Building financial capabilities through m-banking

Rural banks already play a big role in small communities. They serve over one million low-income families who trust them for microinsurance, loans, savings and other crucial banking services that help them build a financial foundation to support themselves and their families.

As such, it is important that these services are made readily available and accessible to the poor in remote places, where a vast majority of rural bank clients’ are situated. By improving access to financial services, rural banks represent a key component to the government’s vision of inclusive growth by reaching a wider number of clients while effectively saving on costs.

In fact, since mobile banking was introduced in 2006, the rural banking industry has been able to process more than P16 billion in mobile money transactions, involving almost 100 rural banks and their 1,200 branches and other banking offices.

Through its Microenterprise Access to Banking Services program or MABS, the Rural Bankers Association of the Philippines (RBAP) assisted member-banks to increase the financial services offered to small farmers, fisherfolks and small and micro-entrepreneurs by providing microfinance technical assistance and training.

On the other hand, trained banks develop their products and services–such as loans, deposits, and money-transfer services, to name a few–to specifically suit the needs and requirements of the poor. One of the tools constantly utilized by rural banks is mobile banking.

While bigger banks have been investing in their own ATMs, most rural banks have partnered with a third party ATM provider such as ENCASH and offering a GCash and Smart Money-enabled ATM card services to their customers. Mobile money-enabled services, SMS banking, Point of Sale systems, cash cards, ATM cards, and prepaid debit cards are technologies that are now within the grasp of rural banks.

Improved banking services are likewise complimented by regulations that provide greater opportunities for rural banks to grow and expand both their services and their market reach.

Already, rural banks and their clients have a strong relationship; there are challenges that need to be addressed. One is building awareness amongst banks, cash-in/cash-out partner merchants and clients of the benefits of mobile phone banking services; and two, ensuring that banks maintain a close and continuous relationship with their clients and seeing to it that they are updated on the various new services that will make their financial situations easier and more productive.

Recently, MicroFinance Opportunities (MFO) has developed an online Course and Toolkit aimed at supporting branchless banking providers interested in incorporating Consumer Education as part of their adoption strategies. This Toolkit gathers lessons learned and insights from the implementation of a Consumer Education for Branchless Banking (CEBB) Program in India, Zambia and Philippines.

Practitioners will be able to use the Toolkit to identify the challenges their customers face as they adopt their branchless banking service and determine how consumer education can help to address them. The steps and guidance provided in the Toolkit will then enable practitioners to design a successful consumer education strategy for their branchless banking services.

Branchless banking is important because it allows microfinance institutions to serve more clients at lower cost, increases reach into areas where a full branch would not be cost-justified, and allows clients to access their accounts more frequently and manage their loan funds more easily. It likewise enables clients to access their funds closer to their homes or businesses through automated teller machines (ATMs), for instance, which implies less waiting time, less travel time to the service outlet, and 24 hour a day access to their funds.

Last March 7, MFO, together with the RBAP and its technical arm, the Rural Bankers Research and Development Foundation, Inc. (RBRDFI), launched the first run of the CEBB training at the Asian Institute of Management Conference Center Manila. The event – attended by various member rural banks and microfinance institutions and cooperatives – was graced by representatives from the Bangko Sentral ng Pilipinas, USAID, and the Asian Development Bank. The next run will be sometime May 2014.

Reinforcing Agri Finance

The government’s goal to achieve financial inclusion rests on the capability of the rural banking sector to spur countryside development.

Such holistic growth depends on rural banks’ continued dedication to invest in agriculture and agrarian reform projects. Thus, the recent accreditation given by the Bangko Sentral ng Pilipinas (BSP) to another set of rural banks, making them eligible institutions to receive financing from other banks in line with the provisions of Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009, is another step in the right direction towards the fulfillment of this goal.

The central bank’s accreditation will not only expand the functions of rural banks now tagged as Accredited Rural Financial Institutions (ARFI), it will also allow them to increase their presence in poor communities and thereby, enhance the access of the rural agricultural sector to financial services and programs.

Based on the data of the Philippine Statistics Authority, the agricultural sector accounted for the 11% of the country’s gross domestic product in 2012 and employed 32% of the working population. With the improved access to financial services, the sector’s contribution could grow even more.

Aside from increasing market efficiency and promoting modernization in the countryside, the program, which augments agricultural productivity and investing in Agri-Agra, is also a step towards having food security for a growing population with a pressing poverty problem.

For most of Filipino families, putting food on the table trumps everything else and unless large crop yields are reached and more farmlands are distributed to farmers, many people will remain hungry and mired in poverty.

Large-scale monocrop agricultural industries alone cannot solve the problem. They are not the answer to poverty and unemployment. They are not sustainable enough to fuel economic growth.

On the contrary, the solution lies in small and medium agriculture investments. Higher yields prompted by the increase in investments will lead to higher incomes for farmers, better education for the children and more opportunities to engage in small-scale businesses that will benefit the whole community and improve non-farm rural employment.

