BSP ups efforts for agri-agra financing

Published March 19, 2021, 8:00 AM

by Lee C. Chipongian

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno is doubling efforts for the enactment of an Agri-Agra Law with an updated financing approach to agrarian reform, fisheries, and agricultural sector that is more relevant and timely to improve the agricultural ecosystem.

Benjamin Diokno, governor of the Bangko Sentral ng Pilipinas (BSP), speaks during an interview in Manila, the Philippines, on Wednesday, Feb. 5, 2020. Diokno said it would be better to cut interest rates sooner than later, a signal that policy makers will likely lower borrowing costs Thursday. Photographer: Geric Cruz/Bloomberg

Diokno said the completed amendments will address challenges identified in the operationalization of the law. The amendments to Republic Act No. 10000 (The Agri-Agra Reform Credit Act of 2009) was completed last month.

“Fundamentally, the amendments broaden the access of the agrarian reform sector to bank financing, streamline banks’ process of investing in agri-agra eligible securities, and promote innovative financing solutions within the ambit of the law,” said Diokno in an online briefing.

A better Agri-Agra Law is also expected to improve banks’ compliance to the law in terms of loanable amounts to the sectors involved. Under the law, banks should set aside at least 15 percent of loanable funds to agriculture and 10 percent to agrarian reform.

As of end-December, Diokno said the banking system only released P713.6 billion in agri-agra credit. “Even with such an amount, banks were still unable to comply with the mandatory agri-agra credit,” he noted.

The P642.4 billion in agricultural credit last year is about nine percent compliance ratio, still below the 15 percent requirement set under the law. In the meantime the P71.2 billion in agrarian reform credit is a mere one percent compliance ratio versus at least 10 percent.

For many years, banks would rather pay the 0.5 percent penalty for non-compliance over lending to the agri-agra sector because of the high risk and high cost of lending to agrarian reform credit. On a yearly basis, the BSP collects about P2 billion in fines from non-complying banks.

Diokno said factors that have contributed to banks’ low compliance are: processing time related to securities accreditation (prior to the amendments, debt securities are required to be accredited by the Agricultural Credit Policy Council); borrowers experience difficulties in securing agrarian reform credit; limited availability of agri-agra compliant debt securities; and lack of visible bankable agricultural projects.

Diokno said the amendments to the law’s implementing rules and regulations (IRR) are intended to mobilize bank sector financing towards the agrarian reform, fisheries, and agricultural sector by addressing challenges identified in the operationalization of the law. “It is a timely and positive development since it will enhance the agri-agra sector’s capacity to recover from the impact of the COVID-19 pandemic and other natural calamities through enhanced private sector financing.”

The IRR is however only a temporary measure until a more comprehensive amendments of the Agri-Agra Law is approved.

The IRR amendments are on the following: expanding the eligible modes of compliance with the 10 percent agrarian reform credit requirement by including loans to members of agrarian reform households, and financing of activities that shall generally benefit agrarian reform beneficiaries (ARBs) and/or ARB households as well as agrarian reform communities; remove the accreditation requirement for debt securities to be considered as agri-agra eligible; allow investments in shares of stock of companies that are primarily engaged in eligible agricultural activities as an eligible mode of alternative compliance; and promote special lending arrangements that consider the holistic requirements of agricultural borrowers such as agricultural value chain financing.