Bridging the agriculture credit gap
Published Dec 12, 2022 12:05 am
FROM THE MARGINS
In my previous article, I lamented the declining contribution of agriculture to the country’s gross domestic product. As we are an agricultural country that is rich in natural resources, we should aim to grow our agricultural sector to a level that surpasses services and industry in terms of contribution to the economy. Agriculture pertains to food security and urgently needs our attention. Just last week, the Philippine Statistics Authority reported a 14-year high inflation rate of eight percent, with food and non-alcoholic beverage prices accounting for more than half (58 percent) of the overall price increase. With La Nina expected to prevail until early 2023 and given our vulnerability to natural disasters, our food producers — farmers, fisherfolk, agri-processors, and agri-preneurs — need our help.
The bucolic landscape of farmers tilling the land, carabao in tow, is not enough anymore. We need to move the country’s agriculture to the digital era, for greater productivity and sustainability in the face of climate change. This is important because agriculture employs a quarter of our labor force, yet the sector lags behind other Southeast Asian countries in productivity, growth and competitiveness.
Insufficient financing
We need to invest more in agriculture. Our farmers need access to capital to increase production. They need infrastructure, to facilitate agro-processing, warehousing, trading, and the whole agricultural value chain. But lack of access to finance has been a perennial problem of our farmers and farmworkers.
Republic Act (RA) 10000, the Agri-Agra Reform Credit Act of 2009, aimed to address this. The agri-agra law required banks to set aside 15 percent of their loanable funds for agricultural borrowers and 10 percent for agrarian reform beneficiaries (ARBs). But except for rural banks and cooperatives, the overall compliance to this law has been declining through the years, with many banks opting to pay billions in fines rather than risk their loan portfolios.
There are both supply and demand issues on agricultural financing that need to be resolved to facilitate the flow of bank credit to the sector. Some rural banks, microfinance-oriented banks, and cooperative banks have designed special lending programs for agriculture, prioritizing farmers/ARBs as clients.
Unfortunately, they had been stymied by many factors, including the beneficiaries’ failure to meet the eligibility and documentary requirements for loans. There were also bureaucratic hurdles, such as the very technical stance that the Department of Agrarian Reform (DAR) has taken, limiting “ARBs” to mean those who have received land under the agrarian reform program and excluding even small farmers within the agrarian reform communities (ARCs). While BSP has issued Circular No. 1111 in 2021, allowing credits to farmers within ARCs as alternative compliance to the law, still, getting updated information on the list of ARBs and accredited ARCs is difficult. Banks need these to give loans to ARBs and farmers in agrarian reform communities.
New agri-agra law
A window of hope opened in July, when RA No. 11901, the Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022, lapsed into law. With a broader perspective that covers the whole agricultural value chain, it gives banks flexibility to meet the 25 percent mandated credit quota, without distinction between agriculture and agrarian reform. It allows banks to finance agriculture, agribusiness, and micro-small-and-medium-enterprises (MSMEs). In addition, banks that are unable to meet the quota can compensate by investing in agritourism, digitalization of agricultural activities and processes, rural public infrastructure, livelihood programs, initiatives to promote the health and wellness of rural communities, and other alternatives.
While RA 11901 may be criticized for giving banks more leeway to avoid directly lending to small farmers and ARBs, I think the alternative compliance mechanisms still benefit those in the agri-agra sector. Financing infrastructure and giving farmers a chance to modernize operations will increase their productivity. Supporting agro-processing and small rural enterprises generate income and livelihood, reducing poverty in agrarian reform communities.
The road ahead
While BSP ushers in financing opportunities for farmers via RA 11901, there is an urgent need for DAR to ease the way for ARBs and ARCs, by making available updated information to banks and investors. Banks, especially, are willing to support agri-agra, but the list of accredited ARBs/ARCs should be made available to them, both at the central and local levels.
The age-old issue of insufficient support services to ARBs also needs to be addressed, perhaps by strengthening the ARC Development Program to ensure convergence among agencies. Apart from providing rural infrastructure, agricultural digitalization must also be pursued.
The government should also give incentives to banks that surpass the agri-agra requirements, and channel more funds to farming through tax incentives, lowered guarantees fees, more loans from the commercial banks via increasing leveraging ratio, among others.
Joint venture arrangements between farmers’ groups and private investors in the ARCs should be encouraged. Publishing ARC profiles, with comprehensive information on consolidated hectarage, crops/livestock, soil type, climate type, location, cooperative/farmers organization present and current capacities, among others, will surely usher in investments.
RA 11901 could inject much-needed financing for agriculture. As stated by BSP Governor Medalla: “It considers the requirements of rural community beneficiaries from a holistic perspective, taking into account their evolving social networks and complex needs."
(Dr. Jaime Aristotle B. Alip is a poverty eradication advocate. He is the founder of the Center for Agriculture and Rural Development Mutually-Reinforcing Institutions (CARD MRI), a group of 23 organizations that provide social development services to eight million economically-disadvantaged Filipinos and insure more than 27 million nationwide.)
