By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) reiterated that more work is needed between BSP and the banking industry to improve agriculture sector’s – such as smallholder farmers – access to credit and financing.
BSP Deputy Governor Chuchi G. Fonacier said there is a credit gap of P367 billion while the percentage of loans for production and economic activity for agriculture, along with fisheries and forestry, she added, is a “paltry 2.9 percent.”
Fonacier said the BSP and the banking sector has to closely work together to finance the agriculture’s huge potential as engine of growth. “We recognize that one of the major hindrances to the flourishing of the agricultural sector is limited – severely limited – access to finance,” said Fonacier during the BSP’s first Agriculture Value Chain Forum, with the Philippine Chamber of Agriculture and Food, Inc. (PCAFI) and the banking community.
“Currently, banks remain unable, if not averse to catering to the credit needs of the agricultural sector,” she admitted. “Year after year, the amount of loans and rates of compliance fall short of the prescribed quota under the Agri-Agra Law (Agri-Agra Reform Credit Act of 2009).”
Since the Agri Agra Law, banks are still hesitating to release funds to the sector and has consistently fallen below the mandated share to total outstanding loans.
The agro-industrial industry, led by PCAFI, said they need the allotted P1.1-trillion financing that banks are reluctant to lend to them since 2009.
PCAFI president Danilo V. Fausto said the agriculture-based manufacturers have been clamoring for improved access to bank financing and renewed the group’s call for banks to comply with the Agri Agra Law that mandates banks to lend 25 percent of its total loan portfolio to the agriculture sector.
Fausto said P1.1 trillion or about 16 percent of banks’ outstanding loan should have been set aside for agri lending. Last year alone, of P10-trillion bank lending, only 14 percent were released for the farm sector, short of the mandated 25 percent.
Fonacier said banks have the funds for the agriculture sector but they require deeper understanding of lending to the sector and managing their risks.
She said banks are reluctant to lend to agri-related businesses because there is a “knowledge gap” that gives rise to most lenders assessing these agri loans as high risk. The agriculture sector is vulnerable to crop and facility damage due to bad weather conditions and natural disasters, and other issues such as productivity and capacity issues, infrastructure, and a not reliable or inadequate borrowers’ data.
To improve access to the agriculture sector, the BSP approved a regulation in 2016 or the Agricultural Value Chain Financing Framework (AVCFF), it is a financing approach that provide incentives to banks, and addresses key risk factors such as lack of reliable information about the farmers, unstable markets, and income sources that are typical deterrents for banks.
PCAFI however said that the AVCFF has hardly convinced banks to increase financing for agriculture value added manufacturing.
Fonacier said the BSP is well aware that the agriculture sector, which employs 11 million Filipinos or 27 percent of total workers’ population, requires credit support and for banks, she said: “It cannot be emphasized enough that you are the critical link in the chain. Opening the gates to agricultural financing will do more than just boost businesses.”
She said the agricultural value chain financing still have a “dramatic, transformative effect” for smallholder farmers as this allow for “better access to credit, technologies and methods, production standards and efficiency, and bigger and ready markets.”
“We still have considerable work ahead of us, and the BSP cannot do it alone. Poverty incidence in the country remains highest among farmers and fisherfolk, and our poorest households continue to depend mainly on agricultural income,” said Fonacier.