Group doubts easier credit access with changes in Agri-Agra Law

MANILA, Philippines — The proposed changes to Republic Act  10000 or Agri-Agra Reform Credit Act of 2009 will not ensure easier access to formal credit for small farmers and agrarian reform beneficiaries (ARBs),  according to the Federation of Free Farmers (FFF).

In an analysis, the FFF said   both House Bill   6134 and Senate Bill   2494   seek to promote rural development by enhancing access of rural communities and agricultural and fisheries households to financial services and programs.

“Regrettably, both versions do not really address the causes of banks’ low compliance with the agri-agra mandates.  Nor do they ensure that ARBs and small farmers will have easier access to formal credit,” the farmers’ group  said.

It said that the proposed changes would actually facilitate banks’ compliance with compulsory credit allocations, while avoiding penalties and not significantly increasing their already   low exposure to small farmer loans.  

“Banks will still be required to allot 25 percent of their loanable funds to agriculture, but they will be gifted with an expanded menu of compliance options.  This was done by broadening the definition of agricultural finance to include ambiguous activities such as sustainable finance and green projects,” the FFF said.

RA 10000 requires banks and other formal lending institutions to allocate at least 25 percent of their loanable funds for agriculture and agrarian reform credit, with at least 10 percent reserved for ARBs.

The FFF pointed out that historically, the compliance with the Agri-Agra Law has been poor, as banks opted to pay penalties equivalent to 0.5 percent of their deficiency.  

Citing figures from the Congressional Policy and Budget Department, the FFF said the share of agriculture in bank loans had been declining steadily since 2015 and reached its lowest level of nine percent in 2020 versus the mandated 15 percent.

“Even worse, lending to ARBs never exceeded 2.1 percent versus the 10 percent minimum requirement, and it dipped to its lowest level of one percent also in 2020,” the FFF said.

Data from the Bangko Sentral ng Pilipinas showed that loans disbursed by the banking sector for agriculture and agrarian reform as of end-September last year jumped by 21.4 percent to P804.16 billion from P662.62 billion, but still fell short of the mandated threshold for the sector at 10.73 percent.

Meanwhile, the FFF highlighted that both bills also remove the 10 percent mandatory allocation for ARBs, potentially enabling banks to skip lending to small farmers and still comply with the law.

“In particular, the proposed amendments will count loans to small farmers at 10 times their value for purposes of crediting bank compliance.  This could actually discourage, instead of promote, rural credit,” the group said.

“Banks could even reduce their exposure to small borrowers and - by offsetting this through alternative modes of compliance - still end up fully satisfying the new 25 percent mandatory allocation,”it said.

The farmers’ group also stressed that while House Bill 6134 will create an Agriculture and Fisheries Finance and Capacity Building Committee (AFFCC) to oversee the usage of the penalty collections after deducting 10 percent  for the overhead expenses of the BSP, there are no specific details except capacity building programs for small farmer organizations and beneficiaries.  

Moreover, the FFF said Senate Bill 2494 is even more problematic, citing that aside from 10 percent of the penalties collected will go to the BSP for administrative expenses, it will also remit 25 percent to the national government for  “doing nothing”.

In addition, the remainder of the collected penalties will go to a special fund, 35 percent of which will be “allocated to the Department of Agrarian Reform (DAR) for the titling and parcelization of landholdings covered with Collective Certificate of Land Ownership Awards (CLOA).

The FFF, however, said that this is a regular function of the DAR that should be supported under its annual budget from Congress.

The Senate bill also states that the remaining 65 percent will be given to the Land Bank of the Philippines  and the Development Bank of the Philippines  for relending at concessional terms to farmers, farmer organizations and microfinance institutions.  

“Yet, both banks do not need additional funds since they are already awash with loanable funds, and have firm mandates to lend to the agricultural sector anyway.  Furthermore, the Senate version provides that all loan collections will revert to the National Treasury, meaning that the funds will disappear after a single lending cycle,” the FFF said.

It said that the  allocations for the Landbank and DBP would likely not have any sizable impact.

“Eventually, the number of beneficiaries may be fewer, since penalty collections will likely decline as banks resort to a wider array of modes of compliance,” the group said.

The FFF stressed that it is better to maintain the allotments for crop insurance coverage, which currently accords free insurance to 580,000 small farmers, and/or loan guarantees for farmer loans, as listed in RA 10000.  

“Additionally, the funds can subsidize interest rates, or shoulder partially the administrative expenses of banks for small farmer loans,”the FFF said, adding that these measures will help banks lower their lending risks and costs and encourage them to use their own resources to meet the credit needs of rural areas.

“In sum, the contents of both bills largely do not match their lofty declaration of policy. The proposed amendments will instead provide banks with a giant loophole or escape hatch to avoid sanctions for failing to serve farmers’ credit needs.  Philippine agriculture and our small farmers deserve a better deal,”the FFF said.