Moreover, boosting agricultural productivity will reduce the risk and vulnerability of farmers and their families during time of contingencies. This is also critical considering that the country is often pounded by typhoons and other natural calamities.

Investments in agriculture will also lead to a host of environmental benefits including better agricultural and natural biodiversity, reduced greenhouse gas emissions, improved water retention, carbon sequestration and resilience to droughts and floods.

Ultimately, the agricultural sector needs sufficient funding to achieve significant growth. With more support coming from rural banks now accredited as ARFIs, the country’s goal of sustaining agricultural growth and promoting financial inclusion is becoming more attainable.

A matter of trust

Banking is a business of trust.

It involves money, which is important to practically everybody, and anything important ought to be protected and entrusted only to those worthy.

Among the poor, the trust in rural banks has always been there and continuously builds up steadily as these community-based financial institutions have shown the capability to not only protect the financial interest of their clients, but also the willingness and confidence to adopt new technologies and banking techniques to continuously improve services.

In the 2014 Annual Management Conference of the Confederation of Central Luzon Rural Banks (CCLRB), key personalities in the banking industry and its corporate partners will share some valuable inputs on how rural banks can be more competitive in today’s environment.

That even in the face of the unrelenting dominance of the bigger universal and commercial banks, as well as the possibility of financial integration taking shape soon, rural banks can remain relevant by investing in scalable technology to be more efficient and profitable.

Aside from this, the speakers will point out that it is imperative for rural banks to continue professionalizing their management and develop strategic alliances with other financial service providers to leverage their reach.

The latter will come into play with the recent extension of the Strengthening Program for Rural Banks Plus, a joint measure by the Bangko Sentral ng Pilipinas and the Philippine Deposit Insurance Corp. that offers financial and regulatory incentives to those that will engage in mergers and acquisition.

Meanwhile, another major event – the 2014 Confederation of Southern Tagalog Rural Bankers Annual Management Conference this March – will likewise highlight the industry’s role in sustaining the country’s financial growth and to reintroduce consciousness to the banking public that rural banks serve as the engine of economic growth in rural areas.

By making credit available and readily accessible in rural areas at reasonable terms, rural banks give small-scale farmers, fishermen and small and micro entrepreneurs with the means to not only improve their respective lives but also the economic standing of the communities where they belong. It will create a domino effect wherein a single family, through the efforts of a rural bank, can positively influence other families as well. How does that work? Say an OFW beneficiary uses the remittance money sent though a rural bank to put up a small business. As that business grows, the beneficiary-family will then borrow from the rural bank to finance the growth. A bigger entrepreneurial venture will also mean potentially hiring more people and also creating another opportunity for more business partnerships, like supplier of goods, for instance.

This distribution of opportunities, income and wealth will promote comprehensive rural development and raise the quality of life for all, especially the underprivileged.

Again, it is a matter of trust – trusting that the system works and trusting that the different components of that system will do their part. For the rural banking industry, their customers have to trust that rural banks will unwaveringly provide them access to financial services and, more importantly, take care of their hard-earned money with utmost dignity.

The two aforementioned important events give rural banks an opportunity to assure their clients that they will do just that and even beyond.

Big fish in a small pond

Our society tends to focus too much on size. “The bigger, the better,” they said. “Size matters!” others quipped. Often overlooked in our obsession with anything large is the quiet resiliency and efficiency of the little guys. While the big ones get the glory and prestige, the little guys just keep on plugging away and achieve success nonetheless, albeit through a longer route usually.

The same can be said for industries like banking. While the bigger universal and commercial banks have bigger revenues and assets and get all the publicity, their smaller counterparts are no slouch either. Community-based financial institutions like rural banks have developed a niche that enables them to not only thrive in their own market, but practically become indispensable among the poor.

Rural banks serve as the main vehicle for financial intermediation and capital formation in rural areas. They often have branches in locations not served by other banks. Most bank owners and staff grew from the same community as their clients. Thus, the bankers and bank employees know the local needs and circumstances far better than their bigger competitors do. Lending judgments can be based on personal knowledge and understanding of the financial conditions of the customers. Clients appreciate that personal kind of service. They tend to reward that professional-personal touch with more availment of the bank’s services.

In short, the more love you give, the more love you get.

The overall success of rural banks will be contingent on the success of the local communities and vice versa. The combination of enhancing network value and offering a broader range of solutions strengthens the rural bank’s market position with individual customers and communities.

Another importance of rural banks in a community is their ability to provide loans faster than any other type of banks. Even with the entry of big banks in various municipalities, the rural banking industry can pride itself with being able to give loans as fast as possible. A big factor to this is the aforementioned familiarity between banks and clients.

The role of rural banking is paramount in the expansion of the economy in the countryside, by providing people living in the rural communities with basic financial services.

