Welcome agriculture credit reforms

Agriculture credit reforms announced on May 17 by Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi Fonacier (representing BSP Governor Nestor Espenilla) and Land Bank of the Philippines President Alex Buenaventura are indeed most welcome. The developments came during the Agri-Credit Forum, which was designed specifically to significantly increase agriculture credit from a dismal 2 percent of total bank loans.

Buenaventura unveiled a new strategic Landbank paradigm: “Landbank will now go to the farmers, instead of the farmers going to Landbank.” To ensure small farmers and fisherfolk gain access to financing, lending centers will be set up nationwide to provide loans to target borrowers through direct marketing. A master list of small farmers and fisherfolk will be drawn up by the bank, in consultation with local representatives of the Departments of Agriculture (DA) and Agrarian Reform (DAR).

Trained “supervised credit technicians” will market directly to those oin the list. These technicians will also identify financially viable projects and prepare loan proposals, which small farmers and fisherfolk are not trained to do.

Landbank will also issue bonds in compliance with the Agri-Agra Law.

BSP Deputy Governor Chuchi Fonacier, for her part, said “addressing the needs of the agriculture sector is crucial in the attainment of inclusive development and broad-based growth.”

BSP aims to promote agri-financing through three key areas: (1) enabling innovative financing models such as Agri-Value Chain Financing (AVCF), (2) fostering cost efficiency of the design and delivery of financing through digitization, and (3) strengthening the agrifinancing infrastructure.

To address the low compliance to the Agri-Agra Law, BSP is in favor of consolidating the 25-percent legal requirement. The exact percentage distribution between the 15-percent share for agriculture and 10-percent share for agrarian reform beneficiaries is the subject of a study that will soon be concluded. Today, direct compliance to these two sectors is 7 percent and 1.3 percent, respectively.

To increase the flexibility of fulfilling the legal requirement, BSP is in favor of including the participants in the agrivalue chain among the qualified beneficiaries of the Agri-Agra Law. BSP will welcome the agriculture-oriented bonds announced by Landbank and the DA.

Fonacier announced that BSP would invite all banks to a forum on the agriculture value-chain financing program. This will be done together with groups such as the five-coalition Agri-Fisheries Alliance (AFA) and the Philippine Chamber of Agriculture and Food, Inc. providing successful agrivalue chain examples.

AFA credit champion Danilo Fausto presented the AFA five-point program for agriculture credit. He said: “The banking system is awash with funds. But a more effective agriculture credit guarantee system must be established to minimize the risk inherent in agriculture loans.”

These wide-ranging reforms must come to fruition.

Since the key government officials themselves made the announcements, we believe these reforms will not fall into the trap of “words only, signifying nothing.”