The agriculture sector only has access to a small fraction of the Philippine banking system resources despite accounting for almost a tenth of the local economy and employing a tenth of the Filipino population, the central bank said on Friday.
Given this, the Bangko Sentral ng Pilipinas wants financial institutions and agricultural firms to explore new ways of making bank loans more readily available to farmers who are presently constrained from ramping up production due to funding constraints.
“The percentage of loans for production and economic activity for agriculture, along with fisheries and forestry, is a paltry 2.9 percent, while the credit gap currently sits at P367 billion,” BSP Deputy Governor Chuchi Fonacier said during the Agriculture Value Chain Forum (AVCF), which the central bank co-hosted with the Philippine Chamber of Agriculture and Food Inc.
She attributed this gap between what the sector needed and what it actually gets in terms of financial resources to the reinforced perception that agriculture was “risky, unprofitable and ‘a thing of the past.’”
“While the figures may not lie, I strongly disagree with this perspective,” she said. “Agriculture holds considerable potential and prospects. It can be an engine of growth and broad-based development.”
Agriculture currently accounts for 9 percent of gross domestic product and employs approximately 11 million Filipinos.
Despite its significant impact and contributions, the agricultural sector’s access to credit remains a key challenge: Most lenders consider it a high-risk market due to its vulnerability to weather conditions and natural disasters, productivity and capacity issues, and inadequate borrower information and infrastructure, among other factors.
The reluctance of financing institutions to lend puts smallholders at a disadvantage and hinders them from effectively integrating into higher value markets. To date, the average share of agricultural loans stands significantly lower compared to the respective shares of consumer and real estate loans at 17.5 percent and 19.92 percent.
To address this, the BSP is promoting the AVCF as an innovative financing approach and provide guidelines and incentives to banks.
Organized value chains are able to address key risk factors such as lack of reliable information about the farmers, unstable markets and income sources that are typical deterrents for banks. They are also able to increase productivity and business sustainability, which can in turn encourage banks to develop appropriate products that support the financing needs of smallholders and other actors along the chain.
Friday’s forum, co-hosted with the Philippine Chamber of Agriculture and Food Inc. (PCAFI), aims to showcase financing opportunities for banks and facilitate meaningful interaction between agricultural enterprises and senior bank executives toward improved agricultural financing.