Furthermore, rural banks spearhead the government’s financial inclusion efforts through the utilization of varying services to address the needs of their client base in the countryside, including micro-housing loans, micro-agri loans, micro-insurance, and micro-deposits.

Despite their smaller stature compared to their larger brethren, rural banks remain very important to the cause of countryside development because of their key role in fuelling the economic growth of rural areas.

Simplifying a complex problem

Poverty is a constant headache for every administration. It seems that no matter what the government does–whoever is at the helm of Malacanang at a particular time—there will always be poor people and their number will always be overwhelming.

One typical characteristic of being poor is the lack or utter absence of access to basic banking services. They often have no savings account to speak of, nary any borrowing to finance any budding entrepreneurial venture, nor a microinsurance instrument to fall back on in times of emergencies.

Thus, can poverty be fully addressed just by enabling the poor have access to financial services? No one truly knows. Poverty is such a complex animal that eliminating it effectively requires a multi-pronged approach covering a long period of time. However, it will certainly go a long way in support of the present administration’s poverty alleviation efforts if the poor will be empowered economically. One such way is through microfinance, an instrument tailor-made to the needs and financial capability of the rural poor and an important mechanism that rural banks wield today.

As described by Ms. Pia Bernadette Roman in her paper titled, “Microfinance in the Banking Sector: Current Environment and Future Directions,” traditional collateral requirements have been replaced with collateral substitutes such as peer-support or peer lending in microfinance. Documentary requirements and processing have also become simpler and faster, while product design is based on character and cash flow analysis, and savings is emphasized as an integral part of the microfinance package. All these add up to not only ease the requirements on the poor, but also enable their entrepreneurial ventures to be self-sustaining.

Rural banks are also deemed natural fit to engage in microfinance. For one, according to Roman, they have the resources and expertise in the provision of financial services that make them ideal vehicles for microfinance. Banks also have the authority and means to access cheaper sources of funding particularly by attracting deposits from the public. In addition, the existing network of banks is also an avenue in which to magnify the many benefits of microfinance.

Rural banks cover around 80 percent of the total municipalities in the Philippines, with more than 600 banks and 2,000 branches nationwide. By reach alone, rural banks can be the most effective purveyor of microfinance as majority of the country is still composed of the rural poor.

Microfinance today has morphed into a far more sophisticated tool than just loans for microenterprise. It has since expanded to micro deposits, microinsurance, micro-agri, housing microfinance, and microfinance plus for growing enterprises.

It has been proven over the years that microfinance is an effective poverty alleviation tool. Microfinance empowers those living in poverty to increase their economic activity and income, generate employment and improve the overall quality of their lives.

Rural banks have acted as effective conduits of microfinance in the countryside, disbursing more than P40 billion to micro-entrepreneurs. Through the provision of microfinance, rural banks have encouraged businesses to be market driven and not relying on subsidies to thrive, as well as encouraged poor individuals to help themselves and not depend on dole-outs or charity.

Poverty remains an overwhelming problem. Given that, it can still be conquered and we must believe that it can be done. Microfinance, with the help of rural banks, gives us the hope to finally slay that beast once and for all.

Taking care of our own

The spirit of “Bayanihan” was never more pronounced than the time the whole country bonded together in multi-pronged recovery and reconstruction efforts following the bout with super typhoon Yolanda. Political, religious, and ethnic differences were temporarily shelved in favor of helping each other bounce back from that harrowing ordeal.

The rural banking industry epitomizes that Filipino spirit when bankers and bank staff alike poured in more than P2 million in total to help those in the industry who were adversely affected by Yolanda.

As of January 16, the contributions have reached P2,656,512.65. Both the Rural Bankers Association of the Philippines and its technical arm, the Rural Bankers Research and Development Foundation, Inc., chipped in P500,000 each, while rural banks poured in a total of P1,656,512.65.

A total of 747 officers and staff of rural banks who endured and survived the super typhoon onslaught benefited from this gesture. Each of the 747 employees is getting P3,550.

In turn, the rural banks will assist their respective clients who were also devastated by Yolanda.

Earlier, the Bangko Sentral ng Pilipinas extended special regulatory relief measures to all banks in areas devastated by Yolanda, on top of its standard relief package, to enable lenders like rural banks to better assist calamity victims.

Thrift, rural and cooperative banks with head offices in the affected areas were allowed to apply for condonation of annual supervisory fees for this year. Depending on the severity of losses that a bank has incurred, the BSP may condone the supervisory fees for up to five years.

The additional special regulatory relief measures were made available to banks in Palawan, Iloilo, Aklan, Capiz, Cebu, the Samar provinces and Leyte. These provinces were earlier declared under Proclamation No. 682 as “severely affected” areas.

The affected banks were likewise allowed to book on a staggered basis over a five-year period the losses on loans outstanding as of November 7, 2013 that are partially or fully condoned and written off. Impairment losses on bank premises, furniture, equipment and real and other properties acquired may also be recognized over a staggered period of up to five years.

