Agricultural credit priorities

In order for our farmers and fisherfolk (who constitute 35 percent of our population) to be able to tap 2 percent of our loanable funds, three solutions are identified: (1) a more effective agriculture credit guarantee system; (2) more flexible agri-agra credit guidelines; and (3) immediate adjustments in the operations of the Land Bank of the Philippines, with a long-term view of having a more responsive National Agriculture Bank.

These priorities were identified during a recent meeting of the five-coalition Agri-Fisheries Alliance (AFA), representing among others small farmers and fisherfolk, agribusiness, science and academe and the rural women.

Credit Guarantee. The banking system is awash with idle funds. Most of our farmers use credit to survive. But instead of getting this from the banking sector, they use informal channels, such as the “5-6 lending” system, which translates to an annualized 80-percent interest rate.

The banks cannot afford to lose money. They consider farmers and fisherfolk high-risk borrowers. This is why they lend only 2 percent. Thus, to unlock the funds, the risk must be lessened.

The housing sector has had success with a responsive credit guarantee system. The agriculture sector can do the same.

Former banker Danny Fausto, the credit and guarantee committee chair of the Home Guaranty Corp., suggested that key features of this housing system should be adopted for agriculture.

Funds guaranteed by the Agriculture Guarantee Fund total only P7 billion. In contrast, the housing guarantee covers P175 billion.

Proposals include increasing the 85-percent guarantee cover and not requiring an additional 35 percent of the guaranteed loan if the loan is not repaid.

Agri-Agra Law. This law requires that 15 percent of a bank’s fund must go to agriculture and 10 percent to agrarian reform beneficiaries. However, compliance is achieved by paying only half of 1 percent of the loan. Bankers would rather pay this low penalty rather than lend to high-risk borrowers.

The current guidelines should be more flexible so that low-risk alternatives will enable the funds to go to these targeted sectors. Examples are the bonds proposed by Agriculture Secretary Emmanuel Pinol, as well as allowing subcontractors, integrators, intermediaries, and qualified people’s organizations and nongovernment organizations who provide loans to these beneficiaries to qualify as borrowers for this category.

Agriculture Bank. Landbank is the agriculture bank of the Philippines. But since it is also a universal bank, it has to follow strict criteria defined by the Bangko Sentral ng Pilipinas. Thus, Landbank lends only 8 percent of its loan portfolio to farmers and fisherfolk.

We need an agriculture bank that emphasizes the number of farmers and fisherfolk served.

Meantime, Landbank should create a special section using a different criteria. In addition, half of the section’s profit should go back to Landbank, instead of being remitted to the National Treasury.

The fund can be partly used to establish satellite offices that can help farmers and fisherfolk identify and prepare financial loan proposals.

Funds are not the problem. It is instead the dire lack of feasible loan proposals. Farmers and fisherfolk cannot implement these proposals themselves.

These three priorities will be discussed at the AFA-supported Agriculture Credit Forum with key government decision makers on May 17. This will be at the University of Asia and the Pacific and hosted by Dr. Rolando Dy.

Will these priorities finally be addressed by the concerned government officials? Abangan.