A decade of non-compliance of Agri-Agra Act hoped to be finally addressed

Published August 3, 2020, 4:00 PM

by Madelaine B. Miraflor

The Philippine government hopes to end a decade of non-compliance of the Agri-Agra Act – which requires private banks to lend a portion of their funds to farmers and fishermen – with the passage of a law that was mentioned during President Rodrigo Duterte’s fifth State of the Nation Address (SONA).

In a virtual press briefing last week, Agriculture Secretary William Dar said it’s good that Duterte brought up during his SONA the proposed laws that would amend the “Agri-Agra Credit Act of 2009” or Republic Act (RA) 10000.

“That’s a great development. With that law, the penalties that the banks pay for not complying with the Agri-Agra Law will be collected and will be utilized to support farmers,” Dar said.

Under the RA 10000, banks are mandated to lend 25 percent of their funds to the agriculture sector. Of which, 15 percent should go to agriculture, while the remaining 10 percent must go to agrarian reform beneficiaries.

A decade since the law took effect, the banking sector still fails to comply. As of the first quarter of last year, the combined allocation of loanable funds for agriculture and agrarian reform was only at 14.33 percent, which is way below the minimum threshold set by the law, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Right now, the proposed laws that target to amend the Agri-Agra Law are all currently pending in both houses of Congress.

In Senate, Senator Cynthia Villar has filed the ‘Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2020’ or Senate Bill (SB) 1585, while there are two pending house bills seeking amendments on RA 10000 in the House of Representatives separately filed by Bohol Representative Arthur Yap and Albay 2nd District Representative Joey Salceda.

Villar’s proposed bill, which is almost similar to Yap’s, wants to remove the distinction between the mandatory compliance requirement for agriculture (15 percent) and agrarian reform beneficiaries (10 percent).

It also aims to establish a Special Fund that would pool the penalties that private banks ought to pay from failing to comply with the mandatory Agri-Agra credit requirement. The fund shall have an initial funding of at least PI0 billion.

The fund, which shall be managed by a council composed of government and the private sector, targets to finance agricultural- and fishery-related activities, parcelization of agrarian reform lands to individual owners as well as organizational, capacity- and institution-building programs of cooperatives and other duly-registered organizations of rural agricultural and fisheries households on financial literacy and operating a farm as a business.

In the current setup, 90 percent of the penalties collected from banks’ non-compliance of Agri-Agra credit requirement is allocated between the Agricultural Guarantee Fund Pool (AGFP) and the Department of Agriculture’s (DA) Philippine Crop Insurance Corporation (PCIC). The remaining ten percent goes to the BSP to cover administrative expenses.

AGFP refers to the fund collected from Government-Owned and Controlled Corporations (GOCCs) and government financial institutions like the Philippine Amusement and Gaming Corporation (PAGCOR), the Philippine Charity Sweepstakes Office (PCSO), the Social Security System (SSS), and the Government Service Insurance System (GSIS).

Meanwhile, Villar is also proposing to broaden the list of people that could avail loans under the Agri-Act Act, which would force banks to lend to micro, small and medium enterprises (MSMEs) that are operating in a rural community as well.

She also proposed to expand the list of activities that may be financed through bank loans or investments under the Agri-Agra Act.

This includes agricultural mechanization; green finance projects or programs aimed at adaptation to or mitigation of the impacts of climate change; development and strengthening of agriculture value chain; as well as projects that shall address the developmental needs of rural communities, such as, but not limited to, health centers, schools or other capacity-building and livelihood activities, construction and upgrading of infrastructure including farm-to-market roads.

Investments in the shares of stock of the PCIC, the implementing agency of the government’s agricultural insurance program, will also be considered a form of compliance to the Agri-Agra Act, according to Villar’s proposed bill.    Right now, because of the perceived risk in lending to agriculture, private banks would rather pay the fines worth P5 billion imposed by the Agri-Agra Act instead of complying with its credit requirement, according to Agri-Fisheries Alliance (AFA) Credit Head Danilo Fausto.