Private sector pressed banks to allot P1.1 trillion for agro-industrial business as PD 707 mandated
November 23, 2018
The private farm sector has pressed the banking industry to allot P1.1 trillion for agro-industrial activities as mandated by PD 717 in order to support industrialization and poverty reduction which can be accelerated through agriculture-based manufacturing.
The Philippine Chamber of Food & Agriculture Inc (PCAFI) urged banks to abide by the Agri Agra Law that mandates banks to allocate at least 25% of outstanding loan portfolio. Of this, 10% should be devoted to credit for agrarian reform beneficiaries.
PCAFI President Danilo V. Fausto said there remains an estimated P1.1 trillion, equivalent to 16% of banks total outstanding loan, that is not being aptly availed of by the agriculture sector.
Out of around P10 trillion total loan outstanding of banks as of end 2017, only 14% has been released for the farm sector.
“Banks’ loan portfolio has been growing through the years but not because of real, inclusive economic progress or reduced poverty. It’s merely because real estate and other industries are growing,” he said.
PCAFI has asked the Bangko ng Sentral ng Pilipinas (BSP) to be updated on the status of Circular 908 which set up the Agricultural Value Chain Financing Framework (AVCFF).
Two years after an issuance on Feb. 24, 2016 of the lending features (Monetary Board Resolution 360) of AVCFF, the resolution has barely raised financing for agriculture value added manufacturing.
AVCFF was designed to reduce risks of banks that are lending to agricultural production.
In the sole nature of agricultural production, risks to banks of non repayment is relatively high. Pure agriculture production traditionally suffers from losses when a weather-related calamity hits.
But through the use of the value chain schemes, risks are significantly reduced.
In order to follow through the circular’s implementation, PCAFI asserts banks should have an Agri Banking Department, much as they have mortgage banking departments that assess collateral value in real estate lending.
It is imperative for government to strictly enforce each bank’s compliance with PD 717 if it has to take the path of manufacturing-based agro industrialization.
This is the solution that Thailand, Malaysia, and other Southeast Asian countries earlier took and should be embraced too by the Philippines.
“The solution that made an impact in our neighbors’ economy is they put agriculture in the forefront of their economy. They made it a tool for poverty reduction that results in increase in farmers’per capita income,” said agro-economist Pablito M Villegas, also PCAFI director.
“Investing in food and agriculture is the surest way to reduce poverty. But banks would rather pay a fine because they do not appreciate agro-based industries and its impact in poverty reduction,” he said.
PCAFI officials believe the budget of DA is severely low at P70 billion. Even over a 10-year period, this falls below the trillion level that should be channeled in loan by banks to the sector.
Even more deplorable, this yearly DA budget already includes the entire DA bureaucracy budget. It includes maintenance and operating expense for paying employees’ salaries and wages, utilities, and other operating expense.
“In reality, only around 50% or P35 billion of this DA budget goes to capital expenditure or investments in the farm sector,” said lawyer Elias Inciong, PCAFI director and United Broilers & Raisers Association president.
Banks should open their eyes on the opportunities from the agriculture value chain businesses rather than just assess the value of the collateral or assets of the farmer-borrowers that they may foreclose once repayment fails.
“Look at my business opportunities, rather than my collateral,” said Fausto, a farming entrepreneur. He founded DVF Dairy Farm Inc which produces “Gatas ng Kalabaw.
While poverty level in Thailand, Malaysia, Indonesia, and Vietnam has already gone down to the 10% level because they bankrolled their agro-industries, Philippines’ poverty rate is still at a high 30%.
“President Duterte is targeting 20% poverty level. But our neighbors Thailand, Vietnam, Indonesia have poverty level at just 10%. Malaysia’s poverty is even less than 10%,” said Villegas.
BSP has issued Circular 908 as a means to channel financing to agriculture and fisheries. It taps more sophisticated financing schemes that are extended to value chain players in other related agriculture manufacturing ventures.
“By encouraging linking of various actors, players in the agricultural value chain, credit risk of smallholder farmers can be reduced,” according to BSP.
“This is expected to further improve productivity in the agriculture and fisheries sectors and uplift the lives of these marginalized farmers.”
Credit products for farmers’beneficiaries are trade receivables finance and factoring (a business’ sale of its sales contract of goods or receivables to another so as to hasten cash turnover).
There is also the warehouse receipts—farmers and related value chain enterprises receive a receipt from a certified warehouse as a collateral to access a loan.
Another AVCFF financing program is Loan Disbursement. It may be cash—completed in one transaction or in installment. It may be loan proceeds to suppliers—suppliers of farmers (for example fertilizer, seeds) are directly paid by banks in order to control the loan’s use.
Another system is the use of an anchor firm which endorses a loan release to a farmer’s entity to ensure that the machine or technology to be acquired by the farmers are the proper technology to be used. This way, rejects are reduced and productivity is optimized.
Circular 908 also provided for the Disaster Contingency Mechanism (DCM). The DCM is an immediate financing relief to a farmer who has experienced a disaster in order to recover from losses resulting from weather or related calamities.
Circular 908 also provides for accountability schemes in the value chain system by allowing factors, aggregators to become directors of agricultural businesses. Melody M. Aguiba