Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno reiterated over the weekend that the passage of amendments to the Agri-Agra Reform Credit Act of 2009 will improve and expand the credit access of farmers, fisherfolk, and micro, small, and medium enterprises (MSMEs) in the agriculture-related and agribusiness sectors.
The Senate approved Senate Bill No. 2494 on Feb. 2. Next is the legislative process in the bicameral proceedings. The House of Representatives has approved House Bill No. 6134 on third and final reading on March 10, 2020.
“The Agri-Agra bill will strengthen rural development through a holistic approach in addressing the financing needs of the agricultural financing ecosystem,” said Diokno over the weekend.
The Agri-Agra bill is one of BSP’s priority legislative measure, which seeks to improve the creditworthiness of agricultural workers and their enterprises by enhancing their capabilities, modernizing their business operations, and integrating them into profitable domestic and export-oriented value chains.
Banks’ loanable funds for agriculture and agrarian reform credit continue to fall short of the mandatory allocation of 15 percent for agriculture sector and 10 percent for agrarian reform lending.
Based on BSP data as of end-September 2021, banks have set aside P804.17 billion lending for agriculture credit or about 9.8 percent compliance ratio against the mandatory 15 percent.
Agrarian reform credit only reached P68.9 billion during the period. It was less than one percent compliance ratio at just 0.92 percent when under the law, it should be 10 percent.
If banks actually followed the law and released 15 percent of their loanable funds to the agriculture sector, then the farmers, fisherfolk and MSMEs doing agribusiness should have had access to some P1.124 billion credit as of end-September last year instead of just P804.17 billion. And, instead of only P68.9 billion for agrarian reform credit, banks should have released P749.38 billion if they are strictly complying with their mandate.
Banks apparently prefer to pay the 0.5 percent penalty for the non-compliance rather than set aside the mandatory amount due to the high risk and high cost of lending to the agriculture sector. On a yearly basis, the BSP collects about P2 billion in fines from non-complying banks. Under the law, penalties collected are remitted to the Agricultural Guarantee Fund Pool and Philippine Crop Insurance Corp.
Factors that have contributed to banks’ low compliance are: processing time related to securities accreditation since 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.
Pending further amendments to RA 10000, the BSP, the Department of Agriculture and the Department of Agrarian Reform approved changes to the implementing rules and regulations to increase access of the agrarian reform sector to bank financing.
The BSP has streamlined banks’ approval process of Agri-Agra eligible securities, and promoted financing solutions. It has also expanded the eligible modes of compliance with the mandatory agrarian reform credit allocation by including actual extension of loans to agrarian reform beneficiaries (ARBs) and/or ARB households, for purposes of financing agriculture, fisheries and agrarian reform activities.
Diokno said earlier that 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.
The IRR is however only a temporary measure until a more comprehensive amendments of the Agri-Agra law is approved.