The central bank is urging Congress to overhaul a law that requires banks to allocate loans for agriculture and agrarian reform, saying improved and more flexible mechanisms will encourage more lending to these sectors rather than the current state where financial institutions just pay penalties for noncompliance.
According to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno, improvements to Republic Act No. 10000 or the “The Agri-Agra Law” “will strengthen rural development by providing a holistic approach in addressing the financing needs of the broader agricultural financing ecosystem.”
The proposed amendments to this law contained in House Bill No. 6134 are aimed at tackling the persistent challenges in agriculture financing that emanate from both the borrowers’ side and the banks’ and lending institutions’ side.
In a statement at the Senate Committee on Agriculture, Food and Agrarian Reform hearing today, Monetary Board Member V. Bruce Tolentino asserted the agricultural sector’s significant role in promoting inclusive and broad-based economic growth.
“The BSP fully supports the objectives driving the various agri-agra bills which seek to strengthen rural development through holistic approaches that consider the broad context for agricultural financing and rural community development,” he said.
At end-December 2020, the banking system extended a total of P713.6 billion in agri-agra credit. Even with such an amount, banks were still unable to comply with the mandatory credit levels.
The P642.4 billion in agricultural credit during the period translates to a 9-percent compliance ratio, which is below the 15 percent requirement.
The P71.2 billion in agrarian reform credit translates to a 1 percent compliance ratio, which is below the minimum 10 percent.
The proposed amendments are envisioned to strengthen rural development and improve well-being of agricultural and rural community beneficiaries by enhancing access by rural communities to private sector financing.
This includes expanding the modes of compliance by banks; creating an Agribusiness Management Capacity and Institution-Building Fund that will be used to finance organizational-, capacity- and institution-building programs and activities of rural agricultural and fisheries households, and establishing an Agricultural and Fisheries Finance and Capacity-Building Council, which will be responsible for the management and operations of the fund.
As part of the comprehensive amendments to the Agri-Agra law, the BSP, Department of Agriculture and the Department of Agrarian Reform approved the amendments to the implementing rules and regulations of the Agri-Agra Law last March 2021—an interim measure pending the passage of the proposed changes.