financing Needs and Budget Support

19. The government has requested a single tranche loan of $300 million from ADB’s ordinary
capital resources to help finance subprogram 1, with an indicative $300 million for subprogram 2.
Subprogram 2 may include a $10 million TA loan to help further develop financial inclusion. The
loan will have a 15-year term, including a 3-year grace period, annuity method with 30% discount,
an annual interest rate determined in accordance with ADB’s London interbank offered rate-based
lending facility, a commitment charge of 0.15% per year, and such other terms and conditions set
forth in the draft loan agreement. The average maturity is 12.1 years, and there is no maturity
premium payable to ADB. 30 The loan size is based on the Philippines’ financing needs, the
development impact of the policy reform package, and development spending arising from the
reforms. In 2018, the government’s total gross borrowing requirement is estimated at $17.4 billion,
one fifth of which will be from foreign borrowing. The foreign borrowing will comprise government
bonds estimated at $1.0 billion and official development assistance estimated at $2.5 billion.

E. Implementation Arrangements

20. The Department of Finance (DOF) will be the executing agency with the BSP, Bureau of
Treasury, Department of Justice, IC, Philippine Statistics Authority, and SEC as implementing
agencies. A steering committee chaired by the DOF, with the implementing agencies as members,
will oversee implementation of the program. The implementation periods are
March 2016—April 2018 for subprogram 1 and May 2018–May 2020 for subprogram 2. The
proceeds of the policy-based loan will be withdrawn in accordance with ADB’s Loan Disbursement
Handbook (2017, as amended from time to time).

III. DUE DILIGENCE

21. Safeguards. Subprogram 1 will not entail any involuntary resettlement or affect
indigenous people or the environment. It is classified category C for environment, involuntary
resettlement and indigenous peoples.

22. Poverty and social. The direct beneficiaries of the program include the central
government, private stakeholders such as rural banks, financial technology companies, MSMEs,
industry associations, and nongovernment organizations. The indirect beneficiaries of the
program include investors, enterprises, entrepreneurs, farmers, workers, consumers, and
vulnerable households. Entrepreneurs, farmers, workers, and poor households will benefit from
a broader range of financial products and services, better access to services by gaining financial
literacy, and stronger protection frameworks that boost resilience to shocks. Subprogram 1 is
categorized as some gender elements, with key gender actions including collection of credit
information disaggregated by sex and promotion of gender diversity on MNGO boards. The
program is expected to generate benefits for women and increase their access to financial
services through the development of an NIS (considering that women are less likely than men to
have identification documents required to open a bank account) and efforts to strengthen MNGOs,
which predominantly serve women. A gender gap assessment will be conducted through TA to
strengthen the gender focus of subprogram 2 for categorization as effective gender
mainstreaming.

23. Governance. The latest public expenditure and financial accountability assessment
confirmed that three of seven core areas (transparency, policy-based budgeting, asset–liability

30 The loan may be disbursed in one or more installments.

10

management) have improved and are now considered strong. Areas of weakness identified in the
assessment—budget credibility, predictability and control in budget execution, and external
scrutiny and audit—are being actively addressed by government. The proposed Public Financial
Accountability Act will help to enforce accountability in the public financial management system
and increase budget transparency and participation. The government is implementing a
comprehensive results-based anticorruption plan to strengthen the Office of the Ombudsman and
the justice subsector, which have achieved positive results. ADB’s Anticorruption Policy (1998,
as amended to date) was explained to and discussed with the government.

24. Risks and mitigating measures. The program has two substantial risks. Public financial
management is assessed as a substantial risk because of a dispersion of responsibilities among
oversight agencies, weak budget execution, and a lack of transparency. These weaknesses are
being mitigated by government by improvements in transparency, policy-based budgeting, and
accounting and record keeping. The government has also strengthened the budget review
process, reduced the number and size of special purpose funds, and institutionalized
transparency as a precondition to accessing public funds. A second substantial risk, corruption,
is being mitigated through the Philippines’ Cabinet Cluster on Good Governance and
Anti-Corruption, which has implemented a comprehensive and results-based anticorruption action
plan. 31

IV. ASSURANCES

25. The government has assured ADB that implementation of the program shall conform to
all applicable ADB policies including those concerning anticorruption measures, safeguards,
gender, procurement, consulting services, and disbursement as described in detail in the loan
agreement.

