The Bangko Sentral ng Pilipinas (BSP) has released proposed rules and regulations that will govern mandatory funding for Agriculture, Fisheries and Rural Development (AFRD) under Republic Act No. 11901, also known as the Strengthening Agriculture, Fisheries and Rural Development Funding Act 2022. .
The proposed circular, issued Friday, September 9 to banks for comments and suggestions, has a September 21 feedback deadline. By then, all banks – private and government-controlled – should be able to recommend to BSP how to improve access to credit for covered sectors, including their micro, small, and medium-sized enterprise (MSME) clients.
BSP Governor Felipe M. Medalla said in the draft circular that BSP expects banking institutions to design and offer financial products and services that “meet the specific needs of their agricultural clients, taking into account of their cash flow and the gestation and harvesting period of farming”. product/activity/funded project.
Medalla said that BSP is aware of the importance of implementing capacity building programs to “develop and improve the skills and competencies of farmers, fishers, land reform beneficiaries and other agricultural workers. , which will enable them to operate productive, profitable and viable farms and farms.” commercial enterprises, as well as to improve their ability to pay and their access to formal financing channels.
State-owned banks Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP) will continue to be important sources of credit for rural communities through basic deposit accounts and by offering low-interest loans. interest. Meanwhile, credit unions, microfinance institutions, retail banks, rural and savings banks will also apply minimum interest rates for wholesale loans obtained from government banks.
“LBP and DBP will use their resources to innovate, develop, promote and invest in digital, automation technology, branchless banking and treasury agent operations to reach remote barangays and municipalities; using e-commerce, online transactions, mobile banking, point-of-sale devices with retailers and non-banking institutions, lottery kiosks and mobile phone apps to make banking services accessible to the rural public” , Medalla said in the draft circular.
The proposed rules and regulations are expected to improve the access of rural communities and farming and fishing households to financial services and programs. More credit results to productivity, market efficiency and modernization.
AFRD financing refers to loans and investments intended to increase the productivity and competitiveness of the agricultural sector and to finance the sustainable development of rural areas.
Funding will be provided for the following activities: off-farm/fishery entrepreneurial activities; agricultural mechanization/modernization; agritourism; environmental, social and governance projects, including green projects; land acquisition permitted under the Land Reform Code of the Philippines and its amendments; digitization/automation of agriculture, fisheries and agro-industry activities and processes; and for the efficient and effective marketing, processing, distribution, shipping, logistics and storage of agricultural and fishery products.
Loans and investments will also extend to public rural infrastructure as well as programs that will promote the health and well-being of farmers, fishers and land reform or ARB beneficiaries; and to meet the development needs of rural communities, such as, but not limited to, projects that promote livelihoods, skills enhancement and other capacity building activities of rural community beneficiaries.
The draft circular will also require banks to lend and invest in activities identified under the Agribusiness Modernization Credit and Finance Program (AMCFP), such as agricultural and fisheries production, acquisition of draft animals, agricultural and fishery equipment and machinery, as well as the acquisition of seeds, fertilizers, poultry, livestock, animal feed and other similar items.
The supply of agricultural and fishery products for storage, trade, processing and distribution and the acquisition of water pumps and the installation of tube wells for irrigation as well as the construction, acquisition and repair production, processing, storage and transport facilities, among others, are also activities under the AMCFP.
It also includes other funding such as: working capital for agriculture and fisheries, agro-industrial activities that support soil and water conservation and ecology improvement activities; privately funded irrigation systems and LGUs that are designed to protect the watershed; working capital for long-term projects; and credit guarantees on unsecured loans to farmers and fishers.
On August 5, Medalla said that PASB will effectively and efficiently implement RA 11901 to help the agricultural sector recover from the impact of the pandemic and other natural calamities through private sector funding.
Medalla also said the new law on agri-agriculture and rural finance was a priority piece of PASB legislation. “(The law) considers the demands of beneficiaries from rural communities from a holistic perspective, taking into account their changing social networks and complex needs,” he said.
The new law expanded agricultural credit and rural development financing to include agrotourism, digitization of agricultural activities and processes, public rural infrastructure, programs that promote the health and well-being of rural communities, and activities that improve livelihood skills. It also promotes funding for environmental, social and governance projects, including green projects that support sustainable and inclusive economic growth.
The BSP said banks are no longer required to allocate 10% of their loan portfolio to land reform beneficiaries and 15% to agricultural activities. The law now offers banks “greater flexibility in allocating the combined 25% compulsory credit quota to a range of borrowers in the agriculture, fisheries and land reform sectors.”
Prior to the new law, bank loanable funds for agriculture and land reform credit continued to be below the mandatory allocation.
Banks apparently prefer to pay the 0.5% penalty for non-compliance rather than set aside the mandatory amount due to the high risk and high cost of lending to the agricultural sector.
Each year, the BSP collects about 2 billion pesos in fines from non-compliant banks. Penalties collected are remitted to the Agricultural Guarantee Fund Pool and the Philippine Crop Insurance Corp.
Factors that have contributed to poor bank compliance include: processing time related to the accreditation of securities since debt securities must be accredited by the Agricultural Credit Policy Board; borrowers find it difficult to obtain land reform credit; limited availability of agri-agra compliant debt securities; and the lack of visible bankable agricultural projects.
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