Philippine banks fail to provide adequate credit to agriculture, fisheries

MANILA, Philippines—Philippine banks have failed to extend credit to Philippine farmers and fishermen, contributing to a huge financial gap in the agriculture sector and leaving farmers in the grip of usurers who charge exorbitant interests that plunge them into debt.

This was among the findings of industry players and government officials at Thursday’s Agriculture and Fisheries Credit Summit, which was aimed at finding ways to expand credit to farmers and fishermen who want to modernize their livelihood.

Conference participants cited the insufficient credit line to agriculture workers as a major hindrance in the development of the country’s farming and fisheries industries.

A briefing paper prepared by the Agriculture Credit Policy Council (ACPC), an agency of the Department of Agriculture, said Philippine farmers and fishermen have a huge and increasing but unmet need for credit.

Filipino farmers and agriculture workers require capital to increase their productivity and improve their facilities, but they have no source for it. At present, ACPC said, the credit gap in the sector is about P252 billion, 2.47 poercent higher than the credit gap in 2009.

The paper also noted that more and more Filipino farmers are borrowing for their businesses, but that they rely heavily on the informal lending sector instead of banks.

The ACPC said banks must allocate 25 percent of their loanable funds to agriculture and agrarian reform under Presidential Decree 717. In the last two years, however, not only did banks fail to reach this mandatory level, their lending compliance actually declined, the paper said.

“In spite of the banking sector’s large amount of funds that are available for lending, access to formal credit by smallholders in the agriculture sector remains limited,” the ACPC said.

As of September 2010, “banks lent a total of P522 billion, a decline of 8 percent from last year’s level. This reflects 19 percent of the total loanable funds, or 6 percentage points short of the total credit requirement. Banks’ compliance slid down by 15 percent as compared to previous year,” the ACPC paper said.

There are various reasons for the banks’ low lending rate, according to conference participants.

Raul Montemayor, Federation of Free Farmers national manager, said Filipino farmers and fishermen, who are mostly smallholders, are still considered by banks as risky borrowers who often default on their loans.

Filipino farmers also balk at the banks’ high interest rates, the ACPC said. They also complain of the stringent and voluminous requirements asked by financial institutions so that some of them fake documents to be able to submit them, the agency said.

The ACPC also noted that most of the commercial and universal banks are located at urban areas, which are inaccessible to farmers and fisherfolks in the rural areas.

Montemayor and ACPC said small farmers and fishermen go to informal sources to tide them over.

“Informal sources/lenders are those not being regulated by the BSP [Bangko Sentral ng Pilipinas] or any regulating body. These include input suppliers, millers, traders, friends and relatives, and landowners who are not supervised by the government. They typically impose exorbitant interest rates in exchange for non-requirement of documents and/or collateral,” the ACPC said.

Montemayor said Filipino farmers’ reliance on loan sharks is a dangerous habit that leaves them deeper in debt. Most of the borrowers are subsistence or one-crop planters who are vulnerable to a lot of risks like extreme weather. When their crops are destroyed, they are forced to run to informal lenders again, despite their inability to pay the high interest rates, Montemayor explained.

Meanwhile, the ACPC is urging the government to release the long-overdue funds allocated for them under the Agriculture and Fisheries Modernization Act (AFMA) of 1997.

Jovita Corpuz, ACPC chief, said the ACPC’s Agro-Industry Modernization Credit and Financing Program  should have been appropriated the amount of P2 billion for its first year of implementation and P1.7 billion every year for the next six years.

The funds have not reached the ACPC. The credit line is currently financed by loanable funds and past due loans from terminated agricultural directed credit programs collected by ACPC.

“If we were able to get the P12 billion, it would have gone a long way in providing financing to unorganized small farmers and fisherfolks,” Corpuz said.

Corpuz said the government recognizes that small Filipino farmers and fishermen need accessible funds to improve their lot.

Under a five-year plan discussed at the conference on Thursday, the government said it planned to increase the proportion of borrowing farmers and fishers from formal sources to 85 percent from 57 percent by 2016, or an increase of 28 percent in the incidence of formal borrowing among small farming and fishing household borrowers.

“In terms of the number of small farmers and fishers, the goal is to increase credit outreach by more than 800,000 farmers and fishing households,” the ACPC paper said.