The continuous presence of the informal credit practices and widespread growth of illegal money lenders such as the 5-6 with its various transmutations is an undisputable sign of our failure to develop or safeguard our rural finance policies. It is an indication of our inability to provide access and availability of microfinancing products and credit services to the poor especially to small farmers, fisherfolk and mini business operators in the rural areas. Like Undas it is an ominous sign of the death of rural banking system in the Philippines.
The general objective of Philippine rural banks is “to provide credit facilities to farmers, agricultural laborer, and small entrepreneurs in rural areas” and support rural economic development, Hence, they are supervised and supported through special loan windows and rediscounting policies of the Bangko Sentral ng Pilipinas or Central Bank.
According to reports, from more than 400 Rural Banks in the 80’s the number has dwindled to a little more than only 100 today. Conspicuously, whereas before they were owned by local entrepreneurs, now a big number of them are subsidiaries of giant commercial, industrial and savings banking corporations.
What happened? Is this a sign of progress, regress, or is it an outcome of creative destruction deliberately authored by big players in the banking and finance community? Has there been changes in rural banking policies of the central bank? Has the market for rural credit shrunken? Has the rapid increase of local and global giant banks devoured the rural banks? Is it the effect of machine automation that has taken over the system? Or is it a result of corruption or poor management of the banks by its officers and employees?
At any rate new rural financial policies must be developed and instituted to take care of the general risks in lending, collections, interest rates setting and global and domestic inflations that small rural financing institutions are exposed to. If these risks are not addressed, we cannot stop the advance of exploitative and usurious money lenders that suck whatever small profit or disposable incomes are generated by the poor from their mini businesses and backyard income-generating projects. Poverty and the much-advertised themes of inclusive growth and sustainable development will just remain as faint fantasies of governments, the UN and international agencies.
Fortunately, the theory that “necessity is the mother of innovations” is working its way among poor and self-help groups. Systems of off-bank, non-interest, profit-sharing and community-based microfinancing programs have been gradually rising that fill the vacuum created by the vanishing rural bank services. However, they need protection, not persecution, through government policies to save them from unscrupulous organizations and individuals who are taking advantage of their vulnerabilities. Additionally, community self-help groups need the support of LGUs and the corporate sector for capacity building and for start-up capitals either through grants, donations or endowment.