Small step for rural banks, giant leap for financial inclusion

In yet another step in the country’s long journey toward achieving full financial inclusion, rural banks can now offer financial products like insurance policies and credit cards to their clients in the countryside, after the Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), liberalized the framework for cross-selling of banks.

Under BSP Circular 801 series of 2013, “cross-selling” allows the sale of a financial product in other affiliate intermediaries sold in affiliate banks. Banks, particularly rural banks, may now “cross-sell” loan products such as credit cards, home mortgage loans, personal and other retail loans; term, life, nonlife and other protection-type insurance products; cash, debit and related products; and other similar financial instruments that may be authorized by the Monetary Board.

Banks may also use their premises to market and sell the financial products of their related parties under a banking group or a financial conglomerate. Thus, if the parent in a banking group is a universal bank and the subsidiary is a rural bank, the latter can be used to distribute some of the former’s products and vice-versa.

By expanding cross-selling activities, which was then confined universal and commercial banks under BSP Circular 357 issued in 2002, rural banks now serve as a viable platform to market and sell the aforementioned financial products due to their broad branch network in the countryside, with rural communities basically serving as their bailiwick.

Of the estimated 9,300 banks’ head offices and branches in the country, thrift and rural banks account for about 4,100, based on the September 2012 data of the BSP. In effect, more Filipinos will now have access to a number of banking products especially those living in rural communities. They can finally have the chance to shed the “unbanked” and “underbanked” label that has been attached to them for eons, as they will have an opportunity to avail of different financial products, at much friendlier terms.

Meanwhile, to prevent abuse, the BSP said that an oversight-handling mechanism specific to cross-selling is included in the revised rules. The regulator has limited the products to those without investment risk and allows only banks with a Camels rating of at least “3” or its equivalent, and without major supervisory concerns to perform cross-selling.

Camels is a BSP system that rates banks on their capital adequacy, asset-quality management earnings, liquidity and sensitivity to market risk.

By extending loans and other financial services to low-income earners, the rural banking industry will again play a key role in the government’s ultimate goal of reducing poverty, by making financial services reach more Filipinos.

It may be considered baby steps for now, but at least it’s a step in the right direction.

Published in The Manila Times, 10 July 2013