The BSP will also allow flexibility on branch relocation and temporary offices to a more viable location within the affected area for a period not exceeding six months.

The submission of periodic and branch reports will also be relaxed, while presentation of the required documents of clients will be allowed without sacrificing appropriate controls.

Think big, aim high

In the face of the ever present stiff competition from bigger banking brethren, rural banks need to rapidly evolve and “be big enough” to remain efficient and profitable.

Rural banks will continue to have a niche market in the ultra-competitive banking industry even if a spate of mergers and consolidation shapes the future of the rural bank sector.

In remaining viable, rural banks are professionalizing their management and targeting well-defined niche markets using their inherent strengths as rural banks. By inherent strengths, it means capitalizing on banks’ knowledge and familiarity of the rural communities they serve. It likewise involves the training of rural banks in the area of microfinance to effectively serve their respective markets.

For instance, the technical arm of the Rural Bankers Association of the Philippines, the Rural Bankers Research and Development Foundation Inc. (RBRDFI), has been busy conducting microinsurance basic training courses for rural banks to enhance their capacity to serve as effective access points for microinsurance services for its low-income clients, as well as ensure their compliance with relevant BSP regulations.

As a result, rural banks can now offer microinsurance services to all micro-borrowers and/or micro-deposit account holders as well as their family members as dependents. Rural bank clients can now qualify for the bank’s microinsurance services if they have either a micro-credit account or a savings account with an average daily balance of P15,000 or below. In effect, all qualified rural banks may choose to offer microinsurance services and apply for Microinsurance Agent license to cover their micro-deposit account holders.

Meanwhile, just in case there are rural banks that will not be able to compete effectively, there is a safety net program for rural banks that will afford them an exit mechanism, in the form of the Strengthening Program for Rural Banks Plus or SPRB Plus.

The BSP recently extended the program for another year up to December 31, 2014.

Prior to the extension, the Philippine Deposit Insurance Corp. has approved five merger applications involving 10 banks, which are being processed by the BSP. There are also a couple more applications waiting in the sidelines.

The SPRB Plus has amendments and enhancements that encourage more mergers and acquisitions of eligible rural banks and thrift banks by strategic third party investors.

Among the amendments include the relaxation of the required ownership control in an eligible bank from 67 percent to at least 60 percent.

The financial assistance from the PDIC, on the other hand, may now be in the form of either a combination of preferred shares and direct loan, or direct loan only.

Thus, whether competition from commercial or universal banks remains daunting or the impending consolidation with prospective white knights feel intimidating, in the end, there will always be a market for rural banks all across small town Philippines.

The RBAP continues to work with partner regulators in creating a conducive banking environment that will serve as front-liners in financial inclusion programs. This is what will make a difference in the future. This is what will make rural banking remain relevant all across the Philippines.

The message is clear: the growing competition and the evolving business environment in the Philippines or across the Region does not faze Rural Banks. Instead, we embrace them, we adopt technology, we evolve and adjust accordingly to continue endearing ourselves to our communities and giving them the legitimate, institutional financial services they require.

Strong inflow of OFW remittances to fuel rural banks’ growth anew

The bullish outlook on remittances from overseas Filipino workers (OFWs) this year bodes well for businesses like rural banks which act as formal remittance channels and serve as an affordable conduit between OFWs and their beneficiaries here in the Philippines.

Industry analysts expect OFW remittances to increase by 8-8.5 percent this year anchored on improved global prospects and the reconstruction efforts following the onslaught of super typhoon Yolanda.

Remittances account for almost 10 percent of the gross national product of the Philippines.

As of August 2013, personal remittances increased 7.4 percent to $2 billion.

There are early reports that remittances from Hong Kong and Singapore—home to two of Asia’s biggest overseas populations of Filipinos—could grow by as much as 20 percent in the aftermath of Yolanda as OFWs gear up for special reconstructions efforts and expenses.

Aside from fueling consumption growth, an increased inflow of US dollars and other foreign currencies into the Philippines will mean dynamic business opportunities for rural banks by utilizing the Bangko Sentral’s Philippine Payments and Settlement System or PhilPASS.

Under PhilPASS, an online and real-time payment system the BSP administers to facilitate transaction between banks, rural banks can offer cheaper transaction fees to OFWs and their families.

The PhilPASS remit system offers a rate of P50 per transaction compared to P100-P500 per transaction charged by other money transfer systems.

The system acts as the local clearinghouse for the transfer of remittances from a local bank to another bank where the OFW beneficiary maintains an account.

OFW families are expected to save at least P92 million to as high as P922 million due to the faster and cheaper delivery of remittances to the beneficiaries at a lower rate using PhilPASS.

