For this reason, the German government, through the Small and Medium Enterprise Development for Sustainable Employment Program (Smedsep), recently conducted an extensive training workshop for rural bank operators in the Visayas, called "Credit Pricing Seminar."
"The banking industry now in the Philippines has become more and more competitive, bigger banks are also competing with the smaller banks like the rural and thrift banks," said Smedsep senior adviser for financial services Herald Neimeier.
Over 30 rural bankers in Cebu, Samar and Leyte, were encouraged to adopt paradigm shift, especially in the providing credit assistance to the rural folks. This includes, the adoption of cash flow based lending, than collateral based lending.
Providing financial assistance should be based now on cash flow, or capability of the borrower to pay based on his business potential, rather than requiring collateral such as real estate, assets, among others.
According to Neimeier, the Smedsep program has recognized the larger role of the rural bankers to help the development of entrepreneurship in the rural areas, to provide capitalization not only to farmers, fishermen, but also for micro-business operators like Sari-Sari Stores, and other businesses.
Aside from shifting to adopt cash flow based requirement, rural bankers are also advised to improve their technology, be innovative, among others.
Rural bankers are also told to lower their interest rates in credit facilities, in order to help the SMEs or micro-entrepreneurs in the countryside to avail of the financial assistance from the banks.
Smedsep is a joint project of the German Technical Cooperation (GTZ), Department of Trade and Industry (DTI), and Technical Education & Skills Development Authority (TESDA). The first phase of the project, is about to end this coming August 31, 2006.
In an interview, Neimeier said rural bank operators are also taught on how to effectively calculate interest rate on credit, so that they can earn profitably, while implementing lower interest rate to borrowers.
Smedsep has closely worked with the Cebu Federation of Rural Bankers, Leyte-Samar, Biliran Federation of Rural Bankers, and the Federation of the Rural Bankers in Negros Oriental.
Similar event was held earlier for the members of Federation of Rural Bankers in Negros Oriental, Neimeier said.
Neimeier added that there is a need for the rural and thrift banks to double their efforts in order to compete with the bigger banks like commercial banks.
Cebu Federation of Rural Banks Enrique Abellana said rural bank operators are now suffering from waning interest from the farmers, as well as fisherman in the countryside to avail of financial services from the banks, because of declining harvest volume, among other problems.
Smedsep is a technical cooperation project between the Philippines the Federal Republic of Germany. This program aimed at addressing the challenges that SMEs are facing specifically in the third world countries, like the Philippines.
Smedsep's end goal is to enable public and private institutions to create favorable business conditions to develop entrepreneurial potential and encourage competition.