V. RECOMMENDATION

26. I am satisfied that the proposed programmatic approach and policy-based loan would
comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend
that the Board approve
(i) the programmatic approach for the Inclusive Finance Development Program; and
(ii) the loan of $300,000,000 to the Republic of the Philippines for subprogram 1 of the
Inclusive Finance Development Program, from ADB’s ordinary capital resources,
in regular terms, with interest to be determined in accordance with ADB’s London
interbank offered rate (LIBOR)-based lending facility; for a term of 15 years,
including a grace period of 3 years; and such other terms and conditions as are
substantially in accordance with those set forth in the draft loan agreement
presented to the Board.

Takehiko Nakao
President
27 August 2018

31 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).
 Appendix 1 11

DESIGN AND MONITORING FRAMEWORK

Country’s Overarching Development Objectives

Resilient and inclusive finance sector achieved (Philippine Development Plan, 2017–2022)a
Performance Indicators with Data Sources and
Results Chain Targets and Baselines Reporting Mechanisms Risks
Effect of the Reform By 2022: Macroeconomic
Financial inclusion a. Share of individuals holding an a.–b World Bank, Global instability and
increased account at a bank or another type Findex Database volatility affects
of financial institution increased to the capacity of
37% overall: men to 29%, women individuals to
to 46%, and youth to 23% open bank
(2014 baseline: overall 31%, men accounts.
24%, women 38%, and youths
19%)b, c Confidence in
the formal
b. Individuals at the bottom 40% finance sector
of the population (aged 15 and weakens.
over) with an account at a formal
financial institution increased to
22% (2014 baseline: 18%)
Reform Areas Under Indicative Policy Actions Changes in
Subprogram 1 By 2018: political
1. Institutional and 1.1 Legislation establishing a 1.1 Legislative reports priorities
policy environment for single national identification prevent
financial inclusion system submitted to Congress implementation
(2016 baseline: Not submitted) of identified
reform areas.
1.2 Agriculture Value Chain 1.2 BSP, Department of
Financing Framework issued Agriculture, and Potential data
(2016 baseline: NA) Agricultural Credit Policy breach affects
Council reports integrity of
important
1.3 Legislation enacted for an 1.3 Legislative reports electronic
annual Economic and Financial information.
Literacy Week to increase
financial literacy awareness
(2016 baseline: NA)

2. Infrastructure for 2.1 Upgrade to NRPS launched 2.1 BSP circular issued
financial inclusion (2016 baseline: NA) for NRPS upgrade

2.2 National credit information 2.2 Credit Information

registry launched and actively Corporation press
collecting data disaggregated by release
sex (2016 baseline: NA)

2.3 Legislation establishing a 2.3 Draft legislation

national secured transactions
registry submitted to Congress
(2016 baseline: NA)

2.4 Government submitted draft 2.4 Bureau of the

executive order to consolidate Treasury reports
government guarantee schemes
under one governing body
(2016 baseline: NA)
 12 Appendix 1

Performance Indicators with Data Sources and

Results Chain Targets and Baselines Reporting Mechanisms Risks
3. Capacity of financial 3.1 Microfinance NGO Regulatory 3.1. Securities and
service providers Council established, adopting Exchange Commission
financial, social, and governance reports
performance standards for
microfinance NGOs (including
gender diversity on the board)
and prescribing a standard chart
of accounts for accredited
microfinance NGOs (2016
baseline: NA)

3.2 Cloud-based banking system 3.2. BSP reports

approved as part of a test-and-
learn pilot approachd (2016
baseline: NA)

3.3 Legislation establishing a 3.3. Draft legislation

legal and policy framework for
Islamic finance submitted to
Congress (2016 baseline: NA)
Budget Support
Asian Development Bank
Subprogram 1: $300 million (loan)
Subprogram 2: $300 million (indicative loan)
$10 million (possible technical assistance loan)
Assumptions for Partner Financing
French development cooperation through AFD: €150,000,000 or its equivalent in United States dollars
(indicative)
BSP = Bangko Sentral ng Pilipinas (Central Bank of the Philippines), NA = Not Applicable, NGO = nongovernment
organization, NRPS = national retail payment system.
a Government of the Philippines, National Economic and Development Authority. 2017. Philippine Development Plan,

