Rural banks still banking on government support to help farmers, SMEs, amid shrinking ratios – Business Mirror

By Bianca S. Cuaresma and Alladin S. Diega

BANKS rely on trust and risks. But because there are risks in trust, some banks are averse to, if not totally avoid, small-holding farmers and small retailers as their main clients.

Some bankers would invariablyuse keywords or phrases such as not profitable enough, higher cost in termsof providing service or outright risky.

Oddly enough, these traitsexactly describe the main clientele of the New Rural Bank of San Leonardo(NRBSL). According to Abundio D. Quililan Jr., president and CEO of NRBSL, hisbanks main advocacy is to help alleviate poverty in areas where it is mostsevere, by opting to establish their financial services where it mostdesperately needed.

NRBSL deliberately butsystematically provides financial services to these groups even at higher costand greater risk, Quililan told the BusinessMirror.Other financial institutions might do otherwise due to difficulties inmanaging small borrowers whose projects are prone to failures and variouslimiting circumstances.

He added that the bank usesevery opportunity to partner with government agencies and other like-mindedorganizations, such as local government units, government agencies, or civilsociety organisations (CSOs) in pursuit of ways to help alleviate poverty andpromote financial inclusion.

THE 25-year-old NRBSL has beena long-time partner of the Agricultural Guarantee Fund Pool (AGFP) and theSmall Business Corp. under its Portfolio Guarantee Facility.

In 2018, the bank became among the first rural banks in the country tobe a partner-conduit of the Department of Agricultures Agricultural Credit andPolicy Council (DA-ACPC) in the implementation of the agencys production loanprogram for small farmers that entails no cost and no risk arrangement on thepart of the lender.

Farmers can access this creditfund for production without being required to provide collateral. However, theyneed to undergo the usual process required to secure a loan from any ruralbank. Farmers could also secure from this fund any technical assistance andadditional assistance in reviewing project plans to increase viability and,hence, the capacity of the farmers to pay it back.

These government guaranteeschemes are the crucial factors that allowed NRBSL to fulfil its mission amongfarmers and micro-entrepreneurs while at the same time achieving soundfinancial condition, Quililan said. He added that without the aegis provided bythe government guarantee schemes, NRBSLS portfolio mix would have beendifferent and would favor more secured transactions in keeping with the banksusual practices. Quililan explained these government arrangements were given tothe NRBSL in recognition of its many years of proven advocacy with farmers.

THE bank, which began in themunicipality of San Leonardo, Nueva Ecija, also favors agricultural productionand agriculture-based industries with potential for business growth. The peoplebehind these agri-based industries have growing financial requirements becauseof their high-value crop and hybrid livestock production projects.

The intent behind this is yet another advocacy of the NRBSL, which isto encourage agri-based business initiatives for food security purposes whileallowing higher income generation capabilities among farmers and livestockraisers.

The bank has also venturedinto other development loan projects with social impact such as waterutilities, property distribution, health-related projects, education andsimilar services. These accounts are also enrolled for guarantee coverage iffound eligible under the rules, Quililan said.

Almost 80 percent of NRBSLsborrowers are from the agriculture and microenterprise sector and its exposureto these industries account for nearly 40 percent of its overall loan portfolio.

He added that out of its 8,408active loan accounts, about 6,702 come from small farming communities andmicro-enterprises, which are often excluded in the delivery of financialservices.

This represents a total loanportfolio of P969.54 million in 2018, where P385.33 million, or 39.7 percent,were loaned to small farmers and microfinance clients.

ACCORDING to Quililan, theBangko Sentral ng Pilipinas (BSP) recently approved the renewal of theCertificate of Accreditation of NRBSL as a Rural Financial Institution (RFI)under Republic Act (RA) 10000, otherwise known as the Agri-Agra Law.

The grant of renewal indicatesNRBSLs long promotion of developing the local economy through agriculturalfinancing, specifically for the small and often asset-less farmers who do nothave access to affordable credit, large-scale agricultural producers.

The renewal comes with otherbenefits for the NRBSLit is now authorized to retain and accept more depositsfrom other banks as alternative compliance to the Agri-Agra Law that requiresall banks to set aside certain portion of their portfolio for the agriculturalsector. As deposits placed with NRBSL are considered alternative compliancewith the said law, Special Deposit Account placements by other bankscontributed significantly in fund mobilization for its agriculture financingprogram.

QUILILAN said that his teamconsiders the RFI certification as hard-earned. It is also a specialrecognition, as there are only eight remaining financial institutions the BSPhas granted accreditation in its recent announcement.

Under the category of loansgranted to Agrarian Reform Beneficiaries (ARBs) where the required minimumexposure is 10 percent, the NRBSL posted a high 47-percent compliance ratewhile majority of commercial banks including some rural banks were founddeficient, Quililan said. He noted that the marginalized farmers are usuallyARBs in communities with no banking services.

