BPI, IFC to team up on SME agribusiness lending

MANILA, Philippines—Ayala-led Bank of the Philippine Islands plans to get into small and medium enterprise agribusiness lending “in a big way” using as its springboard a risk-sharing facility with International Finance Corp. that has worked well in funding sustainable energy projects.

BPI was named one of 14 global awardees of the IFC-administered G-20 Finance Challenge Award for its innovative financing scheme focused on energy projects of SMEs. The bank is the only institution from East Asia to win this prestigious award, where 200 entries competed across the globe.

Under this Sustainable Energy Finance (SEF) program, BPI’s clients have been able to slash energy use by 142,000 megawatt hours (MwH) and generate renewable energy of 208,200 MwH each year. The investments have also resulted in reducing greenhouse emissions by 527,900 tons annually.

The G20 award comes with a $1.2 million grant, which BPI intends to use to improve market awareness through the education of SMEs in energy-efficiency and renewable-energy projects, as well as to enhance the bank’s capacity to deliver financing and technical services. “As a pioneer in green banking and in developing the SME market, BPI is thankful for the grant that will enable us to expand our SEF program. Under this program, we have been able to disburse over P5.1 billion in loans to sustainable energy projects, many of them belonging to small entrepreneurs,” Montinola said.

Of the total loans disbursed, BPI had lent out P3 billion on its own and about P2 billion under a risk-sharing financing scheme with IFC, the private-sector financing arm of the World Bank.

“If we enter the agribusiness space, we’ll do exactly the same,” Montinola said in a press briefing.

BPI executive vice president and head of corporate banking Yogi Salcedo said the bank was looking to expand its collaboration with IFC beyond energy financing. As BPI did not have the expertise or comfort level to get into agribusiness lending at lower or middle level, he said the risk-sharing scheme with IFC would play a big role.

“This possible affiliation or expansion of this agreement could allow us to get into that space in a big way and obviously that’s also part of your mantra of inclusive growth,” Salcedo said.

Montinola noted that in the 1980s, BPI had an agriculture-focused subsidiary BPI Agri Bank, which was eventually refocused into BPI Direct, an Internet-based bank for overseas Filipinos. As such, he said BPI had always been interested in the agriculture sector except that this was difficult to roll out in the 1980s because of the high-interest rate regime then. Because the agribusiness sector is very vulnerable to weather disruptions, big banks typically avoided exposure to this sector.

“We’re not proposing to change the whole world in agri but where we can help—like giving of advice, financing … What BPI intends to do is cautiously go in, which means to make a bet on the sector and make limited bets rather than overanalyzing,” Montinola said.

“We think that if we get the right ingredients and support the right part of the supply chain, which is the farmers, I think we can indeed be productive.

In terms of objectives for development in the country, it’s important for us to focus on inclusive growth,” said Jesse Ang, IFC country manager.

Ang noted that in 2010, even when the Philippine domestic economy expanded by 7.3 percent—the fastest pace in three decades—this had very little positive impact on poverty reduction.

“So we must change our focus to inclusive growth, not just growth itself, and agribusiness is the logical area because one reason why we don’t grow is because we don’t have enough jobs for unskilled labor and most of our unskilled labor is in agri sector,” Ang said.

Ang said the Philippine farm sector was facing a lot of issues, including land reform as in the local case; land was distributed but there was little technical and financing support for farmers, which were key elements in successful agrarian reform programs in other countries.