Banks told to allocate P1.1 trillion for agri

CEBU, Philippines — The banking sector is urged to allot P1.1 trillion worth of credit facility for the agro-industrial sector in compliance with PD 717 otherwise known as the Agri-Agra Law.

The Philippine Chamber of Food & Agriculture Inc., (PCAFI) president Danilo V. Fausto said banks have to abide by the Agri-Agra Law that mandates banks to allocate at least 25 percent of its outstanding loan portfolio, 10 percent of which should be devoted to credit for agrarian reform beneficiaries.  

According to Fausto, there remains an estimated P1.1 trillion, equivalent to 16 percent of banks’ total outstanding loan that is not being aptly availed of by the agriculture sector.

If properly complied by the banking sector, PD 717 will support industrialization and poverty reduction through agriculture-based manufacturing.

“Banks’ loan portfolio has been growing through the years but not because of real, inclusive economic progress or reduced poverty. It’s merely because real estate and other industries are growing,” he said.

PCAFI has asked the Bangko ng Sentral ng Pilipinas (BSP) to be updated on the status of Circular 908, which sets up the Agricultural Value Chain Financing Framework (AVCFF).

Two years after the issuance of the lending features (Monetary Board Resolution 360) of AVCFF, the resolution has barely raised financing for agriculture value added manufacturing.

AVCFF was designed to reduce risks of banks that are lending to agricultural production.

In the sole nature of agricultural production, risks of non-repayment are relatively high. Pure agriculture production traditionally suffers from losses when a weather-related calamity hits.

But through the use of the value chain schemes, risks are significantly reduced.

In order to follow through the circular’s implementation, PCAFI asserts banks should have an Agri Banking Department akin to the mortgage banking departments that assess collateral value in real estate lending.

It is imperative for government to strictly enforce the banks’ compliance with PD 717 if it has to take the path of manufacturing-based agro industrialization.

This is the solution that Thailand, Malaysia, and other Southeast Asian countries earlier took and should be embraced too by the Philippines.