Local lenders have collectively set aside P1.7 trillion worth of funds for that in theory and by operation of law should benefit agriculture, as well as agrarian-reform beneficiaries.
But the influential Bankers Association of the Philippines (BAP) quickly said that, while its heart goes to the underserved farmer and agrarian-reform grantee, practical barriers, such as the absorptive capacity of the mandatory sectors, prevent local banks from observing in full the letter of the law.
The BAP expressed its support for initiatives boosting the agricultural sector and improve the quality of life of Filipino farmers with at least P1.7 trillion set aside by the banking industry to aid in the farming sector.
According to BAP Managing Director Cesar O. Virtusio, the growth experienced by the banking industry recently enables the sector to offer more services to farmers beyond the strictures defined by Republic Act (RA) 10000, or the Agri-Agra Law.
“We believe the banks can help the farmers in more ways than one,” Virtusio said.
RA 10000 aims to provide agrarian- and agriculture-reform credit to the agriculture, fisheries and agrarian sectors, improve the productivity of the agriculture and fisheries sectors with a comprehensive insurance and financing system.
Virtusio said that, with a more developed Philippine capital market, the banking industry can help the agriculture sector by purchasing government bonds, which will help sustain the national government’s funding requirements and pursue its economic agenda.
Under the government’s 10-point socioeconomic agenda, rural development is among the administration’s top priorities, including programs mainly to promote and aid the agrarian and agricultural sectors.
“In addition to the government securities, the banks can assist the agriculture sector by buying bonds issued by Land Bank of the Philippines and the Development Bank of the Philippines to ensure that these institutions remain economically viable to carry out their mandate,” he added.
The organization believes that, while the government remains the driving force behind the development of the sector, the private sector can also be of assistance by providing supplementary services and support. This may include compliance in the form of the banking industry’s participation in the government’s public-private partnership projects for infrastructure development, which will benefit the sector.
“With this change, the sector may not have enough capacity to absorb the amount of funds that the banks are mandated to lend to the farmers,” Virtusio said.
The law, it mandates all banks to set aside a total of 25 percent from the banks’ loanable funds to be lent to the agriculture sector. Of which, 10 percent should be set aside specifically for agrarian-reform borrowers, while the remaining 15 percent is for agricultural financing.
Meanwhile, the penalty for noncompliance shall be computed at one-half of 1 percent, or 0.5 percent, of noncompliance and under compliance. Of this amount, 90 percent of the penalties collected shall be allocated between the Agricultural Guarantee Fund Pool and the Philippine Crop Insurance Corp. according to the needs of the agri-agra sector, as provided for in the implementing rules and regulations of the act and the remaining 10 percent shall given to the Bangko Sentral ng Pilippinas to cover administrative expenses.
“The banking industry hopes to support a sustainable, productive and efficient agricultural sector by allocating the necessary loanable funds required by the current agricultural landscape,” Virtusio said.
To date, Philippines is the only country in the world that implements mandatory lending practices by virtue of law. Aside from the absorptive capacity problem, the banks were also sworn into fiduciary responsibility with their depositors.
“We have to keep in mind that this is private capital. This is the money of the depositors and the banks have the responsibility to make sure these funds are protected and will yield returns at the promised time,” he explained.
Data from the Philippine Statistics Authority (PSA) in August this year show the agriculture sector on the decline for five consecutive quarters already. Agriculture, hunting, forestry and fishing output have contracted by 2.1 percent in the second quarter.
Despite the issues raised on mandatory lending, Virtusio said the government may rely on BAP backing to help boost the quality of life among Filipino farmers and improve the agriculture sector.