Landbank model

Land Bank of the Philippines (LBP) president Alex Buenaventura has embarked on the correct approach of reaching out to small farmers, instead of waiting for them to submit loan proposals. Consider Rey Almario’s snapshot of the agriculture terrain. Almario is a former banker from the Coalition for Agriculture Modernization in the Philippines, led by some of its key founders—chair Emil Javier and president Ben Peczon.

Agriculture contributes 10 percent of the gross national product, or up to 35 percent if ancillary industries are included. Agriculture workers constitute 28 percent of the workforce, with 30 percent involved in postharvest activities. They have the highest poverty incidence: 34.3 percent for farmers and 34 percent for fisherfolk.

There is an Agri-Agra law designed to help this sector—15 percent of loanable funds must go to agriculture and 10 percent to Agrarian Reform Beneficiaries (ARBs). Unfortunately, only 7 percent and 1.3 percent go to these subsectors, respectively. Banks do not want to lose money by lending for proposals that are not financially viable. They would rather pay the penalty of half of 1 percent for noncompliance, rather than losing the whole loan amount.

It is in this environment that LBP, as the official agriculture bank of the Philippines, is looked upon as a model for other banks to follow. Today, only 2 percent of the banking sector’s loanable funds goes to agriculture.

A model is suggested by Pablito Villegas, who has worked on rural credit in 20 countries as a consultant for organizations such as the United Nations and Asia Development Bank. Here is his suggested model that follows the direction of LBP president Buenaventura, but provides additional details:

LBP should form a network of satellite countryside banking and lending centers at the LGU and community levels. This can start in 20 strategic areas.

LBP should help implement the government’s convergence policy of DA, DENR, DAR, DTI and DOST through integrated area development. This will result in the clustering of competitive enterprises and the aggrupation of core, related, supporting and allied industries that will form the nucleus of a pro-poor, proenvironment and highly inclusive development approach.

LBP should enter into MOAs with LGUs and converge national government agencies for the packaging and financing of projects at the household or cooperative level using value-chain financing schemes.

Buenaventura’s corporative management system demonstrates such profarmer institutional arrangements within the value-chain where the exploitative elements of many existing agriculture supply chains are addressed and resolved.

LBP’s integrated financial delivery and recovery system will be complemented by the coordinated business development, extension and capacity building support from converging NGAs, NGOs, people organizations and agribusinesses.

LBP should fund and organize countryside financing teams (CFTs) with an agro-based business-oriented manager, agriculturists/aquaculturists, and specialists in financing, marketing and information technology. This will be similar to PNB’s Bank-on-Wheels.

If LBP is successful in reaching out rather than waiting for loan proposals to come in, other banks will follow using the LBP model. They will then come closer to complying with the Agri-Agra law. The Monetary Board must formulate and implement guidelines that will make Agri-Agra law compliance more attainable.

For example, it is clear that the 10 percent requirement for ARBs is almost impossible to attain. Today, compliance is only 1.25 percent. There should be enough flexibility so that a large part of the mandated 10 percent can qualify for compliance if the beneficiaries are not necessarily ARBs, but also small farmers.

As for the 15 percent requirement for agriculture, any support for agriculture such as ancillary activities not currently covered should qualify for this requirement. Any incentive that will help agriculture should be given. It is time to reach out, instead of just passively waiting and uselessly hoping that the 2 percent agriculture loan share will improve without reforms.

Such reforms will be discussed in a free, open Agri-Credit Forum from 1-5 p.m. on May 17 at the University of Asia and the Pacific, Pearl Drive, Ortigas Center. Please call 0917-7920848 to preregister.