NRBSLs records show the banksurpassed the mandatory allocation of 15 percent on other agricultural creditat a 30-percent compliance rate. The excess compliance of NRBSL reached P194million by end of December 2018.

This amount is the limit ofadditional Special Deposit Account placements that NRBSL can accept from otherbanks for their alternative compliance with RA 10000, Quililan explained.

AS the NRBSL is about to celebrate its 25th anniversary, it is remindedof its roots in 1992, the year nongovernment organization Management andOrganizational Development for Empowerment (MODE) was organized. Recognizingthe lack of available finance in rural communities, it immediately commissioneda feasibility study on a small rural bank that will cater mainly to farmers,particularly ARBs.

With the implementation of theComprehensive Agrarian Reform Program, the ARBs were suddenly faced withopportunities and challenges. The ARBs did not have the capacity to financetheir cost of production, from seeds to simple farm implements or tools.

The MODE NGO itself at firstengaged exclusively in research and studies to help farmers navigate within theCARP ecosystem. The organization also sought to enable the ARBs through skillstraining and capacity-building activities. Later, the organization woulddirectly engage in local economy development, providing funding for the farmersthat are being organized and provided training to further enhance their skills.Most of MODEs activities were in the Visayas, particularly in Northern Samar.

In 1994, the NRBSL wasorganized with MODE as owner, intending to democratize the shares later throughindividual stocks or nominees. As a separate financial entity, the NRBSL wouldlater adopt MODEs advocacy on local economy development, with particular focuson the farmers.

While majority of rural banks are owned by families and theirindividual members, majority of NRBSLs shares are owned not by an individualbut by an organization with an advocacy focused on local economy development.This partly explains the banks consistent program with farmers andmicro-entrepreneurs as main clientele.

ACCORDING to Quililan, despitethe risk in having the farmers and other small-time clients, the bank was ableto maintain its profitability. He credits this to systematic and devotedmanagement.

From a total resource of P729million in 2014, the NRBSL was able to double that to P1.5 billion by the endof 2018. Quililan noted that the current size of its total assets was achievedby the NRBSL in just a span of two years after it crossed the P1-billion level.

As a long-term part of itstarget for expansion, the NRBSL opened new branches last year, one each inDingalan, Aurora; Cabiao, Zaragoza; and Pantabangan. For this year, anotherbatch of branches in Cubao, Quezon City; San Simon, Pampanga; Nampicuan, NuevaEcija, and San Jose del Monte, Bulacan, will start operations. These wouldbring to 24 the banks total of branches across five provinces in Central Luzonand the National Capital Region.

The bank considers the recentestablishment of a branch office in Cubaos Araneta Center as anotherachievement. Quililan said no ordinary rural bank is granted a license tooperate in the Metropolis, a highly concentrated area for millions of residentsand commercial establishments.

LAST year, the NRBSL receivedfrom the DA-ACPC a total funding of P80 million. Quillilan said this amount is,by far, the biggest exposure to a partner rural bank by the agency.

He added this will allow themto secure additional beneficiaries of the bank, which currently number almost athousand individual marginalized farmers, under the DA-ACPC.

In 2017 and 2018, the NRBSLplaced first in the coveted Gawad Countryside Financial Institution Award givenby the Land Bank of the Philippines for its partners nationwide.

Aside from the Production LoanEasy Access (Plea) of the DAsACPC, the bank was chosen as conduit for the distribution of funds under itsprogram for disaster victims and acquisition of machineries.

The NRBSL also helped severalsmall-scale enterprises and medium-scale enterprises acquire permanent businesssites near market areas in Nueva Ecija and Tarlac through a memorandum ofagreement (MOA) with the Local Government Unit (LGU) of La Paz, Tarlac, andproperty owners in Zaragoza, Nueva Ecija. The MOA is a tripartite frameworkinvolving property owners, business operators and the bank in the award ofcommercial stall rights or acquisition of prime properties inside marketfacilities.

The NRBSL provides socializedfinancing schemes affordable to ordinary entrepreneurs for activities that areappropriate and consistent with their income stream to ensure permanent placeof business and working capital for trading their merchandises.

THE NRBSL has also venturedinto the housing sector.

But unlike traditional homeloans offered by commercial banks to professionals, Quililan said the NRBSLsapproach is to make available financing programs that are secured by the HomeGuaranty Corp. or other arrangements with local government units that areaccessible, affordable and under flexible repayment schemes and in sync with theincome cycle of crop and livestock producers.

According to Quililan, theNRBSLs approach to direct poverty reduction, particularly in transforming thepoor from subsistence living to sustainable income generation, is to work withLGUs, CSOs or NGOs with advocacy on local economy development.

For instance, the municipalityof Dingalan, Aurora, was a long-time recipient of NRBSLs corporate socialresponsibility projects, the coastal community inhabited by the Dumagatindigenous people. The NRBSL regularly allocates resources on high-impactinitiatives in the fields of health and concerns of the Dumagats.

Last year, the bank opened abranch in Dingalan to offer financing services to its residents. Earlier in2017, the NRBSL was joined by NGOs and LGUs to work on a plan tocomprehensively help develop the full potential of the poor municipality.

AS part of its liquiditymanagement strategy, Quililan said the NRBSL is maintaining its stable coredeposit base, by keeping the pool of depositors broad and encouraging smallsavers to place their money with NRBSL.

The special license granted bythe BSP to undertake solicitation of deposits outside bank premises enabled itto reach out to depositors in their residences and business sites, Quililanexplained. Targeting these small savers using the basic deposit account productalso is a way for bank to promote financial inclusion, he added.

With this profile of itsdepositors, the bank is able to maintain a safe, simple and low-risk fundmanagement practices. The practice enables also the NRBSL to determine anappropriate liquidity level which eases the pressure in maintainingunnecessarily high cash position.

At P1.525 billion in totalresources, the NRBSL is currently ranked 27th in industry, making it the fourthbiggest rural bank in Central Luzon.

The NRBSL used to be at the26th spot. However, two new banks created from the consolidation of severalinstitutions entered the list of the countrys top 25 rural banks.

Overall, NRBSLs industrypositioning is stable and is still among the fast-growing rural banksnationwide.

OVERALL data from the BSPshows that even rural and cooperative bankswhose major market are thecountryside farmers and fishermenare finding it increasingly hard to comply tothe mandatory lending to the agrarian reform and agricultural sector.

Five-year data trend from thecentral bank showed that while rural and cooperative banks are still the onlybanking group able to comply with the agri-agra lending quotas, their share inthis sector has been shrinking over the years.

The mandated lending toagriculture and agrarian reformknown as the Agri-Agra Reform Credit Act of2009, requires banks to allocate 25 percent of their total loan portfolio tothe two sectors10 percent for the agrarian reform credit and 15 percent toother agricultural credit.

Only rural and cooperativebanks are known to be able to comply with this loan quota, with universal,commercial and thrift banks choosing to pay penalties instead of allocatingcredit for these risky sectors.

In end-2013, rural andcooperative banks were able to allocate 24.53 percent of their total loanportfolio to agrarian reform credit, way above the 10-percent mandate. For theagriculture sector, rural and cooperative banks set 44.59 percent of their loanportfolio to this sector, also exceeding the 15 percent quota.

This, however, wentsignificantly down in the last five years.

IN end-2014, rural andcooperative banks allocation to the agrarian reform sector went down to 18.47percent while their lending to the agricultural sector hit 34.21 percent. Thiswent further down the next year, with lending to agrarian reform sectorreaching only 17.99 percent of their portfolio and lending to agriculturesector, to 34.03 percent.

In end-2016, the share ofagri-agra lending to the rural and cooperative banks total loan portfoliofurther shrank to 16.44 percent for the agrarian reform and 28.79 percent forthe agricultural sector.

Last year, this went furtherdown to 13.53 percent for the agrarian reform and 24.97 percent foragricultural credit.

For the first half of 2018,the trend continued to go down, with agrarian reform credit only making up11.18 percent of the rural and cooperative banks total loan portfolio, and24.46 percent for the agriculture-related credit.

While these numbers stillexceed the mandate, they have gone significantly down in five years time.

BSP officials, including itsdeputy governor Chuchi Fonacier, have long acknowledged the gap, saying thelack of financial access of the agricultural sector is one of the leadingcauses behind its underperformance.

We recognize that one of themajor hindrances to the flourishing of the agricultural sector islimitedseverely limitedaccess to finance, Fonacier earlier said.

TO increase their presence inthe countryside, more rural banks are opting to open up branch-lite units inan effort to expand their reach without adhering to the stricter central bankrequirements needed to open a regular branch.

Data from the BSP as publishedin circular letter CL-2018.085 showed thrift and rural banks opened a total of54 branch-lite units in July to September 2018 alone.

This is about a year after theBSP allowed the establishment of these so-called branch-lite units as annexesof banks to promote access to efficient and competitive banking services.

Thrift and rural banks tookparticular advantage of this regulation, with 27 new branch-lite units stemmingfrom thrift banks and 27 new branch-lite units branching from rural andcooperative banks in the third quarter of the year.

The BSP defines branch-liteunits as an office or place of business of a bank that performs limited bankingactivities and records its transactions in the books of the head office or thebranch to which it is annexed.

Since these units are limitedin the services they offer, they are also subject to proportionate regulatoryframework, which means less strict rules and more flexibility to executefinancial strategies and innovations.

Bulacan, Batangas, Pangasinanand Puerto Princesa were among the top areas where thrift banks establishedtheir branch-lite units, while Quirino, North Cotabato and Isabela were the toppicks for rural and cooperative banks.

Rural and cooperative banks have 3,106 branches nationwidein end-April 2019, BSP data showed.

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Rural banks still banking on government support to help farmers, SMEs, amid shrinking ratios - Business Mirror

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