Inconvenient truth on agricultural credit

Farmers in the Philippines have more than double the poverty rate of their counterparts in Vietnam, Indonesia and Thailand. The inconvenient truth is that this poverty is largely due to our very defective agricultural credit system.

Consider the following:

As of June 30, 2017, out of the total loanable funds of P38 trillion, only P39 billion (or 1 percent) goes to small farmers and fisherfolk (SFFs). But these small farmers lived on credit that is not recorded. They use the five-six system for a three-month period. The effect is that they pay an annualized interest rate of 80 percent, which continues to mire them in poverty.

Rural banks are the best vehicle to reach our farmers. Thirty years ago, we had 1,400 of them. Today, there are only 400 left. And of these 400, only about 100 can be considered healthy because the rest are considered sick or weak banks.

There is the government-established Agriculture Credit Guarantee and Loan Program (ACGLP) that can guarantee collateral-less loans of up to P15 billion to SFFs. But as of the end of 2017, less than P7 billion was availed of.

Land Bank of the Philippines (LBP) is supposed to be the agricultural bank of the SFFs. But because LBP has the status of a universal bank and therefore has to meet the central bank’s required profitability standards, it cannot lend much to higher credit risk SFFs. Consequently, as of Sept. 30, 2017, LBP’s total loan portfolio of P542 billion was distributed as follows:
– P343 billion (63 percent) to non-agriculture sectors
– P124 billion (23 percent) to agri-fisheries
– P39 billion (7 percent) to small farmers and fisherfolk
– P37 billion (7 percent) to LGUs and GOCCs

While 30 percent went to the agriculture sector, SFFs who count on a government agriculture bank to address their needs are very disappointed. They get only 7 percent of the loans.

What then is the solution?

It is to listen very carefully to agricultural credit experts from the private sector. From the five-coalition Agri-Fisheries Alliance (AFA), we can identify specific experts.

From the Philippine Chamber of Agriculture and Food (PCAFI), Danny Fausto, former banker and a DA Awardee for Agri-Entrepreneur of the Year, suggests that the agricultural credit guarantee guidelines be overhauled. And he knows how to do it.

PCAFI’s Rolly Dy, also chair of the Management Association of the Philippines Agriculture Committee, recommends that the good practices of Thailand’s very successful BAAC government agriculture bank be adapted to the Philippine situation and immediately implemented.

From the Coalition of Agriculture Modernization in the Philippines (CAMP), Jun Reyes, former Philippine National Bank official, believes that LBP should be given additional resources to help SFFs prepare feasibility studies. Ray Almario, former LBP official, argues that there is no lack of money, but at a dire lack of good financially sound agriculture proposals. Extension workers should be hired to identify and help prepare these proposals.

CAMP chair and former minister of science and technology Emil Javier contends that half of the LBP profit remitted to the national treasury should remain with LBP. This can not only provide an extra fund for SFFs. It can also pay for the extra bank expense of sending out extension workers to help them.

Former Luzon Development Bank president Leo de Guzman goes further. He believes that LBP should organize satellite offices. When these become financially viable, LBP can sell them to the assigned LBP staff as well as other investors. LBP can own preferred shares and franchise the operations to them.

The Agri-Fisheries Alliance (AFA) is sponsoring an Agriculture Credit Forum on May 19 to address these issues. AFA has already engaged the LBP and PNB presidents as well as the central bank governor. Though they are invited as speakers, their main role is not to speak but listen to the creative ideas of the private sector.

After doing the necessary preparation for the forum through prior meetings, this forum may provide breakthroughs that will transform the inconvenient truth of today’s agriculture credit to a much-awaited victory for effective and accessible SFF loans.