BSP expands list of agri-agra borrowers

Published March 7, 2021, 6:30 AM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) has included households and the community of agrarian reform beneficiaries (ARB) as qualified borrowers for agriculture, fisheries and agrarian reform credit in a new circular.

BSP Circular No. 1111 (Amendments to the Rules and Regulations on the Mandatory Credit Allocation for Agriculture and Agrarian Reform Credit) approved by the Monetary Board and signed by BSP Governor Benjamin E. Diokno on March 3, has defined an ARB household as members of a registered or Department of Agrarian Reform-endorsed cooperatives/associations/other farm groups. ARBs, in short, are farmers who were granted lands under the Comprehensive Agrarian Reform Law, and also regular farmworkers or laborers who are landless but are benefitting from the land redistribution.

Based on the revised rule, an ARB household member who has a role or contribute to the “productivity of the awarded land” can avail of credit under such circumstances as death of the ARB and the transfer action to execute hereditary succession of the awarded land is still in process; or upon physical incapacity of the ARB to till/manage the awarded land.

As for ARB community or agrarian reform community (ARC), the circular defined this as a barangay or a cluster of barangays that are “primarily composed and managed by ARBs which is organized and willing to undertake the integrated  development of an area and/or their organizations/cooperatives.”

Banks are required to set aside funds for allocation for agriculture and agrarian reform credit. Financial institutions should at least loan 25 percent of their total loanable funds for agriculture and agrarian reform credit in general, of which at least ten percent 10 percent of the total loanable funds are for ARBs, or ARB households or ARCs.

Under the revised rules and regulations governing the mandatory credit allocation for agriculture and agrarian reform, an agrarian reform credit refers to “loans granted, simultaneously or otherwise, directly to ARBs and/or ARB households or to finance activities that shall generally benefit ARBs and/or ARB households or ARCs for agricultural, fisheries and agrarian reform purposes.”

Agricultural and fisheries credit, in the meantime, are loans granted to borrowers for agricultural and fisheries purposes, said the BSP. The previous guidelines did not specifically refer to agrarian reform credit versus agricultural and fisheries credit.

The BSP has been pushing for banks to increase its agri-agra lending which is always below the required 25 percent for agriculture lending and 10 percent for agrarian reform because the agriculture sector – despite its potential as a driver of inclusive growth – is a high-risk, high-cost sector for banks. Instead of lending to for agri-agra purposes, banks prefer to pay the 0.5 percent penalty for non-compliance.

Diokno has said that the agriculture sector, employing over 8.7 million Filipinos or about 26 percent of the country’s labor force as of end-2019, makes it “imperative for the BSP to provide support to the sector through agricultural financing” especially its role in the success of the Philippine financial inclusion agenda.

Based on BSP data, the share of agriculture and fisheries credit to banks’ total loans have been dropping from 12.27 percent in 2010 to the two-percent level before the pandemic. Agriculture credit also fell to 10.80 percent in 2019 versus 32.27 percent in 2011 while agrarian reform credit decreased from 4.43 percent in 2011 to 1.09 percent in 2019.

The BSP has been peddling its proposed amendments to the agri-agra law such as enhancing access by rural communities to private sector financing. This means combining the agri-agra into a 25 percent threshold.

The central bank is also pushing for the creation of an Agribusiness Management Capacity and Institution-Building Fund, and an Agricultural and Fisheries Finance and Capacity-Building Council to improve “productivity, viability and, ultimately, their ‘bankability’,” according to Diokno.