This can be achieved through an alliance between rural banks, which have stronger presence in third to sixth class municipalities where most of the beneficiaries of overseas Filipino workers (OFWs) are located, and commercial banks with extensive remittance businesses, domestically and internationally.
It further recommended the integration of rural banks into the payment system presently accessed by commercial banks in the remittance business.
The integration of the rural banking system is expected to lower the cost of transferring money of an OFW or migrant Filipino (MF) to beneficiaries in the Philippines.
The study was conducted by Ferdinand Sia of the Ateneo de Manila Professional Schools in coordination with the Economic Policy Reform and Advocacy (EPRA) of the Ateneo de Manila University, and the United States Agency for International Development (USAID).
The inclusion of rural banks in the payment system allows for efficient money transfer operations currently being experienced by commercial and thrift banks. Money transfers from a foreign country to the Philippines through the commercial banks and MTOs normally take just minutes to at most a day.
But using the rural banks, it takes three to seven days.
The Rural Bankers Association of the Philippines (RBAP) is holding talks with Citigroup for a funds transfer model where rural banks can subscribe to the clearing and settlement service that Citigroup can extend particularly inward remittance flows.
"RBAP is now pilot-testing this process," Sia said. "If this process proves successful, the Citigroup model will serve as one viable alternative to rural bank partnerships to money transfer operators (MTOs such as MoneyGram)."
But this process can be accelerated if the Bangko Sentral ng Pilipinas (BSP) intervenes in behalf of rural banks to be inducted into the Philippine Clearing House Corp. (PCHC).
The PCHC is a domestic payment system built around a consortium of domestic commercial banks, all allied with the Bankers Association of the Philippines (BAP). The BAP is the umbrella organization of the commercial banking system while the RBAP represents the rural banking system.
Yet the study stressed that the rural banks must prove basic core banking soundness if it is to be integrated into the system.
"Bank soundness requires not only strong capital, but, more importantly, good management and strong balance sheets," Sia pointed out. He added that rural banks must embrace technological advancements especially computerization of its operations if it is to enroll in the payment system and benefit from the remittance business.
The leaders in the official remittance business is the commercial banking system, and the MTOs. The unofficial or informal sector of the business are the so-called door-to-door service.
The remittance business brought in over $10 billion in 2005, and it is expected to surpass the $12-billion level in 2006. That is only through the banking system or mainly the commercial banks.
MTOs are classified as part of the informal sector but most of their transactions are coursed through the banking system. The rest come in various forms through the agency or sub-agency network of the MTOs.
MTOs – like Western Union, MoneyGram, and Xoom – utilize banks for the last mile of its distribution, and the rural banks are the ideal formal channel as it reaches a wider population.
However, MTOs are so much at an advantage over the rural banks that they tend to dictate the terms of the business relationship. That is if at all they consider dealing with rural banks.
A few commercial banks have decided to deal directly with rural banks, as in the case of the Banco de Oro Universal Bank (BDO) and One Network Bank (ONB).
BDO is ranked among the top commercial banks in the country, as well as among the leading banks in the remittance business. The ONB is the largest rural bank in the Mindanao region with 64 branches, and the one of the most profitable and progressive rural bank in the country.