Meeting expectations through agriculture

As the Rural Bankers Association of the Philippines celebrates its 56th anniversary this year, the question is asked: Has the industry successfully met its main objective some 50 years after its creation?

Admittedly, in spite of the presence of rural banks in most rural communities and their best efforts to reach out to the poor sector, many Filipinos are still left unbanked. But that is not to say that rural banks have not been doing their jobs. In fact, in more than 60 percent of areas nationwide where they are located, rural banks are the only financial institutions that service the financial needs of the people. This shows that rural banks are socially and economically significant niche players in the Philippine banking system. The rural banking industry remains an important cog in the Philippine financial system, especially in rural communities.

One of the sectors the industry is continuously working with to help improve the plight of the poor at the grassroots level is agriculture, which accounts for a fifth of the country’s total domestic economy.

RBAP and the Agricultural Guarantee Fund Pool (AGFP) are currently in the midst of a joint effort to share to the rest of the rural banking industry the best practices in agricultural lending through a series of regional workshops.

The AGFP, a Department of Agriculture-led program with Land Bank of the Philippines as Institutional Manager, was created in 2008 to mitigate risks in agricultural lending, thereby facilitating the provision of credit to the agricultural sector. By providing guarantees to unsecured loans made by lending institutions to small farmers and fisherfolk for their food production, the program facilitates the flow of formal credit to farming households in the rural areas.

By 2014, RBAP and the DA target to reach out to at least 40 percent of the RBAP membership through these workshops about the importance and success of these practices.

For the past five years, AGFP was able to provide a guarantee cover of P4.5 billion in loans for agricultural production to its partner-rural banks, representing more than a quarter of our total five year cumulative coverage of P17.4 billion. These involved 110, 473 loan transactions benefitting almost 72,000 small farmers and fisherfolk.

As of September 2013, the program has guaranteed almost P1 billion in agricultural production loans to more than 16,500 small farmers and fisherfolk in partnership with rural banks, and paid claims of P92 million.

Overall, the future looks bright for the industry even as the need for additional capital increases and competition from other financial institutions, formal or informal, remains.

The passage of the rural bank foreign equity law and the incentives offered to prospective white knights under the Strengthening Program for Rural Bank Plus will address the industry’s financial concerns, as well as enable rural banks to achieve economies of scale, attract more skills into their fold and reduce risk through diversification of their products and services. Diversification of their products will deepen the relationship between banks and clients and ensure that the bank branches are relevant to the specific needs of their market.