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Banking on agriculture

Preliminary data from the Bangko Sentral ng Pilipinas showed the banking system was only able to allocate about 10.18 percent of its total loanable funds for agriculture and agrarian reform from January to September, falling way below the 25 percent mandated by Republic Act 10000, or the Agri-Agra Reform Credit Act of 2009.

While the total loanable fund generated by the banking industry jumped by 17.5 percent to P6.51 trillion as of the end of September 2020, loans extended to the agri-agra sector slipped by 2.6 percent to P696.35 billion in September from P714.27 billion in the same period in 2019.

The law retained the mandatory credit allocation in Presidential Decree 717, where 15 percent of banks’ total loanable funds are to be set aside for agriculture, while 10 percent should be made available to agrarian reform beneficiaries.

BSP Governor Benjamin Diokno earlier said that the central bank remains committed to pursue strategies to promote agriculture financing in view of the sector’s critical role in financial inclusion and broad based economic growth. Among the strategies and innovative interventions are improving the productivity and bankability of farmers and their enterprises; increasing the institutional capacity of banks to assess and offer customized lending products to agri-enterprises; and develop the financial infrastructure to minimize the impact of the agri sectors’s inherent risks through appropriate credit risk management instruments.

Additionally, the Department of Agriculture, Department of Agrarian Reform, and the BSP have signed draft amendments to the implementing rules and regulations of the Agri-Agra Law. These include extending the coverage to households of the agrarian reform beneficiary and to agrarian reform communities.

Other amendments include the removal of accreditation requirements for debt securities, expansion in the modes of compliance with the agrarian reform credit, and change to the computation of total loanable funds of newly established banks.

The lack of capital and investment in agriculture which was supposed to a pandemic-resilient sector could explain unexpected contraction for 2020. A country whose economy is struggling to recover from the effects of the Covid-19 pandemic should consider the revitalization of the agriculture sector by making loans and capital more accessible as low hanging fruit in our country’s quest for economic recovery and self-sufficiency.*

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