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 invariably use keywords or phrases such as “not profitable enough,” “higher cost” in terms of providing service or outright “risky.”
Oddly enough, these traits exactly describe the main clientele of the New Rural Bank of San Leonardo (NRBSL). According to Abundio D. Quililan Jr., president and CEO of NRBSL, his bank’s main advocacy is to help alleviate poverty in areas where it is most severe, by opting to establish their financial services where it most desperately needed.
“NRBSL deliberately but systematically provides financial services to these groups even at higher cost and greater risk,” Quililan told the BusinessMirror. “Other financial institutions might do otherwise due to difficulties in managing small borrowers whose projects are prone to failures and various limiting circumstances.”
He added that the bank uses every opportunity to partner with government agencies and other like-minded organizations, such as local government units, government agencies, or civil society organisations (CSOs) in pursuit of ways to help alleviate poverty and promote financial inclusion.
Partnership, recognition
THE 25-year-old NRBSL has been a long-time partner of the Agricultural Guarantee Fund Pool (AGFP) and the Small Business Corp. under its Portfolio Guarantee Facility.
In 2018, the bank became among the first rural banks in the country to be a partner-conduit of the Department of Agriculture’s Agricultural Credit and Policy Council (DA-ACPC) in the implementation of the agency’s production loan program for small farmers that entails no cost and no risk arrangement on the part of the lender.
Farmers can access this credit fund for production without being required to provide collateral. However, they need to undergo the usual process required to secure a loan from any rural bank. Farmers could also secure from this fund any technical assistance and additional assistance in reviewing project plans to increase viability and, hence, the capacity of the farmers to pay it back.
These government guarantee schemes are the crucial factors that allowed NRBSL to fulfil its mission among farmers and micro-entrepreneurs while at the same time achieving sound financial condition, Quililan said. He added that without the aegis provided by the government guarantee schemes, NRBSL’S portfolio mix would have been different and would favor more secured transactions in keeping with the banks’ usual practices. Quililan explained these government arrangements were given to the NRBSL in recognition of its many years of proven advocacy with farmers.
Loan portfolio
THE bank, which began in the municipality of San Leonardo, Nueva Ecija, also favors agricultural production and agriculture-based industries with potential for business growth. The people behind these agri-based industries have growing financial requirements because of their high-value crop and hybrid livestock production projects.
The intent behind this is yet another advocacy of the NRBSL, which is to encourage agri-based business initiatives for food security purposes while allowing higher income generation capabilities among farmers and livestock raisers.
The bank has also ventured into other development loan projects with social impact such as water utilities, property distribution, health-related projects, education and similar services. These accounts are also enrolled for guarantee coverage if found eligible under the rules, Quililan said.
Almost 80 percent of NRBSL’s borrowers are from the agriculture and microenterprise sector and its exposure to these industries account for nearly 40 percent of its overall loan portfolio.
He added that out of its 8,408 active loan accounts, about 6,702 come from small farming communities and micro-enterprises, which are often excluded in the delivery of financial services.
This represents a total loan portfolio of P969.54 million in 2018, where P385.33 million, or 39.7 percent, were loaned to small farmers and microfinance clients.
Grant of renewal
ACCORDING to Quililan, the Bangko Sentral ng Pilipinas (BSP) recently approved the renewal of the Certificate 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 indicates NRBSL’s long promotion of developing the local economy through agricultural financing, specifically for the small and often asset-less farmers who do not have access to affordable credit, large-scale agricultural producers.
The renewal comes with other benefits for the NRBSL—it is now authorized to retain and accept more deposits from other banks as alternative compliance to the Agri-Agra Law that requires all banks to set aside certain portion of their portfolio for the agricultural sector. As deposits placed with NRBSL are considered alternative compliance with the said law, Special Deposit Account placements by other banks contributed significantly in fund mobilization for its agriculture financing program.
Special recognition
QUILILAN said that his team considers the RFI certification as hard-earned. It is also a special recognition, as there are only eight remaining financial institutions the BSP has granted accreditation in its recent announcement.
Under the category of loans granted to Agrarian Reform Beneficiaries (ARBs) where the required minimum exposure is 10 percent, the NRBSL posted a high 47-percent compliance rate while majority of commercial banks including some rural banks were found deficient, Quililan said. He noted that the marginalized farmers are usually ARBs in communities with no banking services.
NRBSL’s records show the bank surpassed the mandatory allocation of 15 percent on other agricultural credit at a 30-percent compliance rate. The excess compliance of NRBSL reached P194 million by end of December 2018.
“This amount is the limit of additional Special Deposit Account placements that NRBSL can accept from other banks for their alternative compliance with RA 10000,” Quililan explained.
