The Senate Tuesday approved on third and final reading a bill amending the Rural Bank Act to allow foreign capital infusion in rural banks.

Senator Serge Osmeña, chairman, committee on banks, financial institutions and currencies and sponsor of Senate Bill No. 3282, said the bill aims to open the ownership of rural banks to foreign equity and eventually, spur economic development in the countryside.

If passed into law, foreign individuals and entities can acquire equity of up to 60 percent in rural banks contrary to current rule which only allows foreign banks to acquire that certain amount of equity but prohibits foreign individuals and entities.

Osmeña believes the amendment would put rural banks on a level playing field with its thrift and commercial banking counterparts that are able to take in foreign partners.

The senator from Cebu cited reports from the Bangko Sentral ng Pilipinas showing the increasing number of rural banks involving themselves in microfinancing as of December 2011.

He noted that as of end-September 2011, rural banks provided a total of P5.4 billion worth of microfinance loans to 808,021 micro-borrowers.

The same report, he said, showed that rural and cooperative banks had deployed 233 automated teller machines (ATM).

"The rural banking industry is one of our most successful sectors. Total assets as of end September 2011 reached P169 billion, 9.2 percent higher than the P155 billion recorded in the previous year," Osmeña noted.

He said rural banks extended majority of its loans to the agricultural, fishery, hunting and forestry sectors.

But even with the high capital adequacy ratio, Osmeña said, the BSP report showed that only 482 out of the total 565 rural banks were able to comply with the minimum amount of capital requirement.

Infusion of foreign equity investments, he said, is vital to rural banks continued existence. *Pilar Macrohon/PRIB