Opening Statement of Sen. Cynthia Villar

On the average, banks pay around PHP2 billion in penalties annually due to noncompliance with the mandated quotas under Republic Act 10000 or the Agri-Aga Credit Act of 2009, since 2011. In a recent statement given by the Bangko Sentra ng Pilipinas, the banks have extended a total of PHP713.6 billion in agri-agra credit as of end-December 2020. But still this is not in compliance with the mandatory agri-agracredit. Of the total loans extended by banks, PHP642.4 billion is accounted for by agricultural credit which is only about 9 percent of the compliance ratio and is below the 15-percent requirement. While the agrarian reform credit extended by banks to date amounts to PHP71.2 billion, a mere 1 percent compliance ratio vis-à-vis the 10-percent requirement under the Agri-Agra law.

In 2019, the figures are almost the same; compliance to agriculture loan quota was 10.8% while agrarian reform lending was at 1.09%, both significantly below quota.

Accordingly, this was due to long processing time-related issues, securities accreditation, borrowers' difficulties in securing agrarian reform credits, limited availability of agri-agra compliant debt papers, and lack of visible bankable agricultural projects, among others. Except for cooperative banks and rural banks, banks see the agri-agra sector as high risk and are considered high cost to banks.

Total fund has reached P10.3Billion in penalties by end 2020; 45 percent of which goes to Philippine Crop Insurance Corporation (PCIC) to sustain its operations, another 45 percent goes to the Agricultural Guarantee Fund Pool managed by LandBank of the Philippines, while the remaining 10% to BSP to cover administrative cost.

The House of Representatives recommends, a version that will allow banks to merge loan allocations to the farming sector, without distinction whether it is agri or agra. This aims to improve bank's compliance to their mandate to set aside 10 percent of total loanable funds to agrarian reform beneficiaries and 15 percent to farmers and fisherfolk. This is to overhaul the law and address the root causes of the difficulties faced by the agricultural and fisheries sector and towards rural development. The framework of their version is -

1. To enable access of rural communities to private sector financing; 2. To create a Special Agribusiness Management Capacity and Institution-Building Fund for financing agriculture related activities as well as capacity and institutional building programs of rural cooperatives and other duly registered organizations of rural and agricultural households to improve their viability and productivity; and 3. The establishment of the Agricultural and Fisheries Finance and Capacity Building Council (AFFCC) which shall be responsible for the management of the special fund as well as the identification of eligible activities and programs to be financed by the said fund. The House version was adopted in the 5 out of the 7 bills filed in the Senate. SB1038 filed by Senator Marcos also seeks to consolidate the agri-agra loan allocation but suggest to increase the penalties from 0.5% to 2% or a four-fold increase on lending institutions for non-compliance and under compliance with the provisions of RA10000.

The BSP has released Circular No. 1111, signed on March 3,2021, which expanded eligible agri-agra loans to include those for activities related to the agricultural value chain, from farming, fishing, as well as other processed involved in converting agri raw materials to the consumption form will be considered agri-agracompliant. This means even loans to businesses related to input production, farm and fishery operations and management, equipment and supplies manufacturing, food processing, trading, and retailing will also be qualified as compliance with the Agri-Agra law.

The central bank also expanded its definition for agrarian reform beneficiaries to include communities and integrated development made up of farmers that were granted land or benefited from redistributed land through previous agrarian reform programs.

Loans to surviving family members in case initial beneficiaries die or are already incapable to manage awarded land are also included in the revised measure.

Moreover, bonds issued by banks whose proceeds will finance lending to agrarian reform beneficiaries will also be counted as part of the agrarian reform credit quota.

My take is that we have to address the difficulty of Agrarian Reform Beneficiaries to comply with the bankability requirements. This is also to address the poverty reduction program to the whole rural Philippines. How do we make them bankable- organize, equip, connect them to the value chain, among others. It is about time that they take center stage in financial literacy and entrepreneurial training through the joint efforts of the Cooperative Development Authority, Tesda and Department of Trade and Industry.

Also, we should consider the fisherfolks in the same manner. Strengthen their organizational skills in fish catch/aquaculture, processing and connecting them to the market. They have to be empowered as well.

I have seen a model in Indonesia where remote villages have been reached through digital banking. The Bank Rakyat Indonesia has attractive design of savings and loan products. Their customers are both poor and non-poor borrowers, and have cross - subsidize small loans from the profit of larger loans. The BRI Bank is able to maximize its outreach and yet remain profitable. We should study their model. At the time of the pandemic where face to face transactions are not encouraged, it is about time that we look at into the digital loan programs applicable in the rural areas. This can likewise be connected with the national ID System when verification is needed.