More legislative support

As the rural banking industry waits for the amendment of Rural Bank Act allowing foreign equity, a couple more legislative measures are poised to provide a tremendous boost to the industry’s cause.

Under Senate Bill 3255 or “An Act Governing the Creation and Accreditation of Microenterprise Development Institutions [Microdevs],” microfinance institutions like rural banks are encouraged to provide access to credit and business opportunities to poor Filipinos.

The bill is sponsored by Sen. Manny Villar, chairman of the Committee on Economic Affairs. It seeks to benefit poor Filipinos by providing them seed money to start their own small businesses. It aims to create an enabling environment that will allow the private sector to take a greater role in providing financial services and encourage the poor to engage in viable and sustainable microenterprises.

Under this measure, a Microdev Accreditation Center will be created to institutionalize a system of accreditation and registration of microfinance entities. The center will monitor the performance of Microdevs to ensure their compliance with the provisions of this measure and keep in check their commitment to help the poor. These development institutions will provide the poor access to reasonable and affordable credit and related services including microfinance, micro-insurance, health care and micro-housing. They will also provide business development opportunities such as leadership and entrepreneurial skills training, and human development services to help the poor achieve a level of sustainability and empowerment.

The Microdevs will be operated as non-stock and non-profit corporations. For institutions like rural banks, the benefit here, aside from an opportunity to increase its client base, is that MICRODEVs will only pay 2 percent of their gross income to the government, in lieu of paying national and local taxes.

Moreover, an economically empowered customer would mean more opportunities to avail of loans from microfinance institutions like rural banks, as clients increase their productivity.

On the other hand, Senate Bill No. 3280 sponsored by Sen. Serge Osmeña, chairman of the Senate Committee on Banks, Financial Institutions and Currencies, seeks to amend the 38-year-old Insurance Code to make it relevant to the changes that have transpired in the industry. Among the changes Osmeña hopes the bill will bring to the insurance industry include increased product diversity, sophistication in the sales’ and clients’ servicing practices, expansion of investment instruments and opportunities, and diversification of distribution channels to the insuring public.

In his sponsorship speech earlier about the bill, Osmeña said the amendments would create a more relevant and nurturing operation framework for the industry.

Among the regulatory amendments to the Insurance Code include the recognition of processes that use advancements in technology, provision for fair protection to insurers from fraud and discriminatory mechanisms, redefinition of solvency regime to conform with internationally-accepted standards, institution of changes in company and agent licensing process, grant of a fixed six-year term and strengthening the powers of the insurance commissioner, and addition of new titles and related provisions on microinsurance and bank assurance. Once the bill is passed into law, policy holder interest promoting amendments, like allowing government employees to acquire insurance by payment of premiums through salary deductions, shall also be allowed.

Moreover, a financial reporting framework which adopts internationally-accepted accounting standards in the reporting of the financial condition of insurers had been added as accounting-related amendment. This would close the gap in the valuation of admitted assets, reserves and investments between the statutory accounting standards under the annual statement required by the Insurance Commission against the externally audited financial statement, according to Osmeña.

Insurance products like microinsurance increase a rural bank’s competitiveness and enhance its image through the service it provides to clients. Loyalty can be gained from existing clients and new ones may be attracted through responsible selling and servicing of microinsurance.

The microinsurance initiative of the Rural Bankers Association of the Philippines provides licensing assistance to rural banks, starting from the Basic Microinsurance Training Course to the application of Bangko Sentral ng Pilipinas (BSP) authorization as a microinsurance agent.

Since 2011, more than 450 rural bankers from 200 rural banks have completed the Rural Bankers Research Development Foundation Inc. Microinsurance training course. The training program offers technical knowledge for rural banks who want to engage in marketing, selling and distribution of microinsurance products and services, in compliance with the regulations of the Insurance Commission, the BSP and the Securities and Exchange Commission.

Congress adjourned on February 8 in preparation for the May 13 polls. It will resume session on June 5 to 6 to wrap up the third regular session. The rural banking industry is hoping that these two measures will see the light of day not only for the sake of rural banks but also—and more importantly—for the ultimate benefit of the poor.


Published in the Manila Times, April 3, 2013