PHOTO BY THE DEPARTMENT OF AGRICULTURE
WHILE everyone is understandably distracted by the baffling chaos that has erupted over the sugar supply, there has been one important political achievement that needs to be highlighted. One of the 110 laws that went into effect late last month was Republic Act (RA) 11901, or the “Strengthening Agriculture, Fisheries and Development Funding Act of 2022.” rural”, which fixes most of the flaws of the previous version of the Agri-Agra Act and expands support for agriculture, agribusiness and micro, small and medium-sized enterprises (MSMEs) in general.
The main objective of RA 11901 is to improve access to finance and financial services for rural communities and businesses, especially MSMEs. It does this by amending the provision of the previous law RA 10000, or the “Agricultural Credit Reform Act of 2009”, which specified that banks must set aside 15% of their loanable funds for agricultural borrowers and 10% for recipients of agricultural loans. the agrarian reform program. Under the new law, these specific mandates have been removed; instead, banks must set aside 25% of their loanable portfolios for the agriculture, fisheries, and land reform sectors combined, and enjoy greater flexibility in choosing which borrowers to finance.
In addition, banks that are unable to meet the new 25% mandate with direct lending can offset it by investing in agricultural or agribusiness debt and equity instruments, financing the agricultural value chain or by providing agribusiness loans to farming or other communities. building projects.
To ensure that banks’ lending activities are legitimately consistent with the objectives of the new law, it defines acceptable alternatives, including agritourism; digitization of agricultural activities and processes; rural public infrastructure; initiatives to improve livelihood skills; programs to promote the health and well-being of rural communities; and financial assistance for green initiatives that contribute to equitable and sustainable economic growth and environmental, social and governance projects.
In a statement following the entry into force of the bill, the Governor of Bangko Sentral ng Pilipinas (BSP), Felipe Medalla, said that “the new law on agricultural and rural finance has been a priority piece of legislation of the BSP as it takes into account the requirements of the beneficiary rural community from a holistic perspective, taking into account the evolution of their social networks and their complex needs.
We anticipate that the biggest criticism against RA 11901 will be the removal of the 10% and 15% lending mandates, as this change can be seen as giving banks more leeway to avoid lending to smallholder farmers and reform beneficiaries. agrarian. However, Medalla’s comments implicitly acknowledge the shortcomings of the 2009 law. financial assistance to a large part of the wider agricultural sector. Banks have been placed in an impossible position in terms of balancing their responsibilities to meet the agri-agra lending thresholds and meet the standards to keep non-performing and risky loans to a manageable level. As the consequences of failing to meet this last responsibility are much more serious and far-reaching, banks have never been able to meet lending mandates.
Under the new law, however, even if banks take a conservative approach and limit direct lending to small, risky agricultural borrowers, what they do as an alternative will still directly benefit those in the agricultural sector. Better infrastructure, better access to markets, and improved managerial and technical capacity help these individual farmers and small businesses increase their productivity and incomes in more sustainable ways than simply subsidizing their low-value livelihoods, which is the unexpected result of the 2009 agreement. law stood at.
That being said, the task of the BSP and relevant government agencies is now to ensure that the new 25% mandate is properly followed by the banking industry. Excuses for not following it have been removed and banks have been given a wide range of options to lend to true value-added businesses and efforts. From the banks’ perspective, the new law should not be seen as an imposition, but rather as a pathway to a new range of potentially lucrative business opportunities that will help boost the agricultural sector and the economy as a whole.