"How can most farmer loan applicants have credit records when they have had no previous access to bank credit?"
"How can most farmer loan applicants have credit records when they have had no previous access to bank credit?"
One would have thought that participants in activities intended to discuss the flow of credit to Filipino farmers—congressional hearings, summit conferences, NGO (non-governmental organizations) colloquia and policy renewal meetings—would by now be tired of hearing facts and opinions on farm credit that they have already heard numerous times. But that is not how things are. At every one of such events the same pious recitations of facts, the same expressions of high-minded views, the same hand-wringing and the same blame-passing takes place. Yet the same tiresome spectacle is re-enacted again and again, time after time.
One hopes that the agricultural-lending situation will have improved significantly by the time the next Congressional hearing or policy-review colloquium takes place. But that is likely to be a forlorn hope. The reasons why this is so were brought out during the recent hearing called by Congress to examine President Duterte’s charge that government-owned Landbank had not fulfilled its mandate to provide adequate credit to the agricultural sector, especially CARP (Comprehensive Agrarian Reform Program) beneficiaries.
One fact that was presented to the congressional committee was that, although it was created to support the objectives of the original land reform law—the Land Reform Act of 1963—Landbank has from its establishment been operating like a regular commercial bank. The bank’s defenders, led by the Secretary of Finance, informed the Congressmen that only around 21 percent of Landbank credits had been going to the agricultural sector. Clearly, there has been a mismatch between Landbank’s mandate and the level of its agricultural lending operations.
Also brought before the congressional committee was the record of implementation of the law mandating a minimal level of commercial-bank lending to the agricultural-agrarian reform sector (the Agri-Agra Act). The resource persons from BSP (Bangko Sentral ng Pilipinas), the banking industry and the agricultural sector told the Congressmen—definitely not for the first time—that the bulk of Agri-Agra credit had gone not to direct loans to farmers but to purchases of eligible government securities. In what was clearly a case of flawed economic-policy craftsmanship the authors of Agri-Agra Act, allowed the banks, with the concurrence of BSP, to comply with that law, by investing in eligible government securities instead of granting loans to farmers directly. Comparing the problems and costs of purchasing government securities with those of processing hundreds of thousands of small-farmer loan applications, Landbank and other banks naturally opted to take the government securities route to Agri-Agra Act compliance. Things would have been allright if the fiscal authorities had in fact devoted to agricultural lending the proceeds from the banks’ government-securities purchases; unfortunately, official records show that that has not been the case.
In the course of the committee hearing the Congressmen were told by the banking-industry resource persons—also not for the first time—that, while they might want to better comply with their Agri-Agra Act obligation, they are held back by the farmer applicants’ lack of credit records. After all, banks expect to get repaid for their loans, the bankers said, but loan approvals depend on indications of creditworthiness. To this the farmers’ representative’s retort was, how can most farmer loan applicants have credit records when they have had no previous access to bank credit? How, indeed?
The problem of inadequate credit for the agricultural sector—and the large problem of Philippine agricultural sector underperformance—will not be solved, and all future conferences and meetings on agricultural credit will be mere replays of their predecessors, if the government fails to fully grasp, and to act decisively upon, the following realities, namely, (1) Landbank has not operated, and is not about to operate, as a farmers’ bank, (2) the Agri-Agra Act is a flawed law and banks will continue to fulfill their obligation thereunder by simply buying eligible government securities and (3) the great majority of Filipino farmers don’t have credit records on the basis of which banks can evaluate the creditworthiness.
The implications of these realities for monetary policymaking and GFI (government financial institutions) structural change are obvious.