In addition, the system provides safer means of sending OFW remittances via a formal banking channel. OFWs and their families or beneficiaries will likewise have peace of mind when using PhilPASS as it is equipped with an efficient feedback mechanism that enables OFW remitters to trace the status of their remittances.

OFW remittances also provide microfinance institutions (MFIs) with an important source of funds that can help propel the growth of micro and small businesses in the countryside.

MFIs can partner with OFWs to promote microfinance as one of the more productive ways by which remittances can be put to use. Instead of simply being used to purchase items, the money can be invested to livelihood programs that will benefit not only OFW families but also rural communities.

In response, rural banks will be encouraged to develop credit facilities with less stringent requirements to address the needs of small and medium enterprises, farmers and fisher folk.

Agribiz’s development rests on rural banks’ commitment

For years, the agricultural sector has been the unheralded hero of the economy, often operating under the radar compared to the more celebrated services and industry sectors. Meanwhile, the rural banking industry has consistently been supportive of agri, also in consonance with its mandate to allocate a portion of their loanable funds to the sector.

Under Republic Act No. 10000 or the Agri-Agra Reform Credit Act, local banks are required to allot 15 percent of their portfolios for agriculture, and 10 percent to agrarian reform beneficiaries.

This time, rural banks must up the ante insofar as its commitment to agriculture development is concerned. Agriculture’s progress will prove instrumental in helping the country achieve financial inclusion.

Based on the Policy Notes publication of government think-tank Philippine Institute for Development Studies (PIDS), agricultural development is key to inclusive growth.

“The accelerating pace of economic growth in the Philippines will not translate into inclusive, sustainable growth if agricultural development is neglected,” PIDS said.

The government research institution explained that agricultural development in the Philippine context involves a transition from farming to agribusiness.

With agribusiness, agri-related activities put farmers, processors, distributors, and consumers within a system that aims to produce, handle, process, transport, market, and distribute agricultural products. This will entail a structural transformation in agriculture itself, from traditional to high-value crops, as well as product upgrading.

The question is, where will farmers source funds to enable such transformation? This is where rural banks come in.

Accredited rural financial institutions such as rural banks act as direct conduits to the agriculture sector and agrarian reform beneficiaries by channeling the funds specifically allotted by other banks for the program, thus giving rural banks an important role in the funding chain.

By enhancing access of the agricultural sector to financial services and programs that increase its market efficiency and promote modernization in the sector, rural banks serve as a crucial catalyst in rural development.

PIDS noted that one of the primary reasons for the non-inclusivity of economic growth and persistence of poverty in the Philippines is the lack of productive employment. With the development of agribusiness anchored on the aggressive involvement of rural banks, the agriculture sector will not only be responsible for putting food on the table, but also for creating jobs and livelihood for the poor.

Rural banks as white knights?

From a potential acquiree, rural banks may soon find themselves as a possible acquirer this time around.
In a dramatic twist of events, well-capitalized rural banks are now in a position to acquire ailing cooperative banks.

This came about after the Bangko Sentral ng Pilipinas (BSP), Philippine Deposit Insurance Corp. (PDIC) and Land Bank of the Philippines have extended the incentive program that encourages mergers and acquisitions involving coop banks, dubbed as the Strengthening Program for Cooperative Banks (SPCB) Plus. The Program now expands the eligible strategic third party investor or STPI to include strong and well-managed rural banks and thrift banks, in addition to commercial banks, primary cooperatives, and federations of cooperatives.

Previously, only thrift and rural banks at least majority owned by commercial banks, primary cooperatives or federation cooperatives were allowed to avail of incentives under the SPCB.

According to the BSP, the enhancement will further strengthen the cooperative banking system, boost confidence in the banking system, and improve the delivery of financial services to the countryside and rural communities.

Available until September 17, 2014, the SPCB Plus will replace the original SPCB Module II, which expired on August 3, 2012.

It offers a variety of financial and regulatory reliefs and incentives to improve the prospects of new banking partnerships. Financial assistance may be granted by PDIC and Land Bank to boost capital shortfalls and provide income support to the surviving banks. On the other hand, the BSP offers a package of regulatory reliefs and branching incentives for eligible strategic third party investors.

Previously, rural banks are the recipients of a joint BPS-PDIC undertaking designed to encourage M&As in the rural banking industry, under the Strengthening Program for Rural Banks (SPRB) Plus, which expands the original SPRB to include strong and well-managed thrift banks and commercial banks as among the potential white knights.

Among the early returns in terms of news in this regard were the acquisition by Rural Bank of Angeles (RBA), a subsidiary of Asia United Bank, of all the assets of Cooperative Bank of Pampanga (CBP), as well as the investment by Bridge Financial Services of Singapore of $24 million in rural banks through M&As, capacity building or capital raising.

