Good morning, ladies and Gentlemen.

From high up above and down below when you're too in love to let
it go

Today, we are going to continue discussing and excavate more on this topic, The Finance and
Development. And of course, we are going to be dissecting its elements and its necessity, its importance,
its significance, its relevance in our society, in our economy, in our country, the Philippines.

So are you, ready? Clap your hands if you are.

Question:

Refresher kit anay. Question, what is finance again?

Answer: finance is all about managing money in different ways, from saving and spending to investing
and basicially, making smart choices as to how you would handle you money.

Finance refers to the management, creation, and study of money, investments, and other financial
instruments. It encompasses a broad range of activities, institutions, and systems that deal with the
allocation and deployment of resources to achieve various economic objectives

 What do you think is the role of FINANCE in the growth and development of the economy? Give
me your ideas, your thoughts, your inputs. Anyone?

1. Link saves and Investors. The role of finance is considered to link savers and investors because it
facilitates the transfer of funds from those who have surplus funds (savers) to those who need
capital to invest in various projects and ventures (investors). This linkage is crucial for the
efficient functioning of the economy and the allocation of resources to their most productive
uses.

2. Screening and monitoring payments.

Screening Payments: Screening payments typically involve the use of automated

systems or manual processes to examine individual transactions for specific criteria or red flags.
This can include verifying the identity of parties involved in the transaction, checking for signs of
fraud or suspicious activity, and ensuring compliance with regulatory requirements such as anti-
money laundering (AML) and know your customer (KYC) regulations. Screening may involve
comparing transaction details against watchlists, blacklists, or predefined risk indicators to flag
any anomalies or irregularities.

Monitoring Payments: Monitoring payments involves ongoing surveillance of financial

transactions over time to detect patterns, trends, or changes in behavior that may indicate
potential risks or compliance issues. This can include tracking transaction volumes, frequency,
and amounts, as well as analyzing transactional data for deviations from expected norms.
Monitoring may also involve real-time alerts or periodic reviews to identify any emerging risks or
 deviations from established thresholds. Additionally, monitoring payments can help ensure that
payments are processed accurately and efficiently, minimizing errors and discrepancies.

Overall, screening and monitoring payments are essential components of effective financial risk
management and compliance programs. By systematically reviewing and analyzing financial
transactions, organizations can mitigate risks, prevent fraud, ensure regulatory compliance, and
maintain the integrity of their financial operations.

3. Smoothen Consumption

The role of finance in smoothing consumption refers to its ability to help individuals and
households manage their finances in a way that enables them to maintain relatively stable levels
of consumption over time, even when faced with fluctuations in income or expenses. Here's why
this role is considered important:

Income Fluctuations: Many people experience fluctuations in income due to factors such as
seasonal employment, irregular work hours, or unexpected changes in employment status.
Finance provides tools and mechanisms, such as savings, credit, and insurance, that help
individuals smooth out these fluctuations and maintain consistent levels of consumption despite

Emergency Funds: Finance encourages individuals to build emergency savings to cover

unforeseen expenses or emergencies, such as medical bills, car repairs, or job loss. Having an
emergency fund in place provides a financial buffer that can help smooth consumption during
periods of financial instability or crisis.

4. Manage Risk.
Risk Identification: Finance professionals are trained to identify various types of risks that can
impact individuals, businesses, or organizations. These risks can include financial risks (such as
market risk, credit risk, liquidity risk), operational risks (such as process failures, technology
disruptions), legal and regulatory risks, and strategic risks (such as competition, changing
consumer preferences).
Risk Assessment: Once risks are identified, finance professionals assess their potential impact
and likelihood of occurrence. This involves analyzing data, conducting risk assessments, and
using quantitative and qualitative methods to evaluate the severity and probability of different
risks.
Risk Mitigation: Finance plays a critical role in developing strategies to mitigate or reduce risks to
an acceptable level. This can include implementing risk management policies and procedures,
diversifying investment portfolios, hedging against market fluctuations, purchasing insurance,
and establishing internal controls to prevent fraud or errors.
Risk Transfer: In some cases, finance facilitates the transfer of risks to external parties through
mechanisms such as insurance, derivatives, or contractual agreements. This allows individuals or
organizations to shift some of the financial consequences of risks to third parties who are better
equipped to handle them.
 Risk Monitoring: Finance professionals continuously monitor and review risks to ensure that risk
management strategies remain effective and aligned with changing circumstances

5. Manage Payment System

Efficiency: Finance ensures that payment systems are efficient, reliable, and convenient for
individuals, businesses, and organizations to use. This includes facilitating timely and secure transactions,
reducing processing times, and minimizing transaction costs.

Liquidity Management: Finance manages liquidity within payment systems to ensure that there is
enough cash available to settle transactions promptly and smoothly. This involves monitoring cash flows,
managing reserves, and providing liquidity support when needed to maintain system stability.

