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Banks pledge fund support to agri sector

The banking industry vowed support to the agricultural sector by efficiently complying with the mandatory requirement of setting aside 25 percent of banks’ loanable funds to the sector as well as shore up state banks’ efforts to raise funds for agri-related projects.

In a statement, Bankers Association of the Philippines (BAP) managing director Cesar Virtusio said while banks are willing to fund the development of the agricultural sector, the government and private sector will have to first address its absorptive capacity for these bank funds.

Bankers Association of the Philippines

Bankers Association of the Philippines

“The (agri) sector may not have enough capacity to absorb the amount of funds that the banks are mandated to lend to the farmers,” said Virtusio. Of the 25 percent mandated by law, 10 percent is set aside for Agrarian reform borrowers and 15 percent for agricultural financing. Failure to comply meant penalties for the banks.

Earlier this year the Bangko Sentral ng Pilipinas transferred some of the credit risks from a single farmer-borrower to an agricultural value chain as a new lending scheme.

Banks that will participate and will comply with regulations can avail of incentives such as compliance with the agri-agra requirement and an additional 25 percent increase in the single borrower’s limit for such loans for a period of three years.

A value chain, as defined by the central bank, is a set of actors, suppliers, processors, and aggregators who conduct linked sequence of value-adding activities involved in bringing a product from its raw material stage to the consumers.

The BSP has issued rules and perks to improve the agricultural sector’s access to financing in past years, especially the smallholder farmers. But because of lack of access to funds they could not move up to higher value markets.

Banks and the whole financing sector consider the agricultural sector a high risk market as it is vulnerable to weather conditions.

The BSP however said that participation in a value chain allows farmers to leverage on effective farming technologies and methods and in turn it will improve access to formal financing and enjoy sustainable market demand.

The agriculture and fisheries sectors have traditionally been significant contributors in the Philippine economy, accounting for 10 percent of the country’s GDP and employing 11.2 million Filipinos in 2014.  Despite the important impact of these sectors, obtaining credit remains a challenge.