The SPRB Plus offers a number of financial and regulatory relief and incentives to improve the prospects for success of new banking partnerships. Financial assistance may be granted by PDIC to augment capital shortfalls and attract new investors. On the other hand, the BSP offers an expanded package of regulatory relief and branching incentives for commercial, thrift and rural bank that step forward as white knights.
With these two programs in tow, pundits expect a more dynamic banking industry this 2014.

Culture of sharing

Filipinos are well known for our hospitality and sharing. In fact, whenever we are eating, it is not uncommon for us to say kain na to a friend, officemate or even to a complete stranger who just happened to walk by to ask for directions. In the event of disasters, this character comes to fore in the form of Bayanihan, a communal spirit that harnesses the power of unity and cooperation and symbolized by the carrying of a nipa hut to a new location after a calamity.

It is this natural kind-heartedness that has led micro entrepreneurship to flourish in the country. It is the kind of sharing that helps the poor grow and inspires others to follow by example.

A number of rural banks are wholly engaged in microfinance operations. Together with some 2,000 microfinance institutions, they are servicing close to seven million microfinance clients across the Philippines and are a big reason why microfinance has flourished in the country.

In his speech during the 2013 Citi Microentrepreneurship Awards (CMA) Awarding Ceremonies last December, Bangko Sentral ng Pilipinas (BSP) Gov. Amado Tetangco, Jr. said micro entrepreneurs have developed a culture of sharing.

“In words and in deeds, they inspire others who aspire to better their lives through microfinance. Across the country, microentrepreneurs prove that humble beginnings can lead to success beyond their dreams and sometimes even beyond our borders,” he said.

Funded by Citi Foundation, the CMA annually recognizes outstanding microfinance clients who have used microfinance and entrepreneurship to improve their lives and their communities.

One rural bank that has been ardent in its support for microentrepreneurs was First Agro-Industrial Rural Bank, Inc., which was awarded the Most Outstanding Rural Financial Institution for Visayas by the National Livelihood Development Corp. during the 8th Sustainable Income for People in the Agrarian Grassroots or SIPAG Awards, also last December.

As of end-June 2013, 186 banks with microfinance operations were serving over 1 million clients with combined outstanding loans of P8 billion.

These microentrepreneurs have likewise become net savers, according to Mr. Tetangco, with consolidated bank deposits of P8.9 billion, an amount that surpasses their total loan.

On the other hand, there are now 391 micro-banking offices that provide a broad range of financial services in new areas.

A retail electronic payments system through e-money and mobile banking is in place with 30 e-money issuers working alongside a network of more than 12,000 cash-in and cash-out agents.

Destructive natural calamities underscore the importance of having adequate insurance protection especially for the most vulnerable, according to the BSP chief as he stressed that microinsurance can protect the hard-earned gains of our microentrepreneurs.

With rural banks in the forefront and acting as a very active proponent, regulators and market players alike are hopeful that microfinance and microinsurance will continue to thrive in the country and protect the interest of the poor.

Time for review

The recent symposium of the Rural Bankers Association of the Philippines (RBAP) held in November centered on relevance for this year’s theme, believing that it is high time to examine the significance of rural banking to the owners themselves, to the clients, community and to regulators. Flags of concern should be hoisted up if any part of this link, the relevance has diminished, or worse, is gone.

For rural banks to remain relevant, Batangas Rep. Nelson P. Collantes, who also chairs House Committee on Banks and Financial Intermediaries, mentioned in his speech the need for Congress to assess and re-evaluate the relevance and practicality of mandatory credit allocation programs such as Republic Act 10000 (otherwise known as the Agri-Agra Law) and Republic Act 9501 (otherwise known as Magna Carta for Micro, Small, and Medium Enterprises).

For one, the RBAP supports the direction of Rep. Collantes’ committee as mandatory credit programs only force banks to compromise best prudent practices in order to comply with the law. Thus, the same should be gradually lowered to a certain percentage that is feasible for banks to comply, with the goal of eventually terminating its mandatory nature in order to promote increased banks’ participation in lending in the sector.

Under Section 6 of the Agri-Agra Law, banks should allocate 25% of their total loanable funds for agriculture and fisheries in general, of which at least 10% should be made available for agrarian reform beneficiaries.

The resultant risks associated with such mandatory loans are then hedged in the form of higher rates. As they are gradually terminated, credit risk on private banks (such as rural banks) are mitigated while participation of Government Financial Institutions, especially the Land Bank of the Philippines (LBP), on Agri-Agra lending should be increased.

While the law provides that excess compliance in agrarian credit may be used to offset a deficiency in the agricultural, the RBAP proposes to allow excess compliance with agricultural requirement be applied to the agrarian requirement.

Meanwhile for the MSME, there is a need to review specifically the provision mandating banks to allocate at least 8% of their loanable amount for micro and small enterprises wherein non-compliance will result in a penalty of no less than P500,000.

Apart from providing infrastructure and social support from the National Government, creating a conducive environment for banks, characterized by strong incentives instead of imposing penalties, would encourage lending to the sector. In effect, this would increase productivity and spur economic activities in the rural areas and more importantly, to achieve financial inclusion.

