The Philippine government is hoping to end the more than a decade of non-compliance with the Agri-Agra Act, which requires private banks to lend a portion of their funds to farmers and fishermen.
This, as the government finally issued the amended implementing rules and regulations (IRR) version of the law.
“After more than a decade since its enactment, and the fair share of controversies and problems in its implementation, we now have finalized and signed on January 20, 2021 the amendments of the IRR of the Agri-Agra Law, which would facilitate higher investments by banks in the agri-agra sectors,” Agriculture Secretary William Dar said.
Under the Republic Act (RA) 10000 or Agri-Agra Reform Credit Act of 2009, 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 (ARB).
A decade since the law took effect, the banking sector still fails to comply.
“The signing of the amended IRR came at a very opportune time as our agri-fishery sector takes up the challenge of leading the economic recovery amid the protracted health crisis,” Dar said.
The amended IRR was jointly drafted by the Bangko Sentral ng Pilipinas (BSP), Department of Agriculture (DA), and Department of Agrarian Reform (DAR), in consultation with the banking industry. It takes effect 15 days after publication.
The amendments in the IRR includes the deletion of the accreditation requirements for debt securities; expansion in the modes of compliance with the agrarian reform credit; expansion of agri-agra eligible purposes; amendment to the computation of total loanable funds of newly-established banks; and extension of loans to borrowers for purposes of financing activities identified under Section 23 of R.A. No. 8435, including palay housing and farming homestead.
The amendments will also reduce operational challenges faced by banks in complying with the provisions of R.A. 10000.
Monetary Board Member Bruce V. Tolentino also said that with the new IRR, there is no longer any need to have a separate, additional process to approve securities (bonds and similar financial instruments) to be eligible as compliance, as long as these have already undergone the usual prior approval by BSP and Securities and Exchange Commission (SEC).
“In the past, only pure agricultural production activities were eligible. Now, all activities along the entire agricultural value chain – production, processing, marketing are eligible,” Tolentino said.
“If the bank is less than five years old, then the Agri-Agra requirement is not mandatory, recognizing that it takes some time for banks to develop familiarity with agricultural systems and lending,” he added.
Finally, he pointed out that not only the ARB is covered, but also the ARB’s family.
Last year, President Rodrigo Duterte said during his fifth State of the Nation Address (SONA) that he wants to end the more than a decade of non-compliance of the Agri-Agra Act.
At the time, Dar said it’s good that Duterte brought up during his SONA the proposed laws that would amend the Agri-Agra Act.
“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.
For his part, BSP Governor Benjamin Diokno, in previous statements, said that the Central Bank is eyeing wider implementation of the Agri-Agra Law, allowing banks to invest part of their mandated portfolio in "green projects" and other forms of resiliency projects and investments in rural communities.
As of end-2019, banks have only extended P714.5 billion worth of loans to the agriculture sector, or about 52 percent of the P1.384 trillion they should have lent out to beneficiaries, according to BSP data.
The banking sector had set aside P662.62 billion as funds for the sector in January to September 2020, still way below the mandated threshold during the period.
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.