Last July, a bill became law, giving hope to the country’s farmers and fishers as well as the Philippines’ attempt to achieve food self-sufficiency.
Republic Act 11901, or the Strengthening Agriculture, Fisheries and Rural Development Finance Act of 2022, repealed RA 10000 or the Agricultural Credit Reform Act of 2009, and institutionalized a framework that aims to better meet the financing needs of farmers, fishers and agricultural micro, small and medium-sized enterprises (MSMEs).
Among the activities that can be financed under the new law are agricultural mechanization, agrotourism, entrepreneurial activities, green projects, digitalization of agriculture, fisheries and agro-industry, land acquisition 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 health and well-being. to be farmers and fishermen.
Funding will be available to beneficiaries in rural communities, cooperatives, associations, MSMEs or organizations in good standing, regardless of their capitalization. Recipients will be assessed based on project feasibility, estimated production, and ability to pay, among other criteria.
Finance Secretary Benjamin Diokno said RA 11901 expands the role of the banking sector and facilitates its compliance with agri-agra requirements, enabling banks to further support the entire agribusiness value chain .
All banking institutions, whether public or private, with the exception of newly created banks, must provide a credit quota or a mandatory minimum requirement for financing agriculture and fisheries of at least 25% of their total loanable funds.
To improve bank compliance, the new law provides banks with alternative ways to meet the credit quota and removes the distinction between 10% land reform and 15% agricultural credit to provide them with greater flexibility.
The old law under RA 10000 required all government and private banking institutions to allocate at least 25% of their total loanable funds to agriculture and land reform beneficiaries (ARBs), of which 15% must be allocated to the agricultural sector and the remaining 10%. to ARBs.
A report by the Department of Congressional Policy and Budget Research noted that, compared to other sectors of the economy, the agricultural sector received a lower share of total loans from the Philippine banking system and that in In fact, the agricultural sector’s share of total production loans outstanding by the Philippine banking system has been declining over the years.
He noted that in 2020, agricultural loans amounted to 255.4 billion pesos, a decrease of 5.1% compared to 269.2 billion pesos in 2019. As a result, the share of the sector in total loans outstanding fell to 3%, compared to 3.1% in 2019. 2019.
Of the 20 economic activities, the agricultural sector received the 9th highest share of total loans at the end of 2020. Real estate activities received the highest credit with over 2 trillion pesos, about eight times credit to the agricultural sector. Three sectors received credits of more than 1,000 billion pesos each: wholesale and retail trade, repair of motor vehicles, motorcycles; supply of electricity, gas, steam and air conditioning; and manufacturing.
The report highlights that since the implementation of the Agri-Agra Act in 2012, the banking sector has provided loans totaling P713.6 billion, of which P642.4 billion or 90.0% went to the agricultural sector. and P71.2 billion or 10 percent went to the agrarian sector.
He said that in terms of compliance with the 15% lending requirement for agriculture, the overall compliance of Philippine banks (universal commercial banks, savings banks and rural banks and cooperatives) has only been met. during the first three years of the implementation of the law: 21.7% in 2012, 15.6% in 2013 and 15.2% in 2014.
Beginning in 2015, Philippine banks were sub-compliant and the share of lending to the agricultural sector in total loanable funds generated steadily declined to 9% by end-December 2020, he added.
On the other hand, total lending by Philippine banks to ARBs has never reached the required lending rate of 10% of total loanable funds generated. The report found that the highest compliance rate achieved was 2.1% in 2012 during the first year of implementation. At the end of 2020, the compliance rate was just under 1%.
The report points out that the Universal and Commercial Banks (UKB) were able to meet the lending obligation to the agricultural sector until June 2015 only. Since then, loans to the sector have started to gradually decrease to stand at 9% in December 2020, amounting to 608.9 billion pesos. On the other hand, non-compliance by savings banks with the obligation to lend to the agricultural sector started as early as the second year of implementation of the law, when a compliance rate of 13.4% was was reported in June 2013. At the end of 2020, the savings banks’ compliance rate was recorded at 6.4%, amounting to 18.1 billion pesos in loans to the agricultural sector.
Meanwhile, in terms of lending to ARBs, UKBs and savings banks have never met the 10% lending requirement, according to the report. The highest compliance rate reported by UKBs and savings banks was 2.6% in March 2012 and 6.5% in September 2012, respectively. UKB compliance began to fall below 1% in 2013, where it fell to 0.6%. For savings banks, lending to ARBs, which also declined, fell below 1% in June 2019. The UKB and savings bank rate was 0.9%, rising to 59 .4 billion pesos and 2.7 billion pesos, respectively.
Diokno said banks are struggling to meet the requirement imposed by the Agri Agra Act, citing factors such as difficulty on the part of borrowers in obtaining land 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 main issues regarding agricultural loans is the difficulty for farmers, fishers and ARBs to meet the eligibility requirements as well as the documentary requirements of banks, as well as the risk profile inherently high in the agricultural sector.
Farmers and fishermen have mainly relied on the informal sector to meet their financing needs. Unfortunately, while informal lenders waive the strict requirements imposed by banks, informal lenders charge very high interest rates. It is no wonder that our farmers and fishers consistently show the highest incidence of poverty among the basic sectors.
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