Agri-Agra law repeal to 'unlock' rural financing – BSP

Published May 27, 2022, 4:16 PM

by Lee C. Chipongian

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno reiterated on Friday, May 27, that the repeal of the Agri-Agra Reform Credit Act of 2009 will appropriately address the financing needs of farmers, fisherfolk and agri-based micro, small and medium enterprises (MSMEs).

“The BSP has long pushed for the repeal of Republic Act No. 10000 (Agri-Agra law) to make it more responsive to (the sectors involved) financing needs,” said Diokno.

BSP Governor Benjamin E. Diokno

He also added that the expanded modes of compliance with Agri-Agra requirements will open more financing opportunities for rural financing. It also encourages more funding for environmentally sustainable projects to cushion the impact of climate risk on the agricultural sector.

“Expanding the available modes of compliance with requirements to finance the agricultural sector will promote funding for green finance projects, income-generating activities, and public infrastructure projects, to the benefit of the rural agrarian reform and agricultural sector,” said Diokno.

Diokno is the incoming secretary of the Department of Finance under the Marcos government. He will still be BSP governor until June 30. Monetary Board member Felipe M. Medalla will replace him as BSP chief on July 1.

The BSP commends both chambers of Congress for ratifying the Bicameral Conference Report on the conflicting provisions of Senate Bill No. 2494 and House Bill No. 6134, entitled “The Agriculture, Fisheries, and Rural Development Financing Enhancement Act of 2022.”

These two measures repeals the Agri-Agra law and will free-up bank funds for the agricultural financing ecosystem and for rural community development requirements. “The enrolled bill will soon be transmitted to Malacañang for the President’s signature,” said BSP.

The BSP explained in a statement Friday that the measure is a holistic approach to private sector financing with additional rural community beneficiaries which are part of “a wider social and economic support system.”

“Beyond extending credit, the repeal aims to further capacitate our farmers and fisherfolk, modernize their operations, and integrate them into profitable domestic and export-oriented value chains,” said the BSP.

The bill removes the distinction between the 10 percent agrarian reform and the 15 percent agricultural credit to provide banks much more flexibility in terms of granting credit to the agriculture and agrarian reform sectors, explained the BSP.

“In addition, banks that reach out to agrarian reform beneficiaries and agrarian reform communities will be able to allocate the entire 25 percent mandatory credit quota to the said sector. It also sets a multiplier for credit provided to eligible borrowers under the law. This is initially set at 10, as a form of incentive for banks to provide financing to the agrarian reform sector,” said the BSP.

“On the other hand, banks that are unable to directly lend to rural community beneficiaries may contribute through other means, such as investing in debt and equity securities, undertaking agricultural value chain financing, and granting agri-business loans to fund agricultural and community-enhancing activities,” the BSP added.

The Agri-Agra bill is one of BSP’s priority legislative measure since it 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.

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.