Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla on Friday, Aug. 5 said the BSP will efficiently and effectively implement Republic Act No. 11901 or The Agriculture, Fisheries, and Rural Development Financing Enhancement Act of 2022, a timely to help the agricultural sector recover from the impact of the pandemic.
The enactment of the new Agri-Agra law, which provides a comprehensive financing framework for the development of the involved sectors, “will assist the (agriculture industry’s) recovery from the impact of the Covid-19 pandemic and other natural calamities through private sector financing,” according to Medalla.
“The BSP is committed to the effective implementation of this law, which aims to enhance access of rural communities and agricultural and fisheries households, including their micro, small, and medium enterprises (MSMEs), to much needed financial services and programs,” he added.
Medalla also said that the new Agri-Agra and Rural Financing law was a key priority legislative BSP measure. “(The law) considers the requirements of rural community beneficiaries from a holistic perspective, taking into account their evolving social networks and complex needs,” he said.
In a statement, the BSP said the Agri-Agra law which has lapsed into a new law in July, expanded agricultural credit and rural development financing to include agri-tourism, digitalization of agricultural activities and processes, public rural infrastructure, programs that promote health and wellness of rural communities, and activities that improve livelihood skills.
The law also promotes financing toward environmental, social, and governance projects, including green projects that support sustainable and inclusive economic growth.
Basically under the new law, the BSP said banks are no longer required to allot 10 percent of their lending portfolio for agrarian reform beneficiaries and 15 percent for agricultural activities. The law now provides banks with “greater flexibility in allocating the combined 25 percent mandatory credit quota to a range of borrowers in the agriculture, fisheries, and agrarian reform sectors.”
“Moreover, 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,” said the BSP.
In addition, the law provides a mechanism to finance organizational, capacity, and institution-building programs to improve competitiveness and productivity in agriculture and fisheries, as well as rural communities, the central bank said.
Prior to the new law, banks’ loanable funds for agriculture and agrarian reform credit continue to fall short of the mandatory allocation.
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. 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.