Banks paid around P6 billion worth of penalties in the past two years, instead of lending to farmers and fishers as required under the Agri-Agra Law, data form the Bangko Sentral ng Pilipinas show.
Monetary Board member Bruce Tolentino said in a news briefing “many of the banks prefer to pay the penalty rather than actually lend to farmers.”
“I think over the last two years, it has been something like P6 billion in penalties alone,” Tolentino said.
Under the Agri-Agra Law or Agri-Agra Reform Credit Act of 2009, government and private banks should allot 25 percent of their total loanable funds to the agriculture and fisheries sector. Ten percent of the amount should be lent to agrarian reform beneficiaries and the remaining 15 percent to the farmers.
Tolentino said the Bangko Sentral imposed penalties on all banks that failed to reach the 15-percent agriculture loans and 10-percent agrarian reform loans to beneficiaries.
“Many of the banks prefer to pay the penalty rather than actually lend to farmers because farmers are poor credit risks, so they pay,” he said.
“I doubt if there is any legislature that will take away the Agri-Agra law even though it has been proven that it doesn’t work,” Tolentino said.
The Bangko Sentral has been promoting agricultural financing as one of the keys to strengthen the agricultural sector which, for the past several years, posted modest contribution to economic growth.
BSP Deputy Governor Chuchi Fonacier said during the Agriculture Value Chain Financing forum that agriculture still held considerable potential and prospects and could be an engine of growth and broad-based development.
Fonacier said one of the major hindrances to the growth of the agricultural sector was the severely limited access to finance. She said it was in this light that the Bangko Sentral was promoting agricultural financing through three key aspects.
First is to improve cost efficiency in the delivery of financial services and leverage on digital technology. She said this was done through the issuance of circulars on basic deposit accounts (Circular 992), cash agents (Circular 940) and national retail payment system (Circular 980).
She said the BSP was also working closely with its partners in the national government to strengthen the financing infrastructure for agriculture through legislation, such as the recently passed Personal Property Security Act or Republic Act No. 11057 that would boost access to credit.
Third is the constant exploration of innovative financing models, such as the push for agricultural value chain financing through Circular 908 that facilitates the entry of banks into value chain financing by establishing guidelines and incentives.
Fonacier said policies and initiatives could only work if key industry players and various stakeholders did their part.
“Currently, banks remain unable, if not averse to catering to the credit needs of the agricultural sector. Year after year, the amount of loans and rates of compliance fall short of the prescribed quota under the Agri-Agra Law [Agri-Agra Reform Credit Act of 2009],” Fonacier said.
Fonacier said that banks’ compliance rate for agriculture loan in 2017 stood at 12 percent, lower than the mandated 15 percent. Banks also achieved a mere one percent compliance rate instead of the 10-percent loan portfolio distribution for the agrarian reform beneficiaries.
Fonacier, citing data from the Agriculture Credit Policy Council in its 2016 report, said credit demand for priority commodities of the Department of Agriculture stood at P522 billion.
Agriculture still accounts for 27 percent of total employment in the country, with approximately 11 million Filipinos engaged in agricultural labor.
The economy managed to grow 6.1 percent in the third quarter, slower than the 7.2 percent a year ago and 6.2 percent a quarter ago, pulled down by the sluggish output of the agricultural sector and slowdown in household spending due to faster inflation rate.