2017–2022. Manila.
b Number of people who have an account, on their own or with someone else, at a bank or another type of financial

institution or have personally used a mobile money service in the past 12 months.
c Youths are defined as teenagers and young adults aged 15–24 years.
d Cloud-based banking involves full migration from a hardware-based core banking system to cloud infrastructure. This

frees the financial institution from the technological infrastructure limitations, reduces costs, and puts the financial
institution in control of their portfolio and processes.
Source: Asian Development Bank.
 Appendix 2 13

LIST OF LINKED DOCUMENTS

http://www.adb.org/Documents/RRPs/?id=51309-001-3

1. Loan Agreement
2. Sector Assessment (Summary): Finance
3. Contribution to the ADB Results Framework
4. Development Coordination
5. Country Economic Indicators
6. International Monetary Fund Assessment Letter
7. Summary Poverty Reduction and Social Strategy
8. Risk Assessment and Risk Management Plan
9. List of Ineligible Items

Supplementary Documents
10. Program Impact Assessment
11. Public Financial Management Assessment
14 Appendix 3
 Appendix 4 15

POLICY MATRIX

Policy Actions – PHI Inclusive Finance Development Program

Subprogram 1 Accomplishments Subprogram 2 Medium-term direction
Outputs (Policy triggers in bold) (Policy triggers in bold) and expected results
March 2016 to April 2018 May 2018 to May 2020 (2016 to 2022)
Output 1 – Institutional and policy environment for financial inclusion strengthened.
1.1 National To achieve higher levels of financial inclusion, The government begins implementing the
single the government-initiated reforms to the national National Identification System. Actions include:
identification identification system to make it easier for
system citizens to establish an account at a financial
reformed. institution. Accomplishments included:

IA: PSA 1. The government submitted proposed 1. The government begins to install the NIS • The NIS system
legislation to Congress to develop a by: (i) issuing implementing rules and launched.
foundational national single regulations and (ii) completing a roadmap
identification system (NIS) with an for the development of the NIS,
identification card to provide for a range foundational identification card, and links
of benefits and government services and to increased financial inclusion through
improve access to finance. digital transfer payments and other
financial services.

2. The government allocated US$40 million 2. The government allocates sufficient budget
(equivalent) through the 2018 General through the GAA for 2019 and 2020 for NIS
Appropriations Act (GAA) for NIS development.
development.

1.2 Financial The government expands financial inclusion The government continues to expand agricultural
products and with a focus on agricultural finance, finance, microinsurance and consumer protection.
services microinsurance and consumer protection. Actions include:
expanded. Accomplishments included:

IA: BSP 3. The BSP introduced a policy framework 3. The BSP continues to implement the AVCF • Number of financial
to promote agriculture value chain Framework to foster value chain finance institutions offering
finance (AVCF). Under this framework, lending to agriculture enterprises, to agriculture value chain
BSP-Supervised Financial Institutions support the objectives of the proposed financing products
participating in AVCF would be able to roadmap for agriculture development in increases.
address risks associated with lending the Philippines.
16 Appendix 4

Policy Actions – PHI Inclusive Finance Development Program

Subprogram 1 Accomplishments Subprogram 2 Medium-term direction
Outputs (Policy triggers in bold) (Policy triggers in bold) and expected results
March 2016 to April 2018 May 2018 to May 2020 (2016 to 2022)
to the agriculture sector by shifting the
focus of lending from individual farmers
to the whole value chain.

IA: IC 4. The issuance by the Insurance 4. The government, through the Insurance • Number of
Commission of several regulatory Commission, develops a guideline for the microinsurance policy
frameworks for microinsurance which: registration of distribution channels. holders increases to
(i) allows microinsurance providers to 35 million by 2020 and
further develop microinsurance products 40 million by 2022
on agriculture and health insurance; (2015 baseline:
(ii) enhancement of functions of licensed 28.7 million)
microinsurance general agents, brokers,
Cooperative Insurance Societies, and
Mutual Benefit Associations to increase the
outreach of microinsurance; (iii) defines
acceptable distribution channels and
permissible functions to further increase
outreach; and (iv) enhancement of
performance indicators and standards for
microinsurance providers.

