BSP wants agri-agra law strengthened | Inquirer Business
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BSP wants agri-agra law strengthened

By: - Reporter / @daxinq
/ 04:08 AM August 18, 2020

The current state of lending to the agriculture and agrarian reform sectors—with credit having declined sharply over the previous decade and banks choosing to pay fines instead of extending new loans—is unacceptable, according to the head of the central bank, who urged lawmakers to improve the laws governing the current scheme.

In a statement, Bangko Sentral ng Pilipinas Gov. Benjamin Diokno said the regulator continued to pursue “innovative solutions” even with the decline in banks’ agricultural lending despite the implementation of the Agri-Agra Law of 2009, which requires banks to set aside at least 15 percent of their loanable funds to agriculture and 10 percent to agrarian reform.

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“We find the present state of affairs unacceptable,” he said, noting that the share of agriculture and fisheries credit to banks’ total loans declined steadily from 12.3 percent in 2010 to 2.4 percent at the end of May 2020.

BSP data also showed that agricultural credit stood at 10.8 percent in 2019, well below the 32.3 percent recorded in 2011. Agrarian reform credit also fell from 4.4 percent in 2011 to 1.1 percent in 2019.

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As such, the central bank chief is asking Congress to amend the 11-year-old law with the aim of expanding the range of eligible rural beneficiaries and agricultural activities that can be financed as part of the mandatory credit.

A key proposal is the establishment of a special fund that will finance capacity building programs and initiatives to improve the productivity, income potential and the “bankability” of farmers and their enterprises and households.

Diokno lamented that since the law was passed in 2009, most banks have chosen to pay regulatory fines and penalties of more than P10 billion rather than lend money to these perceived risky undertakings.

“A more responsive agriculture financing ecosystem is needed to realize its full potential as an engine of inclusive economic development,” he said. “We need to be deliberate in our bid to create a more inclusive new economy by supporting the development needs of the agriculture sector.”

These proposed measures include strategic interventions to improve the productivity and bankability of farmers and their enterprises; increase the institutional capacity of banks to assess and offer customized lending products to agricultural enterprises, and develop the financial infrastructure to minimize the impact of the agriculture sector’s inherent risks through appropriate credit risk management instruments.

Diokno said the regulator recognized the large potential of agriculture as a driver of inclusive growth, pointing out that in 2019, the sector delivered a gross value added of more than P1.7 trillion. This accounted for 9.2 percent of gross domestic product, considering forward linkages to manufacturing and various industries.

The sector also contributed $5.1 billion or 11.1 percent of the country’s exports in 2019.

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During the second quarter of the year, only the agriculture sector managed to grow, expanding by a modest 1.6 percent, underscoring its resilience, he said.

The sector also employs more than 8.7 million Filipinos representing 26 percent of the country’s labor force, mainly in the rural areas.

“These numbers make it imperative for the BSP to provide support to the sector through agricultural financing,” he said.

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TAGS: Bangko Sentral ng Pilipinas, BSP, Business
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