More than a decade after Republic Act 10000 or Agri-Agra Reform Credit Act of 2009 was signed into law, banks are still reluctant to extend credit to the agriculture and agrarian reform sectors. The law mandates all government and private banking institutions to allocate at least 25 percent of their total loanable funds for agriculture and agrarian reform beneficiaries (ARBs). It prescribes that 15 percent of the loanable funds must be allocated to the agriculture sector and the remaining 10 percent to ARBs.
Despite calls to increase lending to the local farm sector, a member of the Bangko Sentral ng Pilipinas Monetary Board noted that bank loans to the sector have not shown significant improvements (See, “MB exec: Banks’ compliance with agri-agra law still poor,” in the BusinessMirror, November 18, 2021). Citing data from the BSP, a paper published by the Congressional Policy and Budget Research Department (CPBRD) noted that the share of the agriculture sector in total loans outstanding for production by the local banking system has been declining over the years.
Last year, loans to agriculture amounted to P255.4 billion, a 5.1 percent decline from P269.2 billion in 2019. As a result, the sector’s total outstanding loans share went down to 3 percent from 3.1 percent in 2019. Out of the 20 economic activities reviewed, real estate activities received the highest credit with over P2 trillion, which is about eight times the credit given to the agriculture sector, according to the CPBRD paper.
Banks were slapped administrative sanctions and other penalties for non-compliance. Penalties paid by banks over the years have already exceeded P10 billion. Despite this, our lending institutions remain reluctant to increase their lending to the agriculture and agrarian reform sectors because of the high-risk profile of these sectors.
A proposal to amend the law to boost rural and agricultural financing is pending before Congress. The House of Representatives has already approved House Bill (HB) 6134 or the proposed “Rural Agricultural and Fisheries Development Financing System Act”, but the Senate has yet to act on the measure. Congress must fast track the passage of this measure, which seeks to amend RA 10000 and enable banks to finance other agricultural activities.
One of the salient features of HB 6134 is the expansion of the modes of compliance. Under the bill, credit may be extended to other activities including off-farm/fishery undertakings, agricultural mechanization, agri-tourism, green finance, and the marketing, processing, distribution and storage of agricultural and fishery commodities. It also calls for the creation of a special fund to finance well-defined agricultural-related activities and the organization and capacity/institution building of farmers and fisherfolk cooperatives and organizations.
Access to credit is crucial to enable the agriculture sector to increase its contribution to GDP. In the last 10 years, the CPBRD paper noted that the share of the agriculture, forestry and fishery sector to GDP has declined to just 10 percent. This does not bode well for a sector that employed nearly 25 percent of Filipinos last year, and holds the potential to create more jobs if it is given adequate support.