Agricultural financing remains to be one of the most important components towards achieving agricultural development. However, farmers, fisherfolk, and other stakeholders in the agriculture sector oftentimes find it difficult to avail of various financing and credit programs. A number of complex issues affect the financial stability of the farmers and the sector in general. There are concerns on documentary requirements, credit portfolio, policies and processes, and even on the creation of an enabling environment that make it difficult to make agricultural financing available and accessible to more people.
In this special feature, we invited Maria Cynthia M. Sison, the Deputy Director of the Supervisory Policy and Research Department of the Bangko Sentral ng Pilipinas (BSP) to respond to the key questions raised during the PPSA Working Groups Learning Session titled, “Empowering Farmers and Fisherfolks through Agricultural Financing” held last March 09, 2021.
Very informative and good to hear that BSP has proposed some amendments including broadening eligible activities and expanding the coverage of ultimate beneficiaries. I just would like to know how farmers are qualified and how their household members will be qualified as well. Do they need to be registered with the RSBSA, or qualified by the banks, etc.?
There is no need for a farmer to be accredited to be eligible for agri-agra financing from a bank. The bank is responsible for maintaining documentation to show that it has provided financing that would qualify as agri-agra credit.
As regards lending to household members, this is currently only limited to financing to household members of agrarian reform beneficiaries, subject to conditions such as but not limited to: (i) Upon death of the ARB and the transfer action to execute hereditary succession of the awarded land is still in process, or (ii) Upon physical incapacity of the ARB to till/manage the awarded land. The bank will have to maintain documentation to show that it has lent in accordance with the provisions of the IRR of R.A. No. 10000 and BSP regulations.
How about service providers for agriculture loans like cold chain development, transport and logistics and technology, are they also allowed for loans?
Loans to finance cold chain development, transport and logistics and technology are allowed as alternative agri-agra compliance provided that the loan will be utilized in relation to agricultural-related project endeavors.
Under the proposed amendment, can banks buy preferred shares of agricultural coops?
If the Cooperative Code allows ownership in credit cooperatives by banks, investments in shares of stock in an agricultural credit cooperative would be eligible alternative compliance with the agri-agra credit, subject to banks' compliance with BSP's prudential requirements.
May we know if BSP is also considering making change(s) in the recognition of non-performing loans granted under the agri-agra law considering the inherent high risk nature of these loans as you have also mentioned earlier?
Banks are expected to periodically assess the quality of their loan portfolio for purposes of identifying potential problem credits on a timely basis as a matter of prudent practice. With adequate information, a bank will be able to implement timely action/remedial measures on potential problem credits to prevent further deterioration in the quality of its loan portfolio.
In addition, loans that are used as compliance with the agri-agra credit requirement is required to be valued at gross amount. This means that the loans used as compliance is not reduced by allowance for credit losses in the event that the agri-agra loan becomes non-performing or is impaired. The rules recognize that a bank has extended an agri-agra loan, regardless of whether said loan has become non-performing.
"Identify, quantify, measure and mitigate the risk" related to agri-agra loan is the blind side of the operational aspect of agri financing. Know-Your-Client requirement and steep loan loss are turn offs. How does BSP Supervisory attempts to address this?
The BSP's regulations on Know Your Client/Customer incorporate requirements for banks to identify customers that are "low risk". Customers that are assessed to be of "low risk" are subject to reduced due diligence and customer acceptance requirements.
The BSP's guidelines aim to ensure that the financially or socially disadvantaged are not denied access to financial services while at the same time prevent suspicious individuals or entities from opening an account or establishing a relationship.
Banks are expected to recognize adequate loan loss provisions as a matter of prudent practice. With adequate information, a bank will be able to implement timely action/remedial measures on potential problem credits to prevent further deterioration in the quality of its loan portfolio.
What can the general public do to support for the amendments of RA 10000? And what is currently being done to inform farmers/agri entrepreneurs especially those in rural areas?
The general public can assist by communicating support for the amendments to the R.A. No. 10000 to the Senate Committee on Agriculture, Food and Agrarian Reform. The push for amendments to the R.A. No. 10000 is done in collaboration with the Department of Agriculture and Department of Agrarian Reform which interact directly with farmers and other agricultural workers.
How much of the 713B went to small scale farmers comparing with corporate farms & food manufacturing companies?
As of end-December 2020, banks' agri-agra direct compliance amounted to P380.2 billion. This represents agri-agra loans made directly to farmers/fisherfolk.
Will the capacity building fund be in the form of grant to agricultural coops?
The modality on the use of the capacity building fund is still subject to legislative deliberation but the intent is for the said funding to be used as grant for agricultural- and fishery-related organizational-, capacity- and institution-building programs and activities of eligible cooperatives and other duly-registered organizations of rural agricultural and fisheries households. It is not meant to be used for financing.
The issue is not really availability of funds but access. Lending policies of banks are not designed for small farmers or farmers organizations.
Not all banks are technically equipped to lend to the agricultural sector. Capacity-building for financial institutions, especially those based in rural communities, will help promote financing to the sector.
Loans to farmer/planters should be having payment term no shorter than two (2) crop cycles to give farmers more time to sell and collect payments of crops, so that they can avoid having to sell at harvest time when prices are lowest.
Under existing BSP regulations, banks are expected to design loan payment terms that will consider paying capacity of their borrowers and gestation period of the agricultural project.
Are the AGFP and PCIC's combined portfolio enough to guarantee the current and future increase of loaned funds?
The consolidation of the various credit guarantee programs of the government, including the Agricultural Guarantee Fund Pool (AGFP), under the Philippine Guarantee Corporation, previously known as the Philippine Export-Import Credit Agency, will help strengthen the government-led credit guarantee system.
The operations of the Philippine Crop Insurance Corporation do not fall within the purview of the BSP.
Are there studies on the profitability potential of agricultural financing that will incentivize banks to finance the sector with or without the quota?
There are a lot of studies on the potential of agricultural financing. The challenge is in the operationalization of the financing and in raising the productivity of agricultural borrowers to sustain their viability. The implementation of pilot agri-agra value chain programs will help show that agricultural value chain financing is a viable financing scheme.
Would you have case studies on ARBs and /or ARB household who took the financing assistance?
The BSP does not require submission of borrower-specific data on agrarian reform credit extended by banks; thus, we have limited information on agrarian reform beneficiaries which have availed of the mandatory agrairan reform credit.
The BSP compiles industry statistics for purposes of monitoring bank compliance.
Notwithstanding this, the BSP works closely with the Department of Agrarian Reform which implements government intervention programs/projects for agrarian reform beneficiaries and their organizations/communities.
May we have the link to the study you mentioned - the published paper for loan demand of small farmers and fisheries?
The title of the PIDS paper is Projecting Loan Demand from Small Farmers and Fishers in the Philippines by Mr Geoffrey Ducanes published here.
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