Bangko Sentral ng Pilipinas said Wednesday it approved the adoption of the value chain financing framework for agriculture and fisheries sectors.
Bangko Sentral said in a circular the new type of financing would facilitate and allow small farmers/fisherfolks to have access to credit.
This is also expected to further improve productivity in these sectors and raise the quality of living of these marginalized people, the regulator said.
“The new issuance by Bangko Sentral ng Pilipinas on agricultural value chain financing addresses the associated credit risks with the agriculture and fisheries sector by shifting the focus of lending from individual farmers and fisherfolks to the whole value chain,” Bangko Sentral said.
Value chain refers to a set of individuals, such as producers, traders, suppliers, processors, and aggregators, who conduct linked sequence of value-adding activities involved in bringing a product from its raw materials stage to the final consumers.
Value chain finance refers to the financial flows to those individuals from both within the value chain and financial flows to those people from outside as a result of their being linked within a value chain.
“The BSP hopes that the issuance will provide the necessary guidance for banks to be able to serve the needs of the agriculture and fisheries sector, specifically the smallholders, in a manner that is viable and sustainable,” the bank regulator said.
The agriculture and fisheries sectors have traditionally been significant contributors in the Philippine economy, accounting for 10 percent of the country’s gross domestic product and employing 11.2 million Filipinos in 2014.
Despite the important impact of these sectors, obtaining credit remains a challenge, according to the bank.
Lack of access to finance by smallholder farmers put them in a bigger disadvantage, making them unable to integrate to higher value markets.
The sector is considered a high risk market due to its inherent susceptibility to weather conditions, flooding, pest infestations and man-made calamities.
Bangko Sentral said participation in a value chain would allow farmers to leverage on effective farming technologies and methods, access to formal financing and sustainable market demand.
“By integrating into a value chain, they were able to access financing that allowed them to upgrade their products and processes, and to be assured of a steady market through a leading fast-food chain. The farmers are able to supply directly to institutional markets resulting to increased profit and greater opportunities for expansion,” it said.
The framework provides minimum prudential expectations including the need for adequate policies and procedures on the analysis of the value chain, availability of appropriate products, utilization of innovative disbursement schemes, and adoption of anchor-firm triggered loan release.
The issuance also allows financial institutions to put in place a disaster contingency mechanism requiring the adoption of risk mitigants to minimize losses and provide relief to a borrower to facilitate recovery.
“To encourage engagement in the lending scheme, incentives are also provided to financial institutions that comply with the regulatory expectations. The incentives include compliance with agri-agra requirement and an additional 25-percent increase in the single borrower’s limit for loans granted to actors in the agricultural value chains for a period of three years,” it said.