CHAPTER 2. Promoting an Enabling Environment

To expand and sustain rural banks’ involvement in microfinance, MABS continued to work with RBAP and the Bangko Sentral ng Pilipinas during the fourth phase of the program to promote an appropriate policy enabling environment. From 2008 to 2012, BSP issued 16 circulars to support expansion of microfinance services. Although these policy initiatives were led by BSP, they benefited greatly from the inputs, policy discussions, position papers, and technical studies developed for RBAP by MABS.

Effect of New Regulations

Guidance from BSP in the circulars provided clearer rules on microcredit products; liberalization of bank branching; support for microdeposit policies, including relaxation of upfront banking “Know Your Customer” requirements for small deposits; the allowance of microinsurance services as an allied undertaking of rural banks in partnership with licensed microinsurance companies; and more support for uses of technology to expand outreach of banking services, especially the use of mobile money by banks to increase financial services.

In particular, based on lengthy discussions with BSP and visits by members of the Philippine Monetary Board to MABS’ participating rural banks, BSP issued Circular 694, which facilitated the ability of rural banks to open microbanking offices and expanded the range of microfinance banking services that these offices could offer. For MABS’ participating banks, this one significant change in regulations contributed to a substantial increase of bank branches and offices — from 320 at the end of MABS-3 in 2008 to 642 in 2012.

In addition, with strong support from RBAP, the Philippine Congress passed the Credit Information Systems Act in late 2008, which set the stage for renewed interest in credit bureau services. MABS-4 strengthened its collaboration with the Bankers Association of the Philippines Credit Bureau to promote this service to rural banks. With MABS’ support and the partnership between RBAP and the credit bureau, more than 70 rural banks are registered and actively using credit bureau services.

Paving the Way for Offering Microinsurance Products

Banking regulations have traditionally restricted the potential of rural banks to offer microinsurance. However, capitalizing on the government’s growing recognition of microinsurance as a financial risk mitigation measure for the poor, RBAP, with MABS’ support, began to more actively work with BSP and the Insurance Commission of the Philippines to advocate for creation of regulations that would allow rural banks to promote, sell, market, distribute, and service microinsurance services for their poor and low-income clients and household family members.

MABS’ participating rural banks are active in a range of activities, including small-scale manufacturing, as shown in this photo taken in March 2012. Working closely with regulatory bodies, RBAP, with MABS-4 support, helped rural banks offer a greater range of microfinance loans to meet the needs of larger microfinance clients.

In September 2008, with technical input from MABS and strong leadership of RBAP President Tomas Gomez IV, RBAP issued a position paper on microinsurance that was presented to BSP and the Insurance Commission.[7] The paper argued for approval of rural banks as delivery channels for simple, affordable, and relevant microinsurance products under a “partner-agent” model rather than the previously allowed model called bancassurance.[8] The paper highlighted the potential of rural banks to act on behalf of authorized insurance companies to promote microinsurance services, facilitate the sale and distribution of microinsurance services, process insurance collections, and facilitate payment of microinsurance claims.

What followed was a series of consultation meetings organized by MABS between RBAP, the Insurance Commission, and BSP during a two-year period, which resulted in issuance of several circulars and policies that allowed rural banks to sell, market, and service microinsurance services of licensed microinsurance companies. This allowed rural banks for the first time to sell and service microinsurance products as an “an allied undertaking” under Section 20 of the General Banking Law.

After these circulars were issued, RBAP-MABS continued regular consultations with the Insurance Commission and BSP to clarify remaining issues on microinsurance client eligibility and licensing requirements and procedures for rural banks as microinsurance agents. One of the most important issuances was BSP Memo 027-2011 in June 2011, which dramatically expanded the definition of microfinance clients to include microloan clients and microdeposit clients, as well as “existing clients classified by the bank as low income” and their household family members. This one change in policy led to a dramatic increase in the number of clients and household family members using microinsurance services, reaching 428,800 by June 2012.

Focus on Consumer Protection and Financial Transparency

The most recent circulars (Circulars 730, 754, 755) focused on a greater emphasis by BSP to champion consumer protection and financial transparency. As the number of institutions offering microfinance services grew, BSP determined that this growth should be accompanied by consumer protection and better financial transparency guidelines. The effort was fully supported by RBAP and MABS as a way to help the industry better address and manage growing competition and enhance awareness about creditor responsibilities to their clients.

Based on the new circulars, the Rural Bankers Research and Development Foundation, Inc. (RBRDFI), with MABS and BSP support, developed and launched financial transparency seminars for rural banks to support the new regulations. Between February and June 2012, more than 1,000 bankers from 450 rural banks attended the seminars on a full-cost basis.

Exhibit 5. Economist Intelligence Unit Microscope 2011:
Philippines is No. 1 in Regulatory Framework and in East Asia

[8] The bancassurance model only allowed banks to sell insurance if they were able to make a 5 percent investment in a private insurance company. Due to the size of the minimum investment required, only large commercial banks were able to provide insurance services in 2008.


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