The Monetary Board recently approved amendments to banking to allow the establishment of micro banking offices (MBOs). This approval presents an enormous opportunity for banks to deliver microfinance oriented banking services to areas that are hard to reach and remain underserved. At present, around 37% or 610 out of 1,635 of the country’s cities and municipalities do not have a single banking office leaving its population wanting for much-needed financial services. Establishing full-blown bank branches in these areas may not be economically justified. MBOs, on the other hand, allow an established bank to extend the reach of its services in a cost-effective manner to overcome such barriers. “We anticipate that strong rural banks and thrift banks that have been focusing on microfinance will lead the way in taking advantage of this new opportunity to deliver a wide array of financial services to underserved and unbanked areas,” BSP Deputy Governor Nestor Espenilla, Jr. said.
Other banking offices or OBOs in general refer to a permanent office or place of business of a bank with less requirements to set up as compared to a head office, branch or extension office. The newly approved regulations now recognize two classifications of such OBOs. A regular OBO is one that undertakes purely non transactional banking related activities such as marketing, customer care services, acceptance of loan applications, among others. The other classification is a Microfinance OBO (MF-OBO) or Micro-banking Office (MBO) which provides a wide range of transactional activities which reflect the particular needs of the unserved and underserved market particularly microfinance clients, overseas Filipinos and their beneficiaries. This MBO is authorized to provide services that are appropriately designed for the target market such as to accept micro-deposits, disburse micro-loans and collect payments, sell, market and service microinsurance products, receive and pay out authorized remittance transactions, act as cash in/out points for electronic money, receive utility payments, collect premiums and pay out benefits from social security institutions and other benefit systems including government conditional cash transfer programs, and purchase a limited level of foreign currency. The MBO shall only perform the activities for which it has specifically applied for and had been authorized to perform.
Complementary to these amendments, the Monetary Board also broadened the scope and definition of microfinance to include micro-deposits which is a simplified account that is appropriately designed and priced to fit the needs and capacity of the underserved market. The features include a minimum balance requirement not exceeding one hundred pesos (PhP 100.00), non-applicability of dormancy charges and an average daily savings account balance not exceeding fifteen thousand pesos (PhP 15,000.00). This is another significant enhancement to current regulations which previously only rather narrowly defined microfinance as loans. This recognizes the importance and significant need for accessible and safe savings instruments especially for this market.
While the regulations have liberalized the scale and scope of OBO operations, it ascertains that the banks that apply and maintain such offices are strong and stable banks that have necessary processes and systems in place to ensure timely record keeping, adequate internal controls and security measures. Such requirements will be proportionate to the level of activities that the MBO will undertake. In addition to these requirements MBOs must ensure that 50% of the total transactions generated shall be from the micro-deposits and micro-loans of microfinance clients. MBOs must also have a manual of operations and must be managed by a responsible officer with experience or training in microfinance activities.
Through these OBOs, the banks will now be able to break down the usual barriers to accessing financial services for the underserved and unserved market such as cost and distance. People who have been deprived of a banking presence in their areas need not travel far to be able to save, pay their loans or make simple financial transactions. This measure may also serve as an entry point for banks that may want to engage in microfinance operations by initially establishing an MBO instead of a full branch. This initiative reflects a significant advancement in attaining the delivery of efficient and competitive banking services especially to underserved and unserved markets leading to a more inclusive financial system.