NRBSL’s roots
AS the NRBSL is about to celebrate its 25th anniversary, it is reminded of its roots in 1992, the year nongovernment organization Management and Organizational Development for Empowerment (MODE) was organized. Recognizing the lack of available finance in rural communities, it immediately commissioned a feasibility study on a small rural bank that will cater mainly to farmers, particularly ARBs.
With the implementation of the Comprehensive Agrarian Reform Program, the ARBs were suddenly faced with opportunities and challenges. The ARBs did not have the capacity to finance their cost of production, from seeds to simple farm implements or tools.
The MODE NGO itself at first engaged exclusively in research and studies to help farmers navigate within the CARP ecosystem. The organization also sought to enable the ARBs through skills training and capacity-building activities. Later, the organization would directly engage in local economy development, providing funding for the farmers that are being organized and provided training to further enhance their skills. Most of MODE’s activities were in the Visayas, particularly in Northern Samar.
In 1994, the NRBSL was organized with MODE as owner, intending to democratize the shares later through individual stocks or nominees. As a separate financial entity, the NRBSL would later adopt MODE’s advocacy on local economy development, with particular focus on the farmers.
While majority of rural banks are owned by families and their individual members, majority of NRBSL’s shares are owned not by an individual but by an organization with an advocacy focused on local economy development. This partly explains the bank’s consistent program with farmers and micro-entrepreneurs as main clientele.
Expansion aims
ACCORDING to Quililan, despite the risk in having the farmers and other small-time clients, the bank was able to maintain its profitability. He credits this to “systematic and devoted management.”
From a total resource of P729 million in 2014, the NRBSL was able to double that to P1.5 billion by the end of 2018. Quililan noted that the current size of its total assets was achieved by the NRBSL in just a span of two years after it crossed the P1-billion level.
As a long-term part of its target for expansion, the NRBSL opened new branches last year, one each in Dingalan, Aurora; Cabiao, Zaragoza; and Pantabangan. For this year, another batch of branches in Cubao, Quezon City; San Simon, Pampanga; Nampicuan, Nueva Ecija, and San Jose del Monte, Bulacan, will start operations. These would bring to 24 the bank’s total of branches across five provinces in Central Luzon and the National Capital Region.
The bank considers the recent establishment of a branch office in Cubao’s Araneta Center as another achievement. Quililan said no ordinary rural bank is granted a license to operate in the Metropolis, a highly concentrated area for millions of residents and commercial establishments.
Exposure, awards
LAST year, the NRBSL received from 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 them to secure additional beneficiaries of the bank, which currently number almost a thousand individual marginalized farmers, under the DA-ACPC.
In 2017 and 2018, the NRBSL placed first in the coveted Gawad Countryside Financial Institution Award given by the Land Bank of the Philippines for its partners nationwide.
Aside from the Production Loan Easy Access (Plea) of the DA’s ACPC, the bank was chosen as conduit for the distribution of funds under its program for disaster victims and acquisition of machineries.
The NRBSL also helped several small-scale enterprises and medium-scale enterprises acquire permanent business sites near market areas in Nueva Ecija and Tarlac through a memorandum of agreement (MOA) with the Local Government Unit (LGU) of La Paz, Tarlac, and property owners in Zaragoza, Nueva Ecija. The MOA is a tripartite framework involving property owners, business operators and the bank in the award of commercial stall rights or acquisition of prime properties inside market facilities.
The NRBSL provides socialized financing schemes affordable to ordinary entrepreneurs for activities that are appropriate and consistent with their income stream to ensure permanent place of business and working capital for trading their merchandises.
Poverty reduction
THE NRBSL has also ventured into the housing sector.
But unlike traditional home loans offered by commercial banks to professionals, Quililan said the NRBSL’s approach is to make available financing programs that are secured by the Home Guaranty Corp. or other arrangements with local government units that are accessible, affordable and under flexible repayment schemes and in sync with the income cycle of crop and livestock producers.
According to Quililan, the NRBSL’s approach to direct poverty reduction, particularly in transforming the poor from subsistence living to sustainable income generation, is to work with LGUs, CSOs or NGOs with advocacy on local economy development.
For instance, the municipality of Dingalan, Aurora, was a long-time recipient of NRBSL’s corporate social responsibility projects, the coastal community inhabited by the Dumagat indigenous people. The NRBSL regularly allocates resources on high-impact initiatives in the fields of health and concerns of the Dumagats.
Last year, the bank opened a branch in Dingalan to offer financing services to its residents. Earlier in 2017, the NRBSL was joined by NGOs and LGUs to work on a plan to comprehensively help develop the full potential of the poor municipality.
