Land Bank doing well, but can do more for farmers

Published April 21, 2018, 12:00 AM

by manilabulletin_admin

By Dr. Emil Q. Javier

This is a follow up to the exhortation of President Duterte to Land Bank of the Philippines in a speech last week before agrarian reform beneficiaries in Isulan, Sultan Kudarat to further expand its lending operations to small farmers and fisherfolk (SFFs).

Truly without access to affordable credit with which to purchase inputs to make farming more productive and profitable, small farmers and fisherfolk will remain impoverished.

In fairness to Land Bank, it has been doing well as a financing institution. It ranks among the country’s top five commercial banks in terms of deposits, assets and loans. Among government-owned and-controlled corporations (GOCCs) it consistently had been a top earner. Its net income in 2017 was R14.05 billion, up four percent from 2016 with a healthy return on equity of 14.8 percent.

It has not been remiss in its social mandate of promoting countryside development. To date, it is the single largest lender to small farmers and fisherfolk (P45.5 billion in 2017). Among its clients were 989 accredited cooperatives, 163 irrigators associations and 55 cooperative financing institutions. During the same period it also provided credit to agribusiness enterprises and small to medium scale enterprises (many of which are food-based) in the amounts of P82.6 billion and P89.8 billion, respectively. These three food-and-agriculture-related subsectors accounted for P218 billion (36 percent of Land Bank’s total portfolio of P610 billion).

The more pertinent question is — are they enough? The obvious reply is NO.

Gross lack of congruence between contribution to GDP and credit access

The magnitude of the challenge is reflected in the 2013 statistics from the Agricultural Credit Policy Council (ACPC), which is a unit in the Department of Agriculture (DA) tasked to provide direction and oversight to agricultural credit. These numbers are a little out of date but the comparisons remain.

In 2013, the agriculture and fisheries sector contributed 12 percent to our gross domestic product (GDP). However, the sector received only 1.93 percent of the total loans provided by the banking system. Worse, primary agriculture production where small farmers are engaged in, received only 0.63 percent. This gross lack of congruence between economic contributions versus access to credit demonstrates dramatically what ails Philippine agriculture and fisheries.

Specifically of about six million small farmers and fisherfolk, only 28 percent (1.68 million) had access to credit. However, of this number, only 57 percent obtained funds from formal sources (banks, registered cooperatives, and micro-finance institutions). The rest, 0.72 million farmers, got their credit from non-formal lenders (friends/relatives, inputs suppliers, rice and corn millers, middlemen and private lenders), often at usurious interest rates and exploitative lending conditions.

But more significantly, 1.32 million farmers (22 percent) wanted and attempted to but were unable to borrow.

How does Land Bank reach these small farmers and fisherfolk who want to borrow but could not for various reasons?

Here are some ideas generated by a select committee of the Coalition for Agriculture Modernization in the Philippines (CAMP) composed of Raymundo Almario, Inocencio Deza, Basilio de los Reyes, Pablito Villegas and Leo de Guzman. They have other suggestions but these are specific only to Land Bank.

Land bank to remain as a universal bank

There had been calls for Land Bank to focus exclusively on lending to SFFs, and drop its universal banking operations. THIS WILL BE UNWISE.

Lending to small farmers is inherently risky and costly. Small farms are susceptible to climatic, biological and market risks, over which the farmers have little control. The loans are small and farmers are scattered all over the countryside, and many are difficult to reach. Expecting Land Bank to make a profit with which to sustain its operations, much less expand its coverage is unreal.

For these reasons as far as CAMP is concerned, the national policy of market-based interest rates as it applies to the credit needs of undercapitalized small farmers and fisherfolk is unrealistic and unfair. This policy should be relaxed as far as SFFs are concerned. All our neighbors in the region do! Even the US and the European Union subsidize their affluent farmers.

For Land Bank to sustain its missionary role of helping small farmers and fisherfolk, it had to beg Congress every year for subsidies, which is a thankless task for bank management, to say the least.

Relief came 30 years later after the Bank’s establishment (July 1993) by way of PD251 which granted Land Bank the status of a universal bank. The idea was for the commercial banking operations to generate surplus with which to cross-subsidize agrarian transfer operations and lending to small farmers. Land Bank proved very good at it and had become a veritable cash cow.

Undoing this very profitable arrangement does not make sense.

