BSP allows smaller banks to sell microinsurance

Rural, cooperative and thrift banks may now sell microinsurance products following central bank approval of a new policy that seeks to lower transaction costs to benefit poor clients. In a statement, the Bangko Sentral ng Pilipinas (BSP) said recent typhoons have highlighted the need for adequate protection against death, injury, property loss and other disasters. “This move by the BSP is an important response to this urgent need for microinsurance especially for the poor who are more vulnerable to various risks," it added. The BSP said allowing the nationwide network of 3,500 rural, cooperative and thrift banks to act as distribution points would improve the delivery of authorized microinsurance products. “Since many of these banks already have existing relationships with microfinance clients, they can more readily deliver a full range of financial services needed by their clients," it pointed out. It added that banks are ideal distribution channels since these are trusted in the countryside and have a deeper understanding of the low-income market. “This can only translate to better delivered products, as well as lower transaction costs, ultimately benefiting poor clients," the BSP said. Microinsurance provides insurance, insurance-like and similar products and services that meet the needs of the low-income sector for risk protection and relief against distress, misfortune and other disasters. The amount of premiums, contributions, fees and charges for a microinsurance product must not exceed 5 percent of the current daily minimum wage. Guaranteed benefits must also not exceed 500 times the current daily minimum wage. New rules for cooperative banks In a related development, the central bank is also giving cooperative banks the scope to perform the banking functions of other types of banks, subject to certain conditions. The rules, which will implement the Philippine Cooperative Code of 2008, also liberalizes branching guidelines, allowing cooperative banks to serve areas beyond their province. “The goal is a strong and vibrant cooperative banking sector that will provide much needed financial services in the countryside," the BSP said. While the law states that only one cooperative bank may be set up in each province, it allows another branch as long as it is not in the city or municipality where the head office of the bank is located. Cooperative banks with at least P10 million in capital may set up a branch in the province where their head office is located. Those with at least P50 million in capital may set up offices in any parts of Luzon, the Visayas or Mindanao where their head office is located. Cooperative banks with over P100 million may set up offices anywhere in the country except in restricted areas. To ensure that cooperative banks set up under the new law remain sound, the central bank is imposing a minimum paid-in capital of P10 million. — Norman P. Aquino, GMANews.TV