The Bangko Sentral ng Pilipinas (BSP) has issued proposed rules and regulations that will govern the mandatory agriculture, fisheries and rural development (AFRD) financing under Republic Act No. 11901 otherwise known as The Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022.

The proposed circular, released Friday, Sept. 9, to banks for comments and suggestions, has a feedback deadline of Sept. 21. By then, all banks - both private and government-controlled - should be able to recommend to the BSP how to improve credit access to covered sectors including their micro, small, and medium enterprises (MSMEs) clients.

BSP Governor Felipe M. Medalla said in the draft circular that BSP expects banking institutions to design and offer financial products and services that “suit the specific requirements of their agricultural clients, taking into account their cash flows and the gestation and harvest period of the agricultural produce/activity/project being financed.”

Medalla said the BSP is aware of the importance of implementing capacity-building programs to “develop and improve skill sets and competencies of farmers, fisherfolk, agrarian reform beneficiaries, and other agricultural workers which will allow them to operate productive, profitable and viable agricultural and business ventures, as well as enhance their paying capacity and access to formal financing channels.”

Government-owned banks Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP) will remain as large sources of credit for rural communities through basic deposit accounts and by offering low-interest rate lending. Meantime, lending cooperatives, microfinance institutions, retail banks, rural and thrift banks will also apply minimum interest rates for wholesale loans obtained from government banks.

“LBP and DBP shall use their resources to innovate, develop, promote and invest in digital, automation technology, branchless banking and cash agent operations to reach remote barangays and municipalities; using e-commerce, online transactions, bank-on-wheels, point of sale devices with retailers and non-banking institutions, lottery kiosks and mobile phone applications in making banking services accessible to the rural public,” said Medalla in the draft circular.

The proposed rules and regulations should improve access of rural communities and agricultural and fisheries households to financial services and programs. More credit results to productivity, market efficiency, and modernization.

AFRD financing refers to loans and investments to increase agricultural sector productivity and competitiveness, and fund rural areas’ sustainable development.

Financing will be given to the following: off-farm/fishery entrepreneurial activities; agricultural mechanization/modernization; agri-tourism; environmental, social and governance projects, including green projects; acquisition of lands authorized under the Agrarian Reform Code of the Philippines and its amendments; digitalization/automation of farming, fishery and agri-business activities and processes; and for the efficient and effective marketing, processing, distribution, shipping and logistics, and storage of agricultural and fishery commodities.

Loans and investments will also extend to public rural infrastructure as well as programs that will promote the health and wellness of farmers, fisherfolk and agrarian reform beneficiaries or ARBs; and address the developmental needs of rural communities, such as, but not limited to, projects that promote the livelihood, skills enhancement, and other capacity-building activities of the rural community beneficiaries.

The draft circular will also mandate banks to lend and invest in activities identified under the Agro-Industry Modernization Credit and Financing Program (AMCFP) such as agriculture and fisheries production, acquisition of work animals, farm and fishery equipment and machinery, as well as the acquisition of seeds, fertilizer, poultry, livestock, feeds and other similar items.

The procurement of agriculture and fisheries products for storage, trading, processing and distribution and the acquisition of water pumps and installation of tube wells for irrigation as well as construction, acquisition and repair of facilities for production, processing, storage, transportation, among others, are also activities under the AMCFP.

It also includes other financing such as: working capital for agriculture and fisheries, agribusiness activities which support soil and water conservation and ecology-enhancing activities; privately-funded and LGU-funded irrigation systems that are designed to protect the watershed; working capital for long-gestating projects; and credit guarantees on uncollateralized loans to farmers and fisherfolk.

Last Aug. 5, Medalla said the BSP will efficiently and effectively implement RA 11901 to help the agricultural sector recover from the impact of the pandemic and other natural calamities through private sector financing.

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 has said.

The new law 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. It also promotes financing toward environmental, social, and governance projects, including green projects that support sustainable and inclusive economic growth.

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.”

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.