Most Pinoys still rely on informal credit – WB

A majority of Filipinos still prefer informal sources of credit for their basic needs rather than using formal or banking sources, a World Bank survey showed.

Based on the survey, Filipinos are more likely to use informal credit and savings services, including “5-6” and

paluwagan, than formal lending services. The survey showed 78 percent of respondents use informal financial series and 56 percent use informal credit only. Another 13 percent tap the microfinance sector and 12 percent use both formal and informal credit.

The World Bank noted those residing in urban areas are significantly more likely to use informal credit while rural residents account for the majority of users of informal savings products.

Adults of 55 years of age and older are less likely to use informal borrowing but more likely to use informal savings. There are no differences in the use of formal and informal financial services by employment type.

Two-thirds of households earning less than P10,000 report not having enough money for food and basics commodities. But even among those who earn more than P50,000, 23 percent report running short of money.

Those more likely to run short of money have lower income, larger household size, and are males. Those with tertiary level of education, aged 55 and older and selfemployed are less likely to report running short of money.

Fifty-two percent or about 22 million adults report that their households borrow for basic necessities.

Among the households that report they run short of money for basic necessities the use of credit is near universal, or 94 percent borrow to cover expenses.

The second most common strategy is spending less – used by 62 percent of those in the top 25 percent by income distribution, and 42 percent in the lowest income group.

Households across all income groups also rely on cash gifts – 45 percent among top income group and 38 percent for the lower income.

The World Bank survey, which covered 3,000 adults, also shows aside from borrowing, Filipinos pawn jewelry, use savings, sell something, and find extra work.

Meanwhile, the survey noted the most common reason for not having a bank account, was not having enough money, followed by “I do not need it.”

About 17 percent said they do not trust the banks, and another 16 percent said they live too far from the banks.

The other reasons are they do not have the necessary documents, bank personnel do not treat them well, and opening an account is simply too expensive.

World Bank senior financial specialist Nataliya Mylenko expressed surprise over the issue of “necessary documents” since the Bangko Sentral ng Pilipinas (BSP) issued regulations simplifying first time banking procedures, not to mention regulations for increased lending in rural areas.

In a press briefing yesterday, Mylenko reported that nearly 60 percent of those without bank accounts earn more than P10,000, and that more than half of those without accounts are men, and live in rural areas.

“The Philippines is the only country where the financial system services more women than men,” she said.