BSP allows establishment of micro banking offices to widen access to financing

MANILA, Philippines –  The Bangko Sentral ng Pilipinas (BSP) has allowed rural and thrift banks to set up micro banking offices (MBOs) in cities and municipalities that do not have a single banking office to deliver microfinance oriented banking services in areas that are hard to reach.

BSP officer-in-charge Nestor Espenilla Jr. said the BSP has approved amendments to its Manual of Regulations for Banks (MORB) allowing the establishment of MBOs to help banks extend the reach of their services in areas where it is not economically justifiable to set up full-blown bank services.

“We anticipate that strong rural banks and thrift banks that have been focusing on microfinance will lead the way in taking advantage of this new opportunity to deliver a wide array of financial services to underserved and unbanked areas,” Espenilla stressed.

The BSP deputy governor explained that around 37 percent or 610 out of the 1,635 cities and municipalities in the country do not have a single banking office leaving its population wanting for much-needed financial services.

“This approval presents an enormous opportunity for banks to deliver microfinance oriented banking services to areas that are hard to reach and remain underserved,” he added.

According to him, the banks would now be able to break down the usual barriers to accessing financial services for the underserved and unserved market such as cost and distance.

“People who have been deprived of a banking presence in their areas need not travel far to be able to save, pay their loans or make simple financial transactions. This measure may also serve as an entry point for banks that may want to engage in microfinance operations by initially establishing an MBO instead of a full branch,” he said.

As stated under BSP Circular 694 series of 2010, other banking offices (OBOs) that refer to a permanent office or place of business of a bank with less requirements to set up as compared to a head office, branch or extension office would now have two classifications.

The BSP said a regular OBO is one that undertakes purely non-transactional banking related activities such as marketing, customer care services, acceptance of loan applications, and others while a Microfinance OBO (MF-OBO) or Micro-banking Offices (MBOs) provide a wide range of transactional activities reflecting the particular needs of the unserved and underserved market particularly microfinance clients, overseas Filipinos, and their beneficiaries.

The circular allows MBOs to provide services that are appropriately designed for the target market such as to accept micro-deposits, disburse micro-loans and collect payments, sell, market and service micro-insurance products, receive and pay out authorized remittance transactions, act as cash in/out points for electronic money, receive utility payments, collect premiums and pay out benefits from social security institutions and other benefit systems including government conditional cash transfer programs, and purchase a limited level of foreign currency.

However, the BSP said MBOs should only perform the activities for which it has specifically applied for and had been authorized to perform.

Likewise, Espenilla said the Monetary Board also agreed to broaden the scope and definition of microfinance to include micro-deposits which is a simplified account that is appropriately designed and priced to fit the needs and capacity of the underserved market.

“The features include a minimum balance requirement not exceeding P100, non-applicability of dormancy charges and an average daily savings account balance not exceeding P15,000. This is another significant enhancement to current regulations which previously only rather narrowly defined microfinance as loans. This recognizes the importance and significant need for accessible and safe savings instruments especially for this market,” he added.

The BSP, according to him, wants to make sure that banks applying and maintaining OBOs are strong and stable with necessary processes and systems in place to ensure timely record keeping, adequate internal controls and security measures.

In addition to these requirements, Espenilla said MBOs must ensure that 50 percent of the total transactions generated should be from the micro-deposits and micro-loans of microfinance clients and they must also have a manual of operations and must be managed by a responsible officer with experience or training in microfinance activities.

London-based Economist Intelligence Unit (EIU), the business information arm of The Economist Group, ranked the Philippines as second best worldwide in the microfinance business.

Peru remained in top spot while Bolivia slipped to third overall. Ghana took fourth overall followed by Pakistan, Ecuador, El Salvador, India, Colombia, and Kenya.

The study, entitled the Overall Microfinance Business Environment, reviewed 54 countries and evaluated each country’s microfinance business environment in terms of its regulatory framework, investment climate and level of institutional development. Interviews with microfinance industry leaders and stakeholders along with secondary information were analyzed to come up with the rankings.

In terms of regulatory framework, the Philippines, Cambodia and Pakistan shared top position. The three Asian countries were followed by Peru, Bolivia, Ghana, Kenya, Kyrgyz Republic, and Uganda.

In terms of institutional development, the Philippines topped all Asian nations at sixth overall behind Bolivia, Ecuador, Peru, El Salvador, and Nicaragua.

However, looking at the rankings in terms of creating a healthy investment climate for microfinance, the Philippines only ranked 18th overall. Chile, Turkey, Bosnia, Morocco, and Peru were the five best performers in that category.

According to the EIU, one of the key factors that catapulted the Philippines in the second spot past Bolivia was the recent approval of the BSP for rural and thrift banks to sell authorized micro-insurance products.

The BSP also issued a circular that sets the rules for accrediting rating agencies for microfinance, which, according to the EIU, is a move to encourage local microfinance institutions to be externally rated.