RBs favor return of EO 138

The Rural Bankers Association of the Philippines (RBAP) is seeking for the reinstatement of Executive Order (EO) 138 which introduced a number of key policy which was a significant factor in the growth of the rural banking industry and its active provision of financial services - both loans and deposits - to the basic sectors, particularly in the area of microfinance.

EO 138, issued in 1999, was repealed with the signing of EO 558 dated Aug. 8, 2006.

In an open letter to President Arroyo, the RBAP explained that EO 138 brought about a set of reforms to correct policy distortions in the financial markets such as subsidized interest rates and concessionary loan funds. The 1999 order also rationalized government-directed credit programs and channeled their lending to financial institutions from government agencies.

"In removing the policy distortions and promoting a market-oriented environment, EO 138 encouraged and broadened private sector initiative and participation in the provision of financial services - particularly to those in the rural areas, the micro and small business sectors, small farmers, and other disadvantaged groups," Emmanuel B. Guina, RBAP executive director said in the letter.

The rural banking industry’s total assets, loan portfolio, capital and net operating income have grown almost twofold over 1999 to 2005, while total deposits has grown more than twofold with the help of EO 138.

Guina further expalined that rural banks became more reliant on deposits generated from the public to fund their loan portfolio.

By 2005, the deposits-to-loans ratio of the rural banking system was 110 percent. In the early 1980s, deposit-to-loan ratio was a miserable 35 percent.

Last year, rural banks have over 5.4 million deposit accounts, with total deposits amounting to P81.4 billion.

The RBAP swore that EO 138 was the cornerstone of the government policies creating an environment for a market-driven approach that encouraged rural banks to actively provide microfinance services.

The Bangko Sentral ng Pilipinas (BSP) recorded close to 200 banks providing microfinance services, nearly 90 percent are rural and cooperative banks. These banks are reaching out to about 600,000 micro borrowers, the majority of them women that are engaged in small business, farming, fishing, and other livelihood activities.

As of end March this year, outstanding microfinance loan portfolio exceeded P3.5 billion while total loan disbursed annually are estimated between P10- to P12 billion.

Rural banks fostered a positive culture of repayment thus ensuring the profitability and expansion of financial services in the countryside.

"The amount of investments and cost efficiency that these rural banks have been able to provide to the microfinance sector has effectively saved the government billions of pesos that can now be invested in other areas," it said.

Microfinance, a cornerstone of the government’s fight against poverty, is well supported in EO 138 through the delivery of microfinance services by the private sector. The creation of an enabling environment for bank participation has made microfinance an increasingly important component of the banks’ portfolio since 1999.

The Philippine government is globally recognized as a leader in providing an enabling policy framework that paved the way for the growth of the microfinance sector and the formation of key policies that encouraged active involvement of the private sector, specially banks, in the delivery of financial services to the basic sector.

Likewise, the Philippines is now one of the top destinations of policy makers from around the world who are establishing their own national microfinance policies and use EO 138 as a model.

Since 2004, the BSP and RBAP hosted top delegations (central banks, state banks, governmental representatives) from 11 countries (Peoples Republic of China, Mongolia, Nepal, Vietnam, India, Afghanistan, Nigeria, Kenya, Tanzania, Ethiopia, and Sri Lanka) that came to learn more about microfinance in the Philippines in general and the policy regulatory environment in particular.

"Taking into account these achievements, the RBAP herewith appeals for the reinstatement of EO 138," Guina added.

Earlier, the Asian Development Bank (ADB) and the World Bank expressed concern over the repeal of EO 138, citing the gains and possible economic developments hinged on the continued implementation of the positive environment fostered by the said order.

Both international financial institutions also noted that future lending in the area of microfinance and poverty alleviation as well as the Millenium Development Goals (MDG) may be affected. – Ted Torres