Credit Upgrades and Inclusive Growth: Examining the Links

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This paper examines some of the channels through which some of the anticipated benefits from the 2013-2015 Philippine credit upgrades are expected to flow to poor and low income households. It identifies financial inclusion as an important ingredient in further boosting economic growth and improving its inclusiveness, notably as far as its poverty reduction impact is concerned. Nevertheless, this paper finds evidence that the credit market is still highly segmented, and non-inclusive for the vast majority of small and medium scale enterprises (SMEs) and low income households in the Philippines. It is also likely that Philippine public sector investments are not yet as strong as could be programmed — leading to possible underinvestment in public goods. And because some key public goods can also disproportionally benefit the poor and low income population, then this also signals a severe disconnect between the credit upgrades and the vast majority of the population that hopes to benefit from them.