Core base
AS part of its liquidity management strategy, Quililan said the NRBSL is maintaining its stable core deposit base, by keeping the pool of depositors broad and encouraging small savers to place their money with NRBSL.
The special license granted by the BSP to undertake solicitation of deposits outside bank premises enabled it to reach out to depositors in their residences and business sites, Quililan explained. Targeting these small savers using the basic deposit account product also is a way for bank to promote financial inclusion, he added.
With this profile of its depositors, the bank is able to maintain a safe, simple and low-risk fund management practices. The practice enables also the NRBSL to determine an appropriate liquidity level which eases the pressure in maintaining unnecessarily high cash position.
At P1.525 billion in total resources, the NRBSL is currently ranked 27th in industry, making it the fourth biggest rural bank in Central Luzon.
The NRBSL used to be at the 26th spot. However, two new banks created from the consolidation of several institutions entered the list of the country’s top 25 rural banks.
Overall, NRBSL’s industry positioning is stable and is still among the fast-growing rural banks nationwide.
Declining trend
OVERALL data from the BSP shows that even rural and cooperative banks—whose major market are the countryside farmers and fishermen—are finding it increasingly hard to comply to the mandatory lending to the agrarian reform and agricultural sector.
Five-year data trend from the central bank showed that while rural and cooperative banks are still the only banking group able to comply with the agri-agra lending quotas, their share in this sector has been shrinking over the years.
The mandated lending to agriculture and agrarian reform—known as the Agri-Agra Reform Credit Act of 2009, requires banks to allocate 25 percent of their total loan portfolio to the two sectors—10 percent for the agrarian reform credit and 15 percent to other agricultural credit.
Only rural and cooperative banks are known to be able to comply with this loan quota, with universal, commercial and thrift banks choosing to pay penalties instead of allocating credit for these “risky” sectors.
In end-2013, rural and cooperative banks were able to allocate 24.53 percent of their total loan portfolio to agrarian reform credit, way above the 10-percent mandate. For the agriculture sector, rural and cooperative banks set 44.59 percent of their loan portfolio to this sector, also exceeding the 15 percent quota.
This, however, went significantly down in the last five years.
Shrank further
IN end-2014, rural and cooperative banks’ allocation to the agrarian reform sector went down to 18.47 percent while their lending to the agricultural sector hit 34.21 percent. This went further down the next year, with lending to agrarian reform sector reaching only 17.99 percent of their portfolio and lending to agriculture sector, to 34.03 percent.
In end-2016, the share of agri-agra lending to the rural and cooperative banks’ total loan portfolio further shrank to 16.44 percent for the agrarian reform and 28.79 percent for the agricultural sector.
Last year, this went further down to 13.53 percent for the agrarian reform and 24.97 percent for agricultural credit.
For the first half of 2018, the trend continued to go down, with agrarian reform credit only making up 11.18 percent of the rural and cooperative banks’ total loan portfolio, and 24.46 percent for the agriculture-related credit.
While these numbers still exceed the mandate, they have gone significantly down in five years’ time.
BSP officials, including its deputy governor Chuchi Fonacier, have long acknowledged the gap, saying the lack of financial access of the agricultural sector is one of the leading causes behind its underperformance.
“We recognize that one of the major hindrances to the flourishing of the agricultural sector is limited—severely limited—access to finance,” Fonacier earlier said.
‘Branch-lite’
TO increase their presence in the countryside, more rural banks are opting to open up “branch-lite” units in an effort to expand their reach without adhering to the stricter central bank requirements needed to open a regular branch.
Data from the BSP as published in circular letter CL-2018.085 showed thrift and rural banks opened a total of 54 branch-lite units in July to September 2018 alone.
This is about a year after the BSP allowed the establishment of these so-called “branch-lite” units as annexes of banks to “promote access to efficient and competitive banking services.”
Thrift and rural banks took particular advantage of this regulation, with 27 new branch-lite units stemming from thrift banks and 27 new branch-lite units branching from rural and cooperative banks in the third quarter of the year.
The BSP defines branch-lite units as an office or place of business of a bank that performs limited banking activities and records its transactions in the books of the head office or the branch to which it is annexed.
Since these units are limited in the services they offer, they are also subject to proportionate regulatory framework, which means less strict rules and more flexibility to execute financial strategies and innovations.
Bulacan, Batangas, Pangasinan and Puerto Princesa were among the top areas where thrift banks established their branch-lite units, while Quirino, North Cotabato and Isabela were the top picks for rural and cooperative banks.
Rural and cooperative banks have 3,106 branches nationwide in end-April 2019, BSP data showed.
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