ACPC urges review of Agri-Agra Law

The Agricultural Credit Policy Council (ACPC) is calling for a review of Presidential Decree No. 717, otherwise known as the Agri-Agra Law, which requires the allocation of 25 percent of a bank’s loanable funds for lending to the agriculture and agrarian sectors.

ACPC executive director Jovita Corpuz said the review – whether to abolish or amend the law – is imperative because agricultural credit lending by banks have declined from seven percent of total loan portfolio 10 years ago to barely one percent today.

Since the law was implemented during the Marcos administration, the ACPC said, compliance by banks was mostly in Treasury bills and other securities, even for housing development of late, rather than direct lending to agricultural enterprises, which negates the very intent of the law.

Studies conducted by the ACPC noted that because of PD 717, the ability of banks to make optimal lending portfolio decisions have been constrained, thus increasing their opportunity rates.

"PD 717 does not guarantee improved small farmer credit access because lending to agriculture generally remains unattractive compared to other sectors primarily due to the high credit risk involved," the ACPC said.

In 1999, ACPC found that the total loanable funds generated by the banking sector was P990.6 billion, of which P247.7 billion was set aside as compliance for the agri-agra law but actual compliance was only five percent for agrarian reform credit and 17 percent for agricultural credit.

In 2000, ACPC added, the total loanable funds generated was posted at P888.4 billion, of which P222.1 billion was the 25-percent minimum requirement, reaching a compliance ratio of only nine percent for agrarian reform credit and 22 percent for agricultural credit.

"While the law is well intentioned, its implementation has not been effective in enhancing small farmers’ access to bank credit but only constrained small farmers borrowing," the ACPC said.

At the same time, the ACPC urged for a review of the mandate of the Land Bank of the Philippines, which is tasked with maintaining healthy commercial banking operations and pursuing countryside lending that eats up much of its earnings in the process.