A DECADE after its initial enactment and after bouts of controversies surrounding the effectivity of its mandate, the agri-agra reform law of 2009 is now up for amendments to expand the banks’ modes of compliance to the law.
The House of Representatives held back-to-back hearings on Tuesday and Wednesday for House Bill 5681, an act mandating banking institutions to strengthen the financing system for agricultural, fisheries and rural development in the Philippines.
“When the Agri-Agra Reform Credit Act was enacted, it was optimistically regarded as a cure-all for the many ills plaguing our country’s agriculture sector…. Unfortunately, the idea that was meant to revolutionize the industry fell short of achieving its goal. Because banks found it a hardship to invest in an industry perceived to be fraught with risks, the concept of institutionalizing mandatory lending merely resulted in widespread non-compliance with the law,” said Rep. Junie Cua, the principal author of the bill.
“The proposed measure seeks to institutionalize a framework that is more responsive to the needs of the agricultural sector while providing for ways for the banking industry to take on a more expansive role in line with a policy approach that is coordinated, systematic, broad-based and inclusive,” he added.
In a roundtable press chat on Wednesday, Monetary Board
member and former Agriculture
Undersecretary for Policy and Planning Bruce Tolentino discussed with the BusinessMirror the salient provisions of
the filed bill.
“Hearings for the new bill, as filed by Congressman Junie Cua, started yesterday and will continue today. So those hearings are for the bill that was drafted by an interagency committee which included the Bangko Sentral ng Pilipinas [BSP], Land Bank of the Philippines [LBP], the Development Bank of the Philippines [DBP] and the Bankers Association of the Philippines [BAP],” Tolentino said.
“The principal objectives of the bill is that No. 1, banks will find it much easier to comply with the agri-agra requirement. The difference between agrarian and agriculture will be erased so we unified the definition so there will be a lot more focus on agriculture,” he added.
The Agri-Agra Reform Credit Act of 2009 (Republic Act 10000) mandates banks to allot at least 10 percent of total loanable funds for agrarian reform beneficiaries (ARBs) and 15 percent for farmers and fisherfolk. Under the amendatory bill now under congressional scrutiny, the required allotment for agrarian reform beneficiaries and agriculture will be merged to a whole 25 percent, with no delineation as to what percentage is needed for agrarian reform and for agriculture.
According to Tolentino, there will also be options for the banks to comply with the requirement, not only by loans but also by investing in equity, as well as working with other banks to be retail lenders to farmers.
Grants, too
Options will also be available for large banks to contribute not only in the form of loans but in the form of grants, particularly grants for training and research and development.
In end-September 2018, universal and commercial banks’ compliance with the 10 percent required lending to the agrarian reform sector hit 0.79 percent, while their compliance with the 15 percent required lending to the agricultural sector hit 12.95 percent.
The thrift banking sector followed the universal and commercial banks’ trend, with a 1.2- percent compliance rate versus the 10-percent mandate for the agrarian reform sector, and 6.19 percent versus the 15-percent mandate for the agricultural sector.
Even rural and cooperative banks—whose major markets are the countryside farmers and fisherfolk—are finding it increasingly hard to comply with the mandatory lending to the agrarian reform and agricultural sector, data from the Central Bank showed.
“The fact is that the banking system has grown so fast so the 15 percent is now a huge amount. So we unified and called it agriculture and said that all projects in the rural agricultural areas will be qualified then compliance [will be] so much easier. And more enterprises will be able to access finance,” Tolentino said.
Image credits: Bernard Testa