More than a decade after the promulgation of Republic Law 10,000 or the Agri-Agra Reform Credit Law of 2009, banks are still reluctant to extend credit to the agriculture and food sectors. land reform. The law requires all government and private banking institutions to allocate at least 25 percent of their total loanable funds to agriculture and land reform beneficiaries (ARBs). It prescribes that 15 percent of loanable funds should be allocated to the agricultural sector and the remaining 10 percent to ARBs.
Despite calls to increase lending to the local agricultural sector, a member of the Monetary Council of Bangko Sentral ng Pilipinas noted that bank lending to the sector has not shown significant improvements. (See “Executive of the MB: the compliance of banks with the agro-agricultural law remains poor”, in the BusinessMirror, November 18, 2021). Citing data from the BSP, a document released by the Congressional Policy and Budget Research Department (CPBRD) noted that the agricultural sector’s share in total loans outstanding for production by the local banking system has declined. over the years.
Last year, loans to agriculture amounted to 255.4 billion pesos, down 5.1% from 269.2 billion pesos in 2019. As a result, the total share of loans of the sector fell to 3% against 3.1% in 2019. Of the 20 economic activities examined, real estate activities received the highest credit with more than P2 trillion, or about eight times the credit granted to the agricultural sector, according to the CPBRD document.
Banks have been hit with administrative penalties and other penalties for non-compliance. Penalties paid by banks over the years have already exceeded 10 billion pesos. Despite this, our credit institutions remain reluctant to increase their lending to the agriculture and land reform sectors due to the high risk profile of these sectors.
A proposal to amend the law to stimulate rural and agricultural finance is pending before Congress. The House of Representatives has already approved Bill (HB) 6134 or the Rural Agriculture and Fisheries Development Financing System Bill, but the Senate has yet to act on it. This measure. Congress must speed up the adoption of this measure, which aims to amend RA 10000 and allow banks to finance other agricultural activities.
One of the main features of HB 6134 is the expansion of compliance modes. Under the bill, credit can be extended to other activities, including non-farm / fishing businesses, agricultural mechanization, agro-tourism, green finance, and marketing, processing, distribution and storage. agricultural and fishery products. It also calls for the creation of a special fund to finance well-defined agricultural activities and the organization and capacity building / institutions of cooperatives and organizations of farmers and fishermen.
Access to credit is crucial to enable the agricultural sector to increase its contribution to GDP. Over the past 10 years, the CPBRD document noted that the share of agriculture, forestry and fisheries sector in GDP has declined to only 10 percent. This does not bode well for a sector which employed nearly 25 percent of Filipinos last year and which has the potential to create more jobs if given the right support.