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Rural banks and thrift banks – two separate groups of financial entities committed to serve the “small” market by design – are now in a unique position to help each towards achieving this goal.

The Bangko Sentral ng Pilipinas (BSP) said it will allow rural and thrift banks to engage in cross selling, which pertains to selling of products and services on behalf of the other entity. In effect, customers of rural banks may now avail the same products and services currently being offered by a thrift bank, and vice versa.

At present, only universal and commercial banks are allowed to engage in such a practice. However, the BSP is currently fine-tuning the draft regulation for cross selling to include rural and thrift banks, making their financial products and services accessible to a larger number of Filipinos usually unserved by the bigger commercial and universal banks. Under the draft regulation, they will only be allowed to cross sell products such as life insurance and credit instruments.

Though almost having the same characteristics in terms of size and capital, rural banks and thrift banks generally differ in the specific profile of their target customer.

Rural banks usually operate in far-flung areas that are not reached by bigger banking institutions. They extend loans to farmers, fishermen, cooperatives and micro entrepreneurs. They also take savings and time deposits and act as trustees over the properties of the said customers. On the other hand, thrift banks provide the same services as rural banks yet offer “add-on services” like secured and unsecured loans, investment in bonds, commercial papers and other fixed income instruments, accepting foreign currency deposits, among others.

In addition, thrift and rural banks are already allowed to sell micro-insurance products through their branches, as long as these products do not bear any investment feature. Micro-insurance have premiums ranging from P50 up to P500, while coverage amounts up to a million pesos only.

It is seen that the cross selling arrangement will prove to be an important tool in promoting financial literacy especially in far-flung rural communities, where thrift and rural banks account for about 4,100 out of the estimated 9,300 head offices and branches of banks in the country, according to the BSP September 2012 data.

For the BSP, the move is consistent with its objective of making financial services available to more Filipinos and with the national government’s program to reduce poverty. Extending loans and other financial services to low- and middle-income earners as well as to micro and small entrepreneurs will be a prudent strategy towards this end.


Published in The Manila Times,11 April 2013