5. Legislation was enacted for an annual 5. The BSP implements an enhanced Economic
Economic and Financial Literacy Week to and Financial Learning Program, focused on
increase financial literacy awareness strategic partnerships, informed by a Financial
among the public and policymakers. Education Stocktaking Study; and a Financial
Inclusion Survey to include information related
to gender and age, and their access to
financial services such as savings and credit).
 Appendix 4 17

Policy Actions – PHI Inclusive Finance Development Program

Subprogram 1 Accomplishments Subprogram 2 Medium-term direction
Outputs (Policy triggers in bold) (Policy triggers in bold) and expected results
March 2016 to April 2018 May 2018 to May 2020 (2016 to 2022)
Output 2 – Infrastructure for financial inclusion strengthened.
2.1 Payment The government took steps to strengthen the The government continues to upgrade the retail
infrastructure retail payment system to facilitate improved and payment system. Actions include:
developed. modernized service delivery. Accomplishments
included:
IA: BSP
6. The BSP issued a policy framework to 6. The BSP and NRPS participants continue • The National Retail
promote the establishment of a safe, to implement policy reforms and programs Payment System,
efficient and interoperable national to increase the share of digital payments increases the share of
retail payment system (NRPS) that to 20% of total transaction by 2020 (up digital payments to 25%
allows (i) transfer funds from one bank from 1% share in 2013). of total transactions by
or financial service provider to another 2022 (up from 1% share
through transaction accounts; and in 2013).
(ii) any qualified financial service
provider to participate on a level playing
field. The goal is to drive usage of
electronic payments from the current
1% to 20% by 2020 and promote a
digital finance ecosystem which can
facilitate the deployment of a wide
range of affordable financial products
and services.

7. The BSP collaborated with the banking and 7. The BSP continues to promote and utilize
payments industry to establish two fintech sandboxes, or the “test and learn”
automated clearing houses (ACH) for: (i) framework to develop solutions that can
batched electronic fund transfer credit that expand the range and reach of financial
could be used to replace checks; and (ii) services
real time low value push that enables low
value electronic fund transfers.

8. To extend the reach of traditional 8. BSP continues to support implementation • New electronic service
branches, the BSP (i) issued new of the cash agents and branch-lite delivery channels
guidelines for banks allowing them to use increase number of
18 Appendix 4

Policy Actions – PHI Inclusive Finance Development Program

Subprogram 1 Accomplishments Subprogram 2 Medium-term direction
Outputs (Policy triggers in bold) (Policy triggers in bold) and expected results
March 2016 to April 2018 May 2018 to May 2020 (2016 to 2022)
third party cash agents as a cost-efficient guidelines and established standards for active formal accounts
service delivery channel. Among others, the conduct of these activities. by at least 5% per year
the guidelines allow the cash agents to (baseline: 10% growth
collect deposits, disperse cash, and 2014–2017).
provide other financial services on behalf of
banks.
2.2 To increase the provision of credit to the The government expands coverage of credit
Comprehensive underserved, the government implemented information and collateral systems. Actions
credit reporting reforms to provide accurate and timely credit include:
and collateral information and to strengthen the collateral
registry registry system. Accomplishments included:
systems
deployed. 9. The government, through the SEC, 9. The SEC, continues to increase coverage • At least 50 additional
increased the number of people with a of the credit reporting system by requiring submitting microfinance
IA: SEC formal financial credit history by: (i) microfinance NGOs to submit credit data NGOs reporting to the
requiring financing companies to to the CIC. CIC (baseline 2016:
provide their 3-year historical and NA).
current credit data to the Credit
Information Corporation (CIC); and (ii)
enable microfinance NGOs to submit
credit data to the CIC with the assistance
of the Microfinance Data Sharing System
(MiDAS – a credit bureau for
microfinance NGOs).

IA: DOJ 10. The government submitted legislation to 10. The government establishes and • The on-line collateral
Congress to establish a modern secured operationalizes the online national registry is actively used
transactions system and the creation of collateral registry. by financial institutions.
a centralized, online national collateral (2017 baseline = 0)
registry.
 Appendix 4 19

Policy Actions – PHI Inclusive Finance Development Program

Subprogram 1 Accomplishments Subprogram 2 Medium-term direction
Outputs (Policy triggers in bold) (Policy triggers in bold) and expected results
March 2016 to April 2018 May 2018 to May 2020 (2016 to 2022)
2.3 Credit The government-initiated reforms to improve the The government implements reforms to the
enhancement system of credit guarantees to facilitate system of credit guarantees. Actions include:
mechanisms enhanced access to credit. Accomplishments
streamlined. included:

IA: BTr 11. The government submitted a draft 11. The government formulates an action plan • Percentage of MSMEs
Executive Order to bring the state- which includes: (i) the reorganization of with state-financed
financed guarantee funds (e.g., PhilEXIM, PhilEXIM; review of guarantee policies, guarantee-backed
Agriculture Guarantee Fund Pool (AGFP), pricing and enterprise risk management, lending increases by
Small Business and Guarantee Finance and (ii) infusion of capital, if necessary. 10% from 2017—2022
Corporation (SBGFC or SB Corporation), (baseline for MSMEs in
Industrial Guarantee and Loan Fund 2016: ₱178 million and
(IGLF) and the Home Guaranty baseline for agriculture-
Corporation (HGC) together under one related guarantees in
governing entity to increase efficiencies 2016: ₱1.7 billion).
and expand access to finance.
Output 3 – Capacity of financial service providers enhanced.
3.1 Capacity of To improve the capacity of microfinance NGOs, The government continues to provide structured
microfinance rural banks and support expansion of Islamic mechanisms to improve the capacity of MNRC
NGOs finance, government has provided structured and microfinance institutions. Actions include:
increased. support mechanisms. Accomplishments
included:
IA: SEC • Microfinance NGOs
12. The government established the 12. The MNRC (i) designs an electronic system
increase number of
Microfinance NGO Regulatory Council to collect data from microfinance NGOs;
clients (accounts) to 5
(MNRC) as a microfinance standard (ii) implements training programs including
million, of which at least
setting body. The MNRC: (i) adopted to build capacity of microfinance NGOs to
50% are women
governance performance standards for comply with MNRC accreditation and CIC
(baseline: 3.9 million in
microfinance NGOs (including gender requirements, and (iii) accredits
2015).
diversity on the board); and (ii) microfinance NGOs according to
prescribed a standard chart of accounts performance standards. At least 75%
for accredited microfinance NGOs. accredited microfinance NGOs have female
representation on their boards.
20 Appendix 4

Policy Actions – PHI Inclusive Finance Development Program

Subprogram 1 Accomplishments Subprogram 2 Medium-term direction
Outputs (Policy triggers in bold) (Policy triggers in bold) and expected results
March 2016 to April 2018 May 2018 to May 2020 (2016 to 2022)
3.2 Outreach by The government supports the use of financial The government continues to support the use of
rural banks technology innovations with the potential to financial technology innovations. Actions include:
scaled. replicate, scale and enhance financial services
throughout the country. Accomplishments
ADB TA 9017- included:
REG “Unlocking
Innovation for 13. The BSP approved an innovative pilot for 13. Informed by results of the rural bank pilot, • Number of rural banks
Development” a rural bank to migrate its physical core the BSP issues regulations to promote and using cloud-based core
(ADB TASF – banking system to a cloud-based enable the use of cloud-based core banking system
5 million) system, to showcase how digital banking technology throughout the increases (baseline: 0 in
innovation can enable banks to manage banking sector. 2016).
IA: BSP operations and serve clients more
effectively.

14. The government submitted legislation to 14. The BSP will continue to support the passage • Increased awareness
Congress to establish a strong legal and of the Islamic Banking Bill; conduct and capacity to deliver
policy framework for the development of awareness-raising and capacity-building Islamic financial
Islamic finance in the country. This campaigns; and formulate regulations that services.
framework also ensures an environment of support government's issuance of "sukuk" or
increased consumer awareness and sharia-compliant bonds.
capacity building of providers on Islamic
finance.

ADB = Asian Development Bank, BSP = Bangko Sentral ng Pilipinas, BTr = Bureau of Treasury, CIC = Credit Information Corporation, DOF-NCC = Department of Finance
– National Credit Council, DOJ = Department of Justice, IA = implementing agency, IC = Insurance Commission, MiDAS = Microfinance Data Sharing System, NGOs =
non governmental organizations, PSA = Philippine Statistic Authority, SEC = Securities and Exchange Commission, TA = technical assistance
a Number of people having an account (by themselves or together with someone else) at a bank or another type of financial institution or personally using a mobile money

service in the past 12 months.

b Youth defined as individuals ages 18–25.
c The first ACH is Peso Net is a batch electronic fund transfer credit payment scheme which can be used for salary payments and batch transfers. The second ACH is

InstaPay which allows real-time low value push payments which will be especially useful for toll fees, tickets, and e-commerce for MSMEs.