Full retention of Land Bank income for subsidized rural lending

But in order for Land Bank to do more for small farmers, we propose that Land Bank be exempted for ten years from the requirement under RA 7656 that GOCCs remit half of their annual earnings as cash dividend to the National Treasury. This could be done by Executive Order invoking Section 5 Flexible Clause of RA 7656 which authorizes the President to adjust the dividend rate of any GOCC in the interest of the national economy and general welfare upon recommendation of the Secretary of Finance.

Should Land Bank be able to retain the other half of its annual income (R7 billion in 2017) for subsidized rural lending, this amount will be more than four times the annual general appropriations act (GAA) allocation of R1.5 billion to the Agro-industry Modernization Credit and Financing Program (AMCFP) for subsidized rural lending under the Agriculture and Fisheries Modernization Act (AFMA).

Modified CAMELS

Another key reform to enable Land Bank to do more for small farmers is an adjustment on how Land Bank’s financial and managerial soundness is assessed. Like all other banks, Land Bank is under the supervision of the Bangko Sentral ng Pilipinas and must perform against the six universally accepted standards – the so-called CAMELS in banking parlance – namely Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to the market.

Unfortunately, the CAMELS do not capture the metrics relevant to Land Bank’s missionary role of lending to small producers. The appropriate performance measures are — the number of small farmers served; amount of loans extended; and productivity and profitability of farmers. Thus, in order for Land Bank managers to behave accordingly they have to be held accountable both for 1) the CAMELS standards, and 2) the small farmer metrics. With these additional metrics the Land Bank managers will be forced to go out of their way to reach the small borrowers.

However, since the CAMELS and the small farmer metrics are not completely compatible, one way of going around the dilemma is to segregate the accounts and/or units of Land Bank which have to do with CARP-related transactions and small farmers lending from the commercial banking operations. These segregated accounts will be assessed against the small farmers’ performance criteria but the rest of the Land Bank operations will be subjected to the CAMELS tests. This segregation has been done before (Executive Order 267 July 1995). We suggest that this Executive Order be revisited and modified as necessary to achieve the above intention.

Reaching the 22 percent who wanted to but are unable to borrow

Some 1.32 million farmers wanted to, attempted but were unable to borrow as per the 2013 ACPC report. There could be a number of reasons these farmers are unable to borrow from formal sources such as: bad record as borrowers; distance from banks; lack of knowledge of credit opportunities, and lack of credit supervisors who can provide guidance to borrowers. But whatever the reason(s), they cannot be ignored.

Two lessons can be learned from the successful operations of micro-finance institutions (MFIs) in the countryside. First and most importantly, contrary to the stereotype of unworthy borrowers, poor rural folks can be made into responsible borrowers (and savers!) with proper social orientation and community mobilization.

And, second, this can be achieved only by fielding a cadre of properly trained and    motivated credit workers and supervisors who literally babysit these prospective borrowers and their seldas until they get used to be part of the formal banking system, both as borrowers and savers.

Land Bank used to have dedicated offices with a large pool of well-trained credit supervisors. However, we understand those numbers have dwindled as succeeding Land Bank administrations right-sized the organization to meet the CAMELS performance standards imposed by the Bangko Sentral ng Pilipinas.

Our third recommendation therefore is for Land Bank to rebuild its cadre of credit supervisors in the bank branches to reach out to the farmers instead of just waiting for the farmers to come to them.

There are still many towns without rural banks and commercial bank branches. We have more than 1,400 towns and cities. Land Bank thus far has only 379 branches and 41 lending centers. Thus, fourthly, we suggest that Land Bank exert extra effort to make its presence felt in these unserved communities. Land Bank can start initially with small satellite offices until such time business is sufficient to justify full branches.


Finally the new Land Bank president, Alex Buenaventura, has come forward with a financing innovation based on his previous experiences as a rural banker in Davao – the corporative. The model combines the desirable features of cooperatives and private corporations, Land Bank (with other investors) organizes the farmers; consolidates the fragmented landholdings; provides the initial investments, and corporate management. As the business generates income, part of the surplus due to the farmer members are retained to buy out Land Bank (and the other investors) until such time the farmers own, say, 70 percent of the shares. CAMP fully supports this corporative scheme.

With P14 billion each year in its kitty, Land Bank can afford to do all of these and more!


Dr. Emil Q. Javier is a Member of the National Academy of Science and Technology (NAST) and also Chair of the Coalition for Agriculture Modernization in the Philippines (CAMP).