Risk Management: Finance implements measures to manage risks associated with payment systems,
including credit risk, operational risk, and settlement risk. This includes implementing robust security
measures, fraud detection systems, and contingency plans to safeguard against potential disruptions or
threats to the payment infrastructure.

FINANCE AND GOVERNANCE:

1. Sound and Legal System and Corporate Governance:

Transparency and Accountability: Finance and governance mechanisms promote transparency

and accountability within organizations and financial systems. By establishing clear rules,
procedures, and reporting requirements, governance ensures that financial activities are
conducted in a transparent manner and that decision-makers are held accountable for their
actions. This transparency fosters trust among stakeholders and reduces the risk of fraud,
corruption, or misconduct.
Investor Confidence: Strong governance practices enhance investor confidence in financial
organizations. This confidence is essential for attracting investment capital and maintaining
liquidity in financial markets.
Ethical Conduct: Governance frameworks promote ethical conduct and integrity in financial
activities. By establishing codes of conduct, ethics policies, and whistleblower mechanisms,
governance helps prevent unethical behavior, conflicts of interest, and financial misconduct. This
ethical foundation is essential for maintaining the trust and credibility of financial institutions
and markets.
Compliance and Regulation: Governance ensures that organizations comply with relevant laws,
regulations, and standards governing financial activities. By establishing compliance
mechanisms, monitoring procedures, and reporting requirements, governance helps mitigate
legal and regulatory risks, minimize the potential for non-compliance, and protect organizations
from legal liabilities or penalties.
 Risk Management: Governance frameworks help identify, assess, and manage risks associated
with financial activities. By establishing risk management policies, procedures, and controls,
governance ensures that organizations can effectively anticipate, mitigate, and respond to
various financial risks, including market risk, credit risk, liquidity risk, and operational risk.

2. Comply and Explain:

The "comply and explain" principle recognizes that strict adherence to governance codes or
standards may not always be feasible or in the best interests of the organization or its
stakeholders. Therefore, organizations are given some flexibility to deviate from certain
provisions, provided they can provide a credible explanation for their decision.

"comply and explain" serves as a mechanism for balancing the need for regulatory compliance
with the need for flexibility and discretion in governance practices. It encourages organizations
to adopt governance practices that are appropriate for their unique circumstances while
maintaining transparency and accountability to stakeholders.

MICROFINANCE

Microfinance is a financial service that provides small loans, savings accounts, insurance, and other basic
financial services to low-income individuals, entrepreneurs, and small businesses who lack access to
traditional banking services. It aims to promote financial inclusion, empower marginalized communities,
and alleviate poverty by providing them with the tools and resources they need to manage their
finances, start or expand small businesses, and improve their livelihoods.

1. ROSCA
ROSCA stands for Rotating Savings and Credit Association. It is a form of microfinance
commonly used in various cultures around the world to meet financial needs, especially among
individuals who have limited access to formal banking services.

In a ROSCA, a group of individuals comes together and agrees to contribute a certain amount of
money to a common fund at regular intervals, such as weekly or monthly. The total amount
collected is then given to one member of the group in rotation, with each member taking turns
receiving the lump sum. This continues until each member has received their share of the
pooled funds.

ROSCAs play a vital role in microfinance by providing access to credit, mobilizing savings,
fostering social support, and offering cost-effective financing solutions to underserved
populations. (Since ROSCAs operate on a rotating basis and do not charge interest, members
do not incur the high fees or interest charges associated with formal loans or credit products.
This makes ROSCAs particularly suitable for low-income individuals or communities with
limited financial resources)

They are a grassroots approach to financial inclusion that empowers individuals and
communities to meet their financial needs and improve their livelihoods.
 2. Microlenders:

Microlenders are specialized financial institutions or organizations that provide small loans,
known as microloans or microcredit, to low-income individuals, entrepreneurs, and small businesses
who lack access to traditional banking services. These institutions focus on serving underserved
populations and promoting financial inclusion by offering affordable and accessible financial products to
those who may not qualify for loans from mainstream banks.

3. Store Credit:

Store credit is a form of credit extended by a retailer or store to its customers, allowing
them to make purchases on credit rather than paying with cash or other forms of
payment at the time of purchase. When customers use store credit, they receive goods or
services immediately and agree to pay for them at a later date, typically according to the
terms and conditions set by the retailer.

4. Money Lenders:

Money lenders are individuals, groups, or institutions that provide loans or credit to borrowers
in exchange for repayment with interest or fees. They operate outside the formal banking sector
and may offer various types of loans, including personal loans, business loans, and consumer
loans. Money lenders play a significant role in providing access to credit, especially in regions or
communities where formal financial institutions are limited or inaccessible

In summary, Microfinance is highly relevant in the aspect of finance and development due to its
potential to empower individuals, alleviate poverty, and stimulate economic growth.
microfinance serves as a powerful tool for inclusive economic development, poverty reduction,
and empowerment at the grassroots level. By extending financial services to those who need
them most, microfinance contributes to building more inclusive and resilient economies and
fostering sustainable development outcomes worldwide.