In my previous article, I lamented the declining contribution of agriculture to the country’s gross domestic product. As we are an agricultural country that is rich in natural resources, we should aim to grow our agricultural sector to a level that surpasses services and industry in terms of contribution to the economy. Agriculture pertains to food security and urgently needs our attention. Just last week, the Philippine Statistics Authority reported a 14-year high inflation rate of eight percent, with food and non-alcoholic beverage prices accounting for more than half (58 percent) of the overall price increase. With La Nina expected to prevail until early 2023 and given our vulnerability to natural disasters, our food producers — farmers, fisherfolk, agri-processors, and agri-preneurs — need our help.
The bucolic landscape of farmers tilling the land, carabao in tow, is not enough anymore. We need to move the country’s agriculture to the digital era, for greater productivity and sustainability in the face of climate change. This is important because agriculture employs a quarter of our labor force, yet the sector lags behind other Southeast Asian countries in productivity, growth and competitiveness.
Insufficient financing
We need to invest more in agriculture. Our farmers need access to capital to increase production. They need infrastructure, to facilitate agro-processing, warehousing, trading, and the whole agricultural value chain. But lack of access to finance has been a perennial problem of our farmers and farmworkers.
Republic Act (RA) 10000, the Agri-Agra Reform Credit Act of 2009, aimed to address this. The agri-agra law required banks to set aside 15 percent of their loanable funds for agricultural borrowers and 10 percent for agrarian reform beneficiaries (ARBs). But except for rural banks and cooperatives, the overall compliance to this law has been declining through the years, with many banks opting to pay billions in fines rather than risk their loan portfolios.
There are both supply and demand issues on agricultural financing that need to be resolved to facilitate the flow of bank credit to the sector. Some rural banks, microfinance-oriented banks, and cooperative banks have designed special lending programs for agriculture, prioritizing farmers/ARBs as clients.
Unfortunately, they had been stymied by many factors, including the beneficiaries’ failure to meet the eligibility and documentary requirements for loans. There were also bureaucratic hurdles, such as the very technical stance that the Department of Agrarian Reform (DAR) has taken, limiting “ARBs” to mean those who have received land under the agrarian reform program and excluding even small farmers within the agrarian reform communities (ARCs). While BSP has issued Circular No. 1111 in 2021, allowing credits to farmers within ARCs as alternative compliance to the law, still, getting updated information on the list of ARBs and accredited ARCs is difficult. Banks need these to give loans to ARBs and farmers in agrarian reform communities.
New agri-agra law
A window of hope opened in July, when RA No. 11901, the Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022, lapsed into law. With a broader perspective that covers the whole agricultural value chain, it gives banks flexibility to meet the 25 percent mandated credit quota, without distinction between agriculture and agrarian reform. It allows banks to finance agriculture, agribusiness, and micro-small-and-medium-enterprises (MSMEs). In addition, banks that are unable to meet the quota can compensate by investing in agritourism, digitalization of agricultural activities and processes, rural public infrastructure, livelihood programs, initiatives to promote the health and wellness of rural communities, and other alternatives.
While RA 11901 may be criticized for giving banks more leeway to avoid directly lending to small farmers and ARBs, I think the alternative compliance mechanisms still benefit those in the agri-agra sector. Financing infrastructure and giving farmers a chance to modernize operations will increase their productivity. Supporting agro-processing and small rural enterprises generate income and livelihood, reducing poverty in agrarian reform communities.
The road ahead
While BSP ushers in financing opportunities for farmers via RA 11901, there is an urgent need for DAR to ease the way for ARBs and ARCs, by making available updated information to banks and investors. Banks, especially, are willing to support agri-agra, but the list of accredited ARBs/ARCs should be made available to them, both at the central and local levels.
The age-old issue of insufficient support services to ARBs also needs to be addressed, perhaps by strengthening the ARC Development Program to ensure convergence among agencies. Apart from providing rural infrastructure, agricultural digitalization must also be pursued.
The government should also give incentives to banks that surpass the agri-agra requirements, and channel more funds to farming through tax incentives, lowered guarantees fees, more loans from the commercial banks via increasing leveraging ratio, among others.
Joint venture arrangements between farmers’ groups and private investors in the ARCs should be encouraged. Publishing ARC profiles, with comprehensive information on consolidated hectarage, crops/livestock, soil type, climate type, location, cooperative/farmers organization present and current capacities, among others, will surely usher in investments.
RA 11901 could inject much-needed financing for agriculture. As stated by BSP Governor Medalla: “It considers the requirements of rural community beneficiaries from a holistic perspective, taking into account their evolving social networks and complex needs."
(Dr. Jaime Aristotle B. Alip is a poverty eradication advocate. He is the founder of the Center for Agriculture and Rural Development Mutually-Reinforcing Institutions (CARD MRI), a group of 23 organizations that provide social development services to eight million economically-disadvantaged Filipinos and insure more than 27 million nationwide.)