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Under the rural banking system in the Philippines, the rural banks have important functions in the
country's economic development. When Republic Act 720 was enacted in June 1952 which is the enabling law
in the establishment of the rural banking system, this was just seven years after the end of World War II, and it
was envisioned that the rural banks were to provide the credits that the farmers and small businessmen in the
rural community, where credit facilities have been inadequate. These were to be government
sponsored/assisted privately owned and managed banks. In view of the importance of rural banking in rural
and agricultural development, central government banks granted incentives to organizers of rural banks. Such
incentives include tax exemptions and nominal interest rates. These incentives are intended to encourage the
formation of more rural banks in the areas where credit facilities have been inadequate. It has been noted that
with the absence of banks in these areas the poor consumers and small producers have been forced to
From 18 rural banks in 1953, there were more than 700 by 2010. From 2011, the number of rural
banks started to decline and no new ones were being organized. Some upgraded to become thrift banks and
some were merged or absorbed by other banks. More however closed or were closed by the BSP.
The rural bank, upon prior approval of the Monetary Board, performs any or all of the following services:
3. Acts as official depository of municipal, city or provincial funds in the municipality, city or province where the
bank is located.
4. Rediscount paper with the Philippine National Bank or the Development Bank of the Philippines, or other
banks and their branches and agencies, subject to such rules and regulations governing rediscounting.
The rural bank shall have a paid-up capital of not less than P500,000, the initial amount of P300,000 to be put
up at the start of operations and remaining P200,000 to be paid within a period of three years from the start of
operation. The authorized capital of the rural bank shall not be less than P1Million and shall be divided into
common and preferred stock, both with par value of from P10 to P100 per share.