Serving the ‘unbanked’

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The rural banking industry has been an active advocate of financial inclusion in the country. It is through rural banks that the “unbanked and underbanked” have gained access to financial services. Despite geographical hindrances, they have persevered in reaching out to the poor market, through the full utilization of mobile banking, microfinance and micro insurance.

Although rural banks have been aggressive in pursuing markets even in the fifth- to sixth-class municipalities, Bangko Sentral ng Pilipinas (BSP) data show that there are around 1,634 cities and municipalities that remain unbanked. The central bank also noted that banking presence tends to be skewed to higher-income and more populated areas, considering the cost of setting up banking offices and operating such offices. The countryside is therefore challenged by limited financial services.

To address this concern, the Monetary Board recently approved a measure that will provide incentives to those who would want to expand their services to far-flung areas in the country. These incentives include a waiver of processing fees for the establishment of branches in unbanked areas, and an expansion of the allowable activities for micro-banking offices (MBOs).

The new regulation likewise widens the scope of allowable activities and services that MBOs can provide. MBOs now can provide and service other types of loans to microfinance clients such as educational, health, and emergency loans, among others. Subject to BSP approval, banks may also be allowed to increase their limit for the monthly average daily balance of micro-deposit accounts.


According to the BSP, the amendments recognize the growing importance of MBOs in the delivery of financial services especially in underserved areas. To date, there are 508 operating MBOs serving 325 municipalities, of which 62 municipalities are served by MBOs alone. Increasingly, areas that were unbanked have gained banking presence due to MBOs. These simple offices may engage in limited transactional banking activities such as the provision of micro-loans and micro-deposits, among others.

Having 22 percent of the entire rural banking industry devoted to servicing the fifth- to sixth-class municipalities, the microfinance loan portfolio of rural banks—which stands at 6.2 million in March 2014—is expected to increase this year with more of them engaged in microfinance. In 2013, there were 182 banks identified to have microfinance operations, 137 of which were rural banks and 18 were cooperative banks.

The issuance of regulations supportive of inclusive growth is a significant reinforcement for the industry as rural banks remain true to their commitment of serving the low-income sector in the countryside by providing access to a wide array of microfinance products and services.

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