DA picks 10 projects to pilot new funding scheme

Breaking conventional lending practice, the Department of Agriculture begins this week piloting the implementation of a new, client-friendly agricultural and fishery financing scheme that seeks to bring easy, timely, and affordable credit to millions of farmers and fisherfolks.

The new system will do away with collaterals, the tedious and cumbersome loan application process, the slow release of funds, the high interest rates, and all other inconveniences typical in the lending business.

"We’re starting a revolution in rural credit financing," Agriculture Secretary Leonardo Montemayor said. "If we succeed, the entire world would have something to emulate, something that would brighten the dull landscape of conventional lending practice," he added.

He said on a wider perspective, the new lending mode would even unleash fresh government and private funds into the capital market to stimulate rural development. This, in turn, could create thousands of jobs and help the Arroyo administration meet its commitment to fight unemployment and reduce widespread poverty.

The platform for the novel financial experiment are 10 multi-locational projects, costing a total of P100 million, which involve some 5,000 farmers, fishers and agri-entrepreneurs or 500 farmers per site. Each of the beneficiaries would be privileged to borrow an average of P20,000 in production loan.

The 10 undertakings are small to medium-sized, had all been pre-screened by Quedan Rural Credit and Guarantee Corp. (Quedancor), the agriculture department’s credit guarantee firm, and all had been deemed to likely succeed in their chosen fields of activity, the DA chief said.

One project in Malita, Davao del Sur, will focus on corn and cassava production. Another in Kabacan, North Cotabato, will engage in multiple or intercropping that features rubber, tropical fruits, rice and corn, with technical support from the University of Southern Mindanao, Montemayor said.

Seven others will take off in Luzon, including a fisheries project with vegetable and rice production enterprise in Jala Jala, Rizal; a rice, corn and hydroponic vegetable project in San Ildefonso, Bulacan; a corn, tobacco, rice, vegetable and cotton farm in Sta. Maria, Pangasinan; and a corn, rice and banana business in Cabarroguis, Quirino, among others.

The DA chief said the guiding principle and the operational strategy to make the innovative funding scheme work is called "Buenaflor model," named after its designer, Nelson Buenaflor, president and chief executive officer of Quedancor.

Drawing from over 27 years of agriculture and credit experience, the veteran financier said the loan processing takes about 15 working days, and the loan amount could reach P50,000 maximum, payable in six to 36 months.

To avail of the loan, Buenaflor said farmer or fisher clients are charged interest as low as one percent a month or 12 percent a year, plus a non-refundable service fee of 2.5 percent of the outstanding principal to cover Quedancor’s operational and administrative cost.

The 12 percent interest rate is way below the "5-6" or 60 percent per annum rate slapped by neighborhood usurers, and even lower than the 16.5 percent interest on loans charged by the Bank of Agriculture and Agricultural Cooperatives (BAAC) of Thailand.

Processing begins with prospective borrowers attending a Quedancor orientation seminar. After passing the usual background investigation and credit investigation procedure following the seminar, the clients are grouped into teams, each consisting of five to 15 persons who belong to the same community and raise similar crops or livestock.

Every team will select a leader, who will be trained by Quedancor on various skills like leadership, project management, credit and collateral management, and value formation.

"The idea is to tap the team leader to become an administrative arm of Quedancor," Buenaflor said. "Instead of us hiring a social worker to form unorganized individuals for an economic activity and a collector to ensure that borrowed funds are paid back on time, we train the leader to do all this job," he explained

In return, the leader of the self-reliant team or SRT, as the new entity is called, gets economic perks, including getting exempt from paying Quedancor's service fee equivalent to 2.5 percent of his loan amount, plus a commission equivalent to 25 percent of the interest income derived from his group.

A third financial incentive is the opening by Quedancor of a current account in the team leader’s name, which could go from P2,000, depending on a depository bank’s minimum required daily balance. Through the account, the leader can issue checks to pay orders and services, deposit Quedancor-bound remittances from his group, or perform any other banking transaction with little or no cash involved.

"This will be the first time a farmer leader or subsistence fisherman will be pa-cheque-cheque na lang," Buenaflor said. "In conducting business, it will make him at par – and no different from the Makati executive, or the ex-pat from foreign multinationals."

But will the system work? Can poor, marginalized farmers and fisher folk be trusted to pay his debt? Will it earn money for Quedancor?

To these concerns, Buenaflor recalled that a softer launch of the innovative financing scheme had been successfully tested last December, involving 197 slum dwellers from Quezon City. Applying the same approach, each clients was provided cash loan to finance his or her livelihood and food-based income-generating project.

"We have been experiencing 100 percent repayment rate from this so-called high-risk group of borrowers," the seasoned lender said.

So, if we can bank on the urban poor, why not on the rural poor? Buenaflor remarked.