LOREN PUSHES BILL TO AMEND AGRI-AGRA LAW

Senator Loren Legarda, chairman of the Senate committee on agriculture and food, is pushing for the immediate passage of a law that would amend Presidential Decree No. 717 also known as the Agri-Agra Law which has become less effective in channeling credit to the agriculture sector and agrarian reform beneficiaries.

At the same time, she urged government financing institutions, rural banks, unibanks and commercial banks to restructure the payment of loan amortization of farmers and agribusiness enterprises whose farms, equipment and establishments were heavily damaged by the two recent typhoons. She asked them to widely open their credit windows and relax the loan requirements to facilitate processing of loan applications of the farming and agribusiness sectors to help them recover and ensure the country's food supply in the coming months.

"PD 717 mandates banks to extend 25% of their loanable funds to the agricultural and agrarian reform sectors. However, the absence of the network linkages has led most banks to resort to alternative compliance under PD 717. This consists of investments in eligible government securities, which in most cases has no connection whatsoever to agri-agra credits," Loren said.

Loren reported that the Senate has already passed Senate Bill No. 3431 entitled "An Act Providing for an Agriculture and Agrarian Reform Credit and Financing System Through Banking Institutions" which when enacted into law shall be known as the "Agri-Agra Reform Credit Act of 2009."

In the House of Representatives, the bill amending Agri-Agra Law was already passed on the second reading.

"The passage of a law which will amend the Agra-Agra Law is urgent because it will have a positive contribution to a sector in our society that is broad enough to include 35%, or almost 12 million of our population's workforce but are pushed into marginalization by grievous policy neglect," the lady senator said.

Loren noted that in 2008, the total credit demand for agriculture amounted to P206.453 billion. Of this amount, she said, only 24.05%, or less than one-fourth, was supplied by the banks and other institutions in the country's financial sector.

"Some 1.6 million farmers and fisherfolk relied on informal sources for credit including notorious 5/6 lenders. While informal lenders serve a purpose in rural credit markets, it is a second best arrangement with serious inequities and in efficient use of our resources," she stressed.

According to Loren, our banking system is a rich source of credit resources while agriculture is full of opportunities for productive activity. What is lacking, she said, is the network and linkages that will put the two together.

"The aforementioned data show that while unibanks and commercial banks have abundant credit resources, they have been undercomplying with the Agri-Agra credit requirements mandated by PD 717. The primary reason is that these institutions are based in urban centers which are close to depositing public. Lacking the network in rural markets, they lack the capability to assess agricultural credit, and extend loans to farmers and agrarian reform beneficiaries and their organizations," Loren explained. "On the other hand, rural banks and thrift banks tend to overcomply with the PD 717 requirement. This demonstrates that there is a viable market for Agri-agra credits. In order to expand this viable market, we need a network of linkages that will connect the source of deposits in the urban areas on one hand, and the users of credit in rural areas on the other hand," she added.

Loren said that the absence of the network of linkages has led most banks to resort to alternative compliance under PD 717 which consists of investments in eligible government securities, which in most cases has no connection whatsoever in agri-agra credits.

Data show that as of December 2008, the total loanable funds stood at P2.18 trillion. Of this amount, 25% or P545.274 billion was supposed to be lent to agriculture and agrarian reform sectors. But actual compliance stood only at P492.968 billion, indicating a gap of P52.306 billion between what is mandated by the law and what was actually lent out in compliance to PD 717.

"Because of the aforementioned non-agricultural alternative compliance that makes funds otherwise available to the agriculture and agrarian reform sectors available to others even though alien to agriculture, the actual amount that went to agriculture was further reduced to only P372.79 billion," Loren said.

According to the lady senator, non-agricultural alternative compliance stood at a total of P120.17 billion or 72.05% of total alternative compliance. The biggest non-agriculture alternative compliance was the so-called Development Loans which stood at P103.44 billion or 62% of total alternative compliance.

"The 2008 figures show the limited effectiveness of PD 717 in channeling credit to farmers. The provision allowing alternative compliance has slashed off P120.17 billion of funds from agriculture that could have gone to an estimated 1.27 million rice farmers who have no access to credit of whatever kind, or about 577,371 hectares of palay farmland that is not covered by credit," Loren said.