Hope for farmers, fisherfolk

HIDDEN AGENDA - Mary Ann LL. Reyes - The Philippine Star

Last July, a bill lapsed into law, providing hope for the country’s farmers and fisherfolk as well as for the Philippines’ bid to attain food self-sufficiency.

Republic Act 11901, or the Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022, repealed RA 10000 or the Agri-Agra Reform Credit Act of 2009, and institutionalized a framework that aims to be more responsive to the financing needs of farmers, fisherfolk and agri-based micro, small, and medium enterprises (MSMEs).

Among the activities that may be financed under the new law are agricultural mechanization, agri-tourism, entrepreneurial activities, green projects, digitalization of farming, fishery and agri business, acquisition of lands under the Agrarian Reform Code, post-harvest activities such as processing, storage, marketing, distribution, and logistics, and even public rural infrastructure and programs that promote the health and wellness of farmers and fisherfolk.

Financing will be available to rural community beneficiaries, cooperatives, associations, MSMEs, or organizations in good standing regardless of capitalization. Beneficiaries will be assessed based on the feasibility of the project, their estimated production, and paying capacity, among other criteria.

Finance Secretary Benjamin Diokno said that RA 11901 expands the role of the banking industry and eases their compliance with agri-agra requirements, allowing banks to lend stronger support to the whole value chain of agri-enterprises.

All banking institutions whether government or private except newly established banks shall set aside a credit quota or a minimum mandatory agricultural and fisheries financing requirement of at least 25 percent of their total loanable funds.

To improve banks’ compliance, the new law provides banks with alternative means to comply with the credit quota and removed the distinction between the 10 percent agrarian reform and the 15 percent agricultural credit to provide them greater flexibility.

The old law under RA 10000 mandated all government and private banking institutions to allocate at least 25 percent of their total loanable funds for agriculture and agrarian reform beneficiaries (ARBs), of which 15 percent must be allocated to the agriculture sector and the remaining 10 percent to ARBs.

A report by the Congressional Policy and Budget Research Department noted that compared to other sectors of the economy, the agriculture sector has received a lower share of the total loans of the Philippine banking system and that in fact, the share of the agriculture sector to total loans outstanding for production by the Philippine banking system has been declining over the years.

It noted that in 2020, loans to agriculture amounted to P255.4 billion, a 5.1 percent decline from P269.2 billion in 2019. As a result, the share of the sector to total outstanding loans went down to three percent from 3.1 percent in 2019.

Out of the 20 economic activities, the agriculture sector received the 9th highest share of the total loans as of end-2020. Real estate activities received the highest credit with over P2 trillion which is about eight times the credit to the agriculture sector. Three sectors received credit of over P1 trillion each: wholesale and retail trade, repair of motor vehicles, motorcycles; electricity, gas, steam and air- conditioning supply; and manufacturing.

The report emphasized that since the implementation of the Agri-Agra Law in 2012, the banking sector has extended total loans amounting to P713.6 billion, of which P642.4 billion or 90.0 percent went to the agriculture sector and P71.2 billion or 10 percent went to the agrarian sector.

It said that in terms of compliance to the mandated 15 percent lending for agriculture, aggregate compliance of Philippine banks (universal commercial banks, thrift banks and rural banks and cooperatives) was met only in the first three years of the implementation of the law: 21.7 percent in 2012, 15.6 percent in 2013 and 15.2 percent in 2014.

Starting in 2015, Philippine banks have been under-compliant and the share of lending to the agriculture sector to total loanable funds generated has steadily declined to nine percent as of end-December 2020, it added.

On the other hand, total loans of Philippine banks to ARBs have never reached the required lending of 10 percent share to the total loanable funds generated. The report revealed that the highest compliance rate achieved was 2.1 percent in 2012 during the first year of implementation. As of end-2020, compliance rate was slightly below one percent.

The report pointed out that universal and commercial banks (UKBs) were able to meet the mandatory lending to the agriculture sector until June 2015 only. Since then, loans to the sector started to gradually decline to settle at nine percent in December 2020 amounting to P608.9 billion. On the other hand, undercompliance by thrift banks to the mandatory lending to the agriculture sector started as early as the second year of the implementation of the law when 13.4 percent compliance rate was reported in June 2013. As of end-2020, compliance rate of thrift banks was recorded at 6.4 percent amounting to P18.1 billion in loans to the agriculture sector.

Meanwhile, in terms of lending to ARBs, UKBs and thrift banks were never compliant to the required 10 percent lending, the reported stated. The highest compliance rate reported by UKBs and thrift banks were 2.6 percent in March 2012 and 6.5 percent in September 2012, respectively. Compliance of UKBs began to fall below one percent in 2013 where it dropped to as low as 0.6 percent For thrift banks, lending to the ARBs, which has also been declining, dropped below one percent in June 2019. As of end-2020, compliance rate of UKBs and thrift banks were both 0.9 percent, amounting to P59.4 billion and P2.7 billion, respectively.

Diokno said that banks have difficulty meeting the mandated requirement under the Agri Agra Law, citing the factors like difficulty from the borrowers’ part to secure agrarian reform credit; limited availability of agri- agra compliant debt securities; and the lack of visible bankable agricultural projects, for the low compliance rate.

The report noted that one of the major issues about agriculture lending is the difficulty of farmers, fisherfolks and ARBs in meeting the eligibility as well as the documentary requirements of banks as well as the inherently high risk profile of the agriculture sector.

Farmers and fisherfolk have relied on the informal sector mostly to provide for their financing needs. Unfortunately, while informal lenders do away with the stringent requirements imposed by banks, informal lenders charge very high interest rates. No wonder that our farmers and fishermen consistently post the highest poverty incidence among the basic sectors.



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