Amended Agri-Law to Raise P122-B in Farm Loan

Amended Agri-Law to Raise P122-B in Farm Loan
(March 08, 2010)
 
The government is now moving to relax the tight rural credit squeeze following President Arroyo ’s enactment of an amended Agri-Agra law that finally bars banks from skirting a requirement for them to funnel 25% of their loanable funds into farm loans, a policy shift that agriculture officials said could mean up to P122 billion in fresh loans for farmers and fisherfolk.

 
In a report to Secretary Bernie Fondevilla of the Department of Agriculture , DA Undersecretary Berna Romulo Puyat said that Republic Act No.10000, which the President signed just recently, repealed Presidential Decree 717, or the original Agri-Agra Law, that sought to require banks to set aside a fourth of their loanable funds for lending to entities or activities related to agriculture and agrarian reform.

 Otherwise known as the Agri Agra Reform Credit Act of 2009, this new law was sponsored in Congress by Sen. Loren Legarda and Rep. Abraham Mitra.

 The DA had strongly lobbied Congress for the passage of this farm-friendly law under the watch of then-Secretary Arthur Yap , who is running unopposed in this year’s elections for a House of Representatives seat representing the 3 rd  district of Bohol.

During his term, Yap had backed this then-proposed law and carried out such other measures as the DA-initiated  Agricultural Guarantee Fund Pool  (AGFP) in step with the Department’s commitment not only to further boost agriculture and fisheries production but to also make farming and fishing more profitable for small and big stakeholders alike.

Fondevilla, who was undersecretary and Yap ’s chief of staff prior to his new Cabinet posting, has vowed to pursue the same DA commitment with greater vigor and to strictly monitor the banks’ compliance with RA 10000. 

“Apart from expanding agriculture-related alternative compliance, increasing sanctions for non-compliance and under-compliance by banks, and providing for penalties that would go to the Agricultural Guarantee Fund  Pool (AGFP) and the  Philippine Crop Insurance Corp.  (PCIC),” said Puyat, “this Agri Agra Reform Credit Act effectively eliminates non-agri alternative compliance, and frees up to P122 billion of bank funds for lending to our farmers and fisherfolk.”

Since 1987, amendments to PD 717 have been proposed in Congress “but none has managed to even pass committee-level public hearings,” added Puyat. “It is only now, or 23 years later, under President Arroyo’s administration, that an amendatory law passed through the Legislature .”

Although the intention of PD 717 was noble, banks were able to circumvent its mandatory proviso for a fixed amount of agri-agra loans, she said, because it at the same time allowed banks to engage in a list of non-agricultural    investments or transactions considered as alternative compliance with this law.

Under 717, banks are deemed to have complied with its 25% quota for loanable funds if they use such funds for investments in Local Government Unit (LGU) bonds, Pag-ibig bonds, Development loans for housing, education or medical institutions, or in zero coupon bonds of the Home Guaranty Corp.

Banks are likewise allowed to use its funds supposedly intended for agri-agra lending to fund other non-agricultural activities such as loans for barangay microbusinesses and socialized or low-cost housing projects.

Citing June 2009 data of the Bangko Sentral ng Pilipinas (BSP), Puyat reported to Fondevilla that this PD 717 provision on non-agri-related compliance “ate up Php 122.19 billion or 73.67 percent of alternative compliance with this law.”

The biggest chunk of this amount—equivalent to Php 104.034 billion or 62.72 percent of the “non-agri-related compliance” by banks to PD 717—went to development loans like those given to hospitals and schools, LGUs and proponents of socialized housing projects.

Such loanable funds, otherwise diverted to non-agri-related investments, will henceforