BSP upgrades rural banks' role

MANILA, Philippines -  The Bangko Sentral ng Pilipinas (BSP) has given another rural bank the green light to operate as a rural financial institution (RFI), bringing to four the number of small banks that could raise funds for agri-agra lending.

The BSP has approved the application of Rural Bank of Sta. Catalina Inc. to operate as a RFI last March 12. It has earlier granted RFI status to Rural Bank of Kiamba in Sarangani, Producer’s Savings Bank in Pasig City and Rural Bank of Barili in Cebu.

Philippine banks now operate under the provisions of Republic Act 10000, also known as “The Agri-Agra Reform Credit Act of 2009”, that superseded Presidential Decree 717.

Last September, the BSP issued Circular 736 containing the revised rules and regulations requiring banks to set aside at least 25 percent of their total loanable funds for agriculture and agrarian reform credit in general.

In the circular, the bank regulator limited the modes of alternative compliance to the mandatory credit allocation.

The BSP said banks were required to submit their inaugural report detailing their compliance with the provisions of RA 10000 last January.

Among the acceptable modes of alternative compliance provided under RA 10000 is funding through so-called RFIs.

BSP-accredited RFIs are banks authorized to raise funds for agri-agra lending by accepting wholesale loans, placements in RFI special accounts and equity investments (preferred stocks) from other financial institutions.

RFIs then act as direct conduits to the agriculture sector and agrarian reform beneficiaries by channeling the funds specifically allotted by other banks for the program. This gives RFIs a critical role in the funding chain.

The BSP said RFIs eliminate the old practice of “layering” funding through several conduits before the proceeds are received by the targeted beneficiaries or intended projects.

The BSP reminded, however, that its accreditation is neither an endorsement to infuse funds to the RFI nor an affirmation of the soundness of its operations. The accreditation only establishes a bank’s focus on agri-agra lending. Financial institutions are expected to exercise due diligence and prudence when lending, depositing or investing in RFIs.

Banks that continue to fail to comply with the mandatory credit allocation would face monetary fines amounting to an annual penalty of one-half of one percent of amount of non-compliance or under-compliance as well as for delayed or amended reports and for false or misleading statements.