Basic premises: Rural banks and overseas Filipinos

The Rural Bankers Association of the Philippines (RBAP) and ERCOF have signed a Memorandum of Agreement to link overseas Filipino workers and their family members to the products and services of Philippine rural banks.

 While rural banks constitute only a mere 2.67% of the Philippine banking industry’s total assets, their widespread presence in the countryside or rural areas  puts them in a strategic  position to serve the needs of overseas Filipinos, majority of whose  beneficiaries are situated in the countryside.

Rural banks  have in-depth knowledge of the real needs of rural folk and have greater chances of serving OFW families, particularly the un-banked rural population, as well as assisting migrants, their families, and beneficiaries in personal financial planning or financial literacy,   pre-departure assistance or  assisting  returned  migrants in reintegrating to local society. As a matter of fact, rural banks could help in mentoring or assisting OFW family members in entrepreneurial or agricultural activities in the absence of the overseas breadwinner.

By their mandate, rural banks are more directly involved with poverty alleviation and marginalized folk. Consider the statistics: some 78.8% of food poor families are in the  rural areas (ARMM, Bicol and Central Mindanao) while rural families account for 70% of total poor.  Moreover, the Philippines remains dependent on agriculture, which contributes to 20% to GDP.  40% of employment comes from agriculture, and 60% of our population relies on agriculture.

Data from the Rural Bankers Association of the Philippines and the Bangko Sentral ng Pilipinas indicate that 42% of the portfolio of rural banks are geared towards agriculture. 90% of deposits generated by rural banks are from small savers.  A notable contribution of rural banks to local development and poverty alleviation is in the area of microfinance.  As of December 2003, the MABS has worked with more than 114 banks, disbursing over 320,220 loans totaling more than Php3.3 billion to more than 111,302 microentrepreneurs.  48 rural banks likewise participate in the microfinance program of the PCFC, and constitute 26% of its total conduits. 

Enhancing Relationships between OFs and Rural Banks.

However, certain  major  challenges must be hurdled  in order to enhance  links between Overseas Filipinos and rural banks, or any rural-based financial institution for that matter.

Lack of Outreach. One of the main barriers that had prevented the rural banking industry from an enhanced participation on overseas Filipinos’ economic activities, has to do with limitations on overseas outreach and interconnectivity issues. Perhaps the practical application of internet and SMS-based remittance systems could address interconnectivity issues, provided or course that remittance charges could compete with traditional services that have been long offered by commercial banks, door to door or money remittance companies. Rural banks must have to rely on the acceptability of its partners’ remittance mechanisms and overseas networks. With regards to the lack of outreach, it could partner with NGOs for overseas Filipinos, or organizations based overseas or in the Philippines.

Image Problem. Based on our experience in advocating the promotion of rural banks’ services  to OFWs, one barrier  relates to an image problem  that probably has to do with a traditional peoples’ mindset on the instability of rural banks and associating the safety of their money with big banks. We had in the course of our advocacy for rural banks, emphasized that rural banks are not only self-regulating, but are also strictly regulated by the BSP, aside from the fact that deposits are insured by the PDIC.  An effective and serious media plan would go a long way in improving the rural banks’ competitiveness with other OFW service providers.

Capacity building. From recent pronouncements and actual accomplishments, the RBAP is gearing  the industry  for the increasing and sophisticated demands brought about by globalization. While professionalization and capacity building are basic, the industry probably  has no option but also to embrace and show the willingness  to invest in innovation and technology or to link up with existing service or technical providers, as it has gradually done in the last two years.

Know Your Client (KYC). A serious plan to link overseas Filipinos and their families should involve nothing short of knowing their needs and concerns, not only financial but also social, particularly   the huge social costs of migration, such as family problems brought about by long absence or separation.   RBAP could start by urging  its member banks to conduct simple surveys within their respective territories to determine who among their clients have OFW breadwinners or relatives overseas. This would give them important demographics and a fair idea of the economic and social needs of OFWs and their families, enabling them to tailor-fit or diversify their strategies, services and products to these needs. KYC here does not refer to its regulatory meaning, but entails knowing the needs of the one who sends, as well as those who  make the spending decisions. The future RBAP academy which will engage in training on microfinance and community banking, could well include research and development on the OFW sector.

Increase RB links to community. Some rural banks have found it useful to field community organizers for the purpose of information dissemination, but also in helping the public in financial literacy and understanding the uniqueness of financial products offered by rural banks, especially microfinance and small business. Although it could take time, an effective community outreach would go a long way on building public confidence on rural banks and brand recognition based on trust and loyalty to the institution.