Bank lending to the agricultural sector through mandated credit amounted to P847.95 billion as of end-June this year, up by 7.4 percent compared to same period last year of P789.66 billion, based on the latest Bangko Sentral ng Pilipinas (BSP) data.
The amount fell short of the mandated credit alloted as agricultural loans in the now revised Agri-Agra law. Under the previous law, banks are mandated to set aside 25 percent of their loan portfolios for agriculture and fisheries. Ten percent of this portion is specifically for agrarian reform-related loans and the other 15 percent is for farming-related endeavors.
The Agri-Agra law or the “Agri-Agra Reform Credit Act of 2009” was recently revised as Republic Act No. 11901 or “The Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022”. The BSP is currently preparing the rules and regulations to implement the revised Agri-Agra law. RA No. 11901 lapsed into a law last July 28, 2022.
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. Instead, 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.”
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.
Of the P847.95 billion, banks’ direct compliance totaled P436.07 billion while alternative compliance under the law amounted to P411.89 billion during the period. Based on BSP data, banks should have loaned P822.34 billion as direct compliance and P1.23 trillion as alternative compliance to the previous Agri-Agra law.
As of end-June, banks compliance to Agrarian Reform Credit which should be 10 percent of their total loanable amount of P8.22 trillion, was only 0.78 percent. Meantime, the percentage or ratio of compliance to the 15 percent other agricultural credit was only 9.53 percent.
Big banks or the universal and commercial banks released P796.59 billion Agri-Agra loans as of end-June, up 7.6 percent from same period in 2021 of P740.32 billion.
Thrift banks’ loans to the agricultural sector and agrarian reform-related businesses also increased by 9.06 percent to P22.73 billion from P20.84 billion. The smaller rural and cooperative banks’ lending were little changed, only up 0.45 percent to P28.63 billion from P28.50 billion.
Last week, the BSP issued proposed rules and regulations that will govern the mandatory agriculture, fisheries and rural development (AFRD) financing under the revised law. A better Agri-Agra Law is expected to improve banks’ compliance to the law in terms of loanable amounts to the sectors involved. The amendments broaden the access of the agrarian reform sector to bank financing, and it will also streamline banks’ process of investing in Agri-Agra eligible securities.
BSP Governor Felipe M. Medalla said in the draft circular that BSP expects banking institutions to design and offer financial products and services that will 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, and project being financed. AFRD financing refers to loans and investments to increase agricultural sector productivity and competitiveness, and fund rural areas’ sustainable development.
Government-owned banks Land Bank of the Philippines and Development Bank of the Philippines 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.
The proposed rules and regulations should also improve access of rural communities and agricultural and fisheries households to financial services and programs. More credit results to productivity, market efficiency, and modernization.
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 agriarian 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.
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.