Helping the helper

In the wake of the devastation brought by super typhoon Yolanda, the Rural Bankers Association of the Philippines (RBAP) has proposed to some government agencies several rehabilitation measures to help rural banks and their respective staff and clients get back on their feet following the debacle.

In their proposal to the Bangko Sentral ng Pilipinas (BSP), Philippine Deposit Insurance Corp. (PDIC), and the Bureau of Internal Revenue (BIR), RBAP said the requested measures focus on tools that are within the capability of the each respective agencies to implement, and therefore are very much doable.

For the rehabilitation of the bank’s manpower, RBAP requested for direct financial assistance beyond the limits of each affected rural bank’s BSP-approved Financial Assistance Program for bank staff, as well as exemption for each affected bank staff’s deposit accounts from dormancy for five years. For their loan accounts, RBAP proposed a suspension of interest and all charges for five years. The group is likewise asking from the BSP a one-time write-off of one existing loan per bank staff.

For the rehabilitation of rural banks, RBAP recommended the immediate application of BSP’s regulatory relief measures; bank recapitalization by the BSP payable from the 5th to 15th year after the calamity; exemption from all fees due to the regulators for five years, and; extraordinary safeguarding by banks of the existing accounts of each affected rural bank, such as exemption from dormancy for five years for their deposit accounts and suspension of interest and all charges for five years for their loan accounts.

In addition, RBAP requested the PDIC to grant rural banks the ability to service withdrawals up to P500,000 per client, with funds coming from PDIC. This is in recognition that loan payments may be severely curtailed affecting the bank’s cash position. The affected rural bank will eventually repay the PDIC on a staggered basis.

The Association also appealed for PDIC’s assistance in providing extension of the Strengthening Program for Rural Banks privileges to interested affected rural banks; and a suspension of its regulatory fees for five (5) years for affected rural banks.
Meanwhile, from the BIR, the Association is seeking an exemption of affected rural bank staff and clients from income and property taxes for five years; An exemption from estate taxes for the surviving kin of the affected rural bank staff and clients who died from the calamity, and; an exemption of affected rural banks from all local and national taxes for five years.

RBAP has expressed hope that the aforementioned proposals will be granted given the extraordinary circumstances presented in the aftermath of the super typhoon. After all, even the most ardent helpers of the poor sometimes need help themselves.

After the chaos, now comes recovery

Following the living nightmare that was the catastrophic effects of super typhoon Yolanda, the Philippines now picks itself up towards a long and winding recovery. The country was off to a good start, at least, after it was reported that the economy grew seven percent during the third quarter. Even if the prognosis for the last quarter of the year seems bleak after the impact of the calamity is felt, we should still stay positive. No time to be picky. We can use all the positive news that we can get.

Leading the recovery brigade in Central and Western Visayas will be the rural banking industry, with support from multilateral funding agencies.

Rural banks and microfinance institutions are in discussions with International Finance Corp., the private sector lending arm of the World Bank, to develop specific programs to help the private sector recover from the devastation. The World Bank is also in talks with international banks in this regard.

Touched by the resiliency of Filipinos to recover from the disaster, the World Bank has increased its financial aid package from $500 million to nearly $1 billion in reconstruction support to the Philippines.

In addition to the $500 million budget support loan the World Bank has earlier committed to help finance the overall recovery and reconstruction efforts in the aftermath of Yolanda, the Washington, USA-based multilateral funding agency will support early reconstruction activities with a $480-million loan for a national community-driven development project.

According to Motoo Konishi, World Bank Country Director for the Philippines, communities, given proper support, can and should take the lead in their own recovery. He said this was one of the most important lessons the World Bank has learned in Aceh, Indonesia, which was hit by the Indian Ocean tsunami in 2004, and Java by an earthquake in 2006. Community housing programs for permanent shelters in these areas delivered housing faster, at cheaper cost and of higher quality.

Here in the Philippines, rural banks will play a crucial role in spearheading the reconstruction efforts in the community, likewise anchored on housing development. The industry has found a reliable partner in Housing and Urban Development Coordinating Council (HUDCC), which reaffirmed government support to rural banks and microfinance institutions in housing loan activities, through the Home Guaranty Corporation (HGC) guaranty.

Seventeen members of the Rural Bankers Association of the Philippines have actively partnered with the HGC to boost housing in the countryside and give the rural poor access to easy house financing. HGC’s first batch of RBAP-member partners are 1st Macro Bank, AMA Rural Bank, Banco Alabang, Bank of Makati, Cantillan Bank, Inc., Lipa Rural Bank, Inc., Mount Carmel Rural Bank, Inc., Rang-ay Bank, Rural Bank of Cauayan, Rural Bank of Guinobatan, Rural Bank of Mabitac (Laguna), Inc., Rural Bank of Pagbilao, Rural Bank of Porac (Pampanga), Inc., Rural Bank of Rosario (La Union), Rural Bank of San Jose (Camarines Sur), Inc., Rural Bank of Tanza (Cavite), Inc., and Zambales Rural Bank. Alalay sa Kaunlaran, Inc., meanwhile, is HGC’s first microfinance institution partner.

