Examining the Impact of Rural Banking Administration on Countryside Welfare: Basis for Proposed Policy Redirection

Abstract

The study examines the impact of rural banking administration (as represented by capital adequacy ratio, number of branches, loan outstanding for production and inflation rate) to countryside welfare (as denoted by rural welfare indicator) covering the period 1st quarter of 2009 to 2nd quarter of 2016 with thirty observations. Battery of econometric tests were employed in order to ensure the reliability of study. The study concludes that the increase on the current capital adequacy ratio does not immediately reflect improvement on rural welfare, but on the succeeding period, as the additional capital means increase on the loanable funds which may be availed by the borrowers on the succeeding period. The current number of branches has an immediate positive impact on rural areas as the bank services are now more accessible. However, the number of branches lagged by one period implies that viability of opening a branch should still be anchored on the demand of the borrowers, aside from the operational and technical issues. Current loan outstanding signifies that loan function to aid the borrower on his production does not commensurate with its intended outcome as there were unpredictable events which may potentially affect the borrower’s yield of production. Moreover, outstanding loans lagged by one period is a reflection that loans provided by rural banks is a one-time transaction, which the borrower needs to pay first, before he can avail another loan. The current inflation rate only reflects that it erodes the purchasing power while inflation rate lagged by one period reveals that inflation is a driving force for consumption which in the end propels the economy. The rural welfare indicator lagged by one period demonstrates that the generation of income and employment is unpredictable and the vulnerability of the agricultural sector to the natural calamities. The researcher offers the following recommendations: For the rural banks, to continuously build up the capital, to boost lending activities, to restructure non-performing loans, and to promote financial education. For the Quedancor, to guarantee the agricultural loans entered by rural banks. For the RBAP, to base the loan value on the insured value of the crops, and to promote transparent and efficient flow of information on its website.