Healthy, Sustainable Rural Banks

Inclusive growth has been defined by the National Economic Development Authority (NEDA) as a sustained growth that creates jobs, draws the majority into the economic and social mainstream, and continuously reduces mass poverty. To achieve this goal, development in rural areas has become imperative.

Also, the presence of sustainable rural banks and its financial services is as equally important, as it can provide the countryside much-needed investments to spur local economic development. In this year’s Annual National Convention of the Rural Bankers Association of the Philippines (RBAP), the theme was “Rural Banks: Championing Inclusive Growth in an Exclusive World of Banking,” stressing the critical role of rural banks as forerunner in promoting inclusive growth.

Rural banks can contribute to inclusive growth efforts of the government, having sufficient capital to provide its clientele banking services responsive to its needs, and reach out to the unbanked and underserved population. The recent passage of Republic Act (RA) 10574, or the law allowing the entry of foreign investments in rural banks, has opened the floodgates of the industry to an additional source of capital to expand its services, and contribute in creating a financially inclusive countryside.

Rural banks, as mandated by law, primarily serve the agriculture and fisheries sector, which contributed 11 percent of the growth domestic product (GDP) of the country in 2012. Despite contributing a large chunk to the country’s domestic product, it is notable that the GDP contribution of the sector continues to decline over the years.

The agriculture sector also is the second-largest generator of employment in the country. And it is notable that workers in the sector are also among the poorest. Investments in the sector can make a difference not only in the country’s production but poverty alleviation as well.

Just like any sector, the agricultural and fisheries sector need sufficient funding to hasten its growth. The presence of sustainable rural banks capable of providing much-needed capital to boost agricultural activities can economically empower farmers, fisher folk and small entrepreneurs, and stir economic activities in the rural areas.

A healthy rural bank can enable countryside development. With laws such as RA 10574, rural banks are taken one step closer to effectively fulfilling its mandate of serving farmers, fisher folks and small enterprises that are major contributor to the local economies and of the national economy as a whole.

The country posted a surprising economic growth for the first quarter of the year, surpassing our neighboring countries such as China, Indonesia, Thailand and Vietnam. With sound economic government policies supporting countryside development, these numbers can still be improved, and reflect inclusive growth in the country.


Published in The Manila Times, 13 June 2013