DESPITE the gains of the rural banking industry in extending credit to the agricultural and agrarian reform sectors, much work still has to be done to encourage rural folk to maximize the opportunity of getting into a formal financial system.
At the 35th Mindanao Credit Conference held in Davao City, Bangko Sentral ng Pilipinas Deputy Governor Nestor Espenilla Jr. highlighted the results of the National Baseline Survey on Financial Inclusion (NSFI), which was completed early this year.
According to Espenilla, it is interesting to note that 84 percent of survey respondents said
borrowing money is beneficial for their family yet only 56 percent of them expressed the desire to borrow money from formal financial institutions.
In the same survey, it was also highlighted that 61.9 percent of Filipino adults who have outstanding loans sourced their credit from family, relatives and friends.
What does this signify?
In his speech at the event, RBAP president Enrique P. Abellana said financial inclusion is best achieved with greater empowerment of clients through financial literacy and consumer education.
Quoting the Asian Development Bank, Abellana said clients could meaningfully participate in the financial system when they possess the knowledge, skills and tools to build, manage and protect their assets.
Meanwhile, Espenilla also encouraged rural bankers to further penetrate the remaining 36.4 percent unbanked areas in the country; although at present the industry has already reached 58.3 percent, topping its bigger banking cousins – thrift banks at 26.6 percent and universal and commercial banks at 22 percent.
Earlier this year, the Bangko Sentral offered incentives for banks to reach unbanked municipalities by expanding allowable activities for micro-banking offices (MBOs).
The MBOs can now provide and service other types of loans to microfinance clients. These include educational loans, health loans and emergency loans, among others.
Banks may now also apply for BSP approval to increase the limit for the monthly average daily balance of micro-deposit accounts from the current P40,000 maximum.
As of March 31, there were 418 MBOs of rural and cooperative banks in the country, of which 279 are in Luzon, 67 are in the Visayas and 72 in Mindanao.
In addition, Abellana said that rural banks should likewise be empowered – along with their clients – as they have seen how the big banks have gone into traditional areas served by them.
The rural banking industry is also slowly feeling the gravity and impact of banking regulations.
For one, the Bangko Sentral has issued Circular 854 on the New Minimum Capitalization of Banks, and subsequently, Circular 855 on Sound Credit Risk Management Practices.
Circular 854 highlights the need to have a “better sense” of the amount of capital that is required for a projected level of risk exposure, while Circular 855 requires a set clear credit policies and direction that will be cascaded to all levels of management.
According to Abellana, it seems that Circular 855 is the more critical between these twin regulations.
Although initially these regulations appear to impact the core of rural banking, the wisdom of having a more solid, competitive and responsive rural banking system prevails, and the evolving business landscape has now become a requirement to which rural banks must seriously respond.