BSP sets new rules for financing rural development projects – Manila Bulletin

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The Bangko Sentral ng Pilipinas (BSP) has issued Proposed Rules and Regulations that will improve Mandatory Agriculture, Fisheries and Rural Development (AFRD) Financing under Republic Act No. 11901, also known as The Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022, will regulate .

The proposed circular, which will be issued on Friday September 9th to banks for comments and suggestions, has a response deadline of September 21st. By then, all banks – both private and state-controlled – should be able to advise the BSP on how to improve access to credit for covered sectors, including their micro, small and medium-sized enterprise (MSME) customers.

BSP Gov. Felipe M. Medalla said in the draft circular that BSP expects banking institutions to develop and offer financial products and services that “meet the specific needs of their agricultural customers, taking into account their cash flows and the maturity and harvesting season of the agricultural product/activity/project to be financed.”

BSP Governor Felipe M. Medalla (BSP photo)

Medalla said the BSP recognizes the importance of implementing capacity-building programs to “develop and improve the skills and competences of farmers, fishermen, agricultural reform beneficiaries and other agricultural workers that enable them to run productive, profitable and viable agricultural… and business ventures, improving their solvency and access to formal funding channels.”

State-owned banks Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP) will continue to be important sources of credit for rural communities by offering easy deposit accounts and low-interest loans. Meanwhile, credit unions, microfinance institutions, retail banks, rural banks and thrift banks will also apply minimum interest rates on large loans from government banks.

“LBP and DBP will leverage their resources to innovate, develop, advance and invest in digital automation technology, branchless banking and cash agent operations to reach remote barangays and communities; Leveraging e-commerce, online transactions, banking on wheels, point-of-sale devices with retailers and non-bank institutions, lottery kiosks, and mobile phone applications to bring banking services to the rural public,” Medalla said in the draft circular.

The proposed rules and regulations should improve access to financial services and programs for rural communities and farm and fisheries households. More credit results for productivity, market efficiency and modernization.

AFRD finance refers to loans and investments to increase the productivity and competitiveness of the agricultural sector and to finance the sustainable development of rural areas.

Funding is available for: non-agricultural/fishing entrepreneurial activities; agricultural mechanization/modernization; agritourism; environmental, social and governance projects, including green projects; Acquisition of land approved under the Agrarian Reform Act of the Philippines and its amendments; Digitization/automation of activities and processes in the fields of agriculture, fisheries and agribusiness; and for the efficient and effective marketing, processing, distribution, shipping and logistics, and storage of agricultural and fisheries commodities.

Loans and investments will also extend to public rural infrastructure and programs that promote the health and well-being of farmers, fishermen and beneficiaries of Agricultural Reform or ARBs; and addressing the development needs of rural communities, such as B., but not limited to, projects promoting livelihoods, skills enhancement and other capacity-building activities of rural community beneficiaries.

The draft circular will also oblige banks to lend and invest in activities identified under the Agricultural Industry Modernization Credit and Financing Program (AMCFP), such as the acquisition of seeds, fertilizers, poultry, livestock , animal feed and similar items.

The procurement of agricultural and fishery products for storage, trade, processing and distribution and the purchase of water pumps and installation of pipe wells for irrigation, as well as the construction, purchase and repair of facilities for production, processing, storage, transport and others are also activities under the AMCFP .

It also includes other funding such as: working capital for agriculture and fisheries, agricultural activities in support of soil and water conservation and ecology improvement activities; privately funded and LGU-funded irrigation schemes to protect the watershed; working capital for lengthy projects; and loan guarantees for unsecured loans to farmers and fishermen.

Last August 5, Medalla said the BSP will efficiently and effectively implement RA 11901 to help the agricultural sector recover from the effects of the pandemic and other natural disasters through private sector financing.

Medalla also said that the new Farm and Agricultural Finance Act is one of the key GNP legislative measures. “(The law) takes a holistic view of the needs of beneficiaries of rural communities, taking into account their evolving social networks and complex needs,” he said.

The new law expanded agricultural credit and rural development financing to include agritourism, digitization of agricultural activities and processes, public rural infrastructure, programs to promote the health and well-being of rural communities, and livelihood improvement activities. It also promotes funding for environmental, social and governance projects, including green projects, that support sustainable and inclusive economic growth.

The BSP said banks are no longer required to allocate 10 percent of their loan portfolio to agrarian reform beneficiaries and 15 percent to agricultural activities. The law now offers banks “greater flexibility in allocating the combined 25 percent mandatory lending quota to a range of agriculture, fisheries and agrarian reform borrowers.”

Before the new law, banks’ borrowable funds for agricultural and agrarian reform credits continue to lag behind the mandatory allocation.

Given the high risk and cost of lending to the agricultural sector, banks appear to prefer paying the 0.5 percent non-compliance penalty rather than setting aside the mandatory amount.

Annually, the BSP levies fines of around P2 billion on banks that don’t comply with the regulations. Penalties collected are remitted to the Agricultural Guarantee Fund Pool and the Philippine Crop Insurance Corp.

Factors that have contributed to banks’ low compliance include: processing time associated with securities accreditation, as debt securities are required to be accredited by the Agricultural Credit Policy Council; Borrowers struggle to secure an agrarian reform loan; limited availability of agri-agra compliant debt securities; and lack of visible bankable agricultural projects.

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