The Bangko Sentral ng Pilipinas (BSP) has started the quarterly live submission of banks’ reporting of the mandatory agriculture, fisheries and rural development (AFRD) financing from Sept. 30 until Dec. 31, 2023.

In a memo (Memorandum No. M-2023-028) signed by BSP Assistant Governor Lynn I. Javier on Sept. 28, the central bank reminded all banks concerned of the guidelines on the submission of the AFRD report within the live period and the subsequent quarterly report.

These live submissions are via the application programming interface (API) and the integral financial supervision system (IFSS).

Last November, the BSP approved the circular requiring all banks to allocate 25 percent of their total loanable funds for AFRD financing under Republic Act No. 11901 or “The Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022”.

The 25 percent requirement for AFRD financing will be mandated for 10 years. However, for banks that have just been established, they will be exempted from the required allocation for a period of five years. By BSP definition, newly-created banks are local or foreign banks whose first five years of operation ended on Aug. 18, 2022.

AFRD financing are loans and investments for productivity and intended to “increase (the) income of an agricultural and fisheries household, thereby promoting agricultural sector productivity and competitiveness, as well as sustainable development of rural communities.”

Before RA 11901, banks are mandated to set aside 10 percent of their lending portfolio for agrarian reform beneficiaries and 15 percent for agricultural activities.

Under the new law, banks are provided 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.

Based on the BSP circular, banks may comply with the mandatory credit requirement through the following modes: actual extension of loans to rural community beneficiaries -- gross of allowance for credit losses -- for purposes of financing AFRD activities; purchase of eligible loans; and purchase of eligible securities gross of allowance for credit losses but net of unamortized premium or discount.

The circular allowed consolidated compliance with the AFRD mandatory allocation but subsidiary banks should be directly or indirectly majority owned by the parent bank.

Banks that have failed to comply or under-complied with the required AFRD financing will be penalized with an annual monetary charge of 0.5 percent to be computed on a quarterly basis.

Meanwhile, the BSP said banks are expected to design and offer financial products and services that suit the specific requirements of rural community beneficiaries, taking into account their cash flows and the gestation and harvest period of the agricultural, fishery or rural produce, activity or project being financed.

The government’s two state banks, Land Bank of the Philippines and the Development Bank of the Philippines, in consideration of the new law, will continue to apply low interest rates for loans under AFRD financing.

Landbank and DBP will remain as large sources of credit for rural communities through basic deposit accounts and by offering low-interest rate lending. As for lending cooperatives, microfinance institutions, retail banks, rural and thrift banks, the will also apply minimum interest rates for wholesale loans obtained from government banks.

AFRD financing will be provided for these types of activities: 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.