The HGC, under the Guaranty Program to the Countryside through Rural Banks and the Guaranty Program for Microfinance and Small Loans for Home Improvement, extends guaranty lines to financial institutions, and secures investments for home-lending programs with the goal of encouraging financial institutions like rural banks to lend more for housing.

Under HGC Guaranty Programs, the government guarantees the payment of the institution’s obligations. The same is also beneficial for both the banks and the borrowers, as the latter could avail up to 90 percent of the appraisal value of collateral property while the former are exempted from the BSP capital reserve requirement for HGC-guaranteed loans. It also freed up banks from administrative burden if a loan sours.

Orientations and briefings about the HGC guaranty were conducted to rural banks in different parts of the country. By the end of 2012, HGC was able to reach 237 rural banks from 15 provincial federations in nine regions.

Assistance through housing is just but one component of the overall rehabilitation efforts to aid the victims of the super typhoon in the Visayas. Major debris clean-up and large-scale infrastructures like roads, bridges, drainage, ports and water systems rebuilding efforts will have to be undertaken. These will be followed by projects that promote sustainability like long-term livelihoods, economic development and capacity building.

There are many other areas that rural banks can chip in. Aside from the physical improvements, what should not be overlooked is the value of self-reliance and a sense of responsibility that rural banks promote to their clients. By arming the people from the community with this mindset, rural banks likewise impart to these people a sense of ownership to their own recovery. As Mr. Konishi pointed out, equipping typhoon victims to take the lead in their own recovery would have great psychological benefits. People’s participation in reconstruction could help lift their spirits.

Time to be prudent

If there is one message the onslaught of super typhoon Yolanda has so savagely delivered to numerous businesses in the country, it’s that the debilitating impact of natural calamities has been increasingly harder to predict, much less prepare for. Climate change has rewritten the rules of Mother Nature. What used to be regarded as “un-floodable” and immune to typhoons had already been heavily flooded and rained out to submission. No place is immune, no place is safe.

Perhaps now is the appropriate time to revisit a rule that adversely affects rural banks’ profitability by tying their balance sheet to the fate of agriculture, one sector that is heavily dependent on the whims of the weather.

The Bangko Sentral ng Pilipinas (BSP) is already open to the possibility of amending some of the provisions under Republic Act 10000, also known as “The Agri-Agra Reform Credit Act of 2009,” saying that the mandatory credit policy runs in conflict with safe and sound banking practices.

The Agri-Agra Law, which superseded Presidential Decree 717, was enacted to provide adequate credit sources for the agriculture sector that accounts for a tenth of the domestic economy. Under the law, banks are required to allot at least 25 percent of their total loanable funds for agriculture and agrarian credit. Ten percent of which should be set-aside for agrarian reform beneficiaries, while the remaining 15 percent should be allotted to agriculture and fisheries.

Aside from direct lending, cash infusion to rural and thrift banks is also one of way of complying with the law, aside from investments in securities issued by Development Bank of the Philippines and Land Bank of the Philippines, investments in shares of Quedan and Rural Credit Guarantee Corp. as well as lending to construction of farm infrastructure such as farm-to-market roads.

The law also metes out an annual penalty of one-half of one percent of the amount of non-compliance/under-compliance. Ironically, some banks would rather pay the fine instead of lending to agriculture at this point.

Seeing this, no less than the House Committee on Banks and Financial Intermediaries Chairman Sonny Collantes said during the RBAP 56th Charter Anniversary Symposium that there is a need for legislators to review the law fearing that it might have lost its relevance. He said the House of Representatives may consider gradual reduction of the mandatory 25% loan allocation to a more “feasible percentage” or possibly abolish the 25% allocation requirement and make the Land Bank of the Philippines solely responsible for credit allocation to the mandated sectors.

However, it is important to note that the rural banking industry is not running away from its responsibility to the poor, especially during these trying times but they have to play it smart. As trustees of rural folks’ hard-earned money, it is extremely difficult to be tied down to a sector that is quite literally as fair-weathered as they come.

It is unfair for rural banks, as well as for their total client base, to be forced to lend to a segment that puts banks and the money of their depositors at risk. Rural banks can better serve their customers if they are still in business and not reeling from unprofitability and tied to a non-earning venture.

The rural banking industry commends the kindness of those who have donated to the victims of Yolanda, as we all as praised the bravery of those who have personally assisted in the rehabilitation efforts in Tacloban and other affected areas.

But right now, as far as compliance to the Agri-Agra Law is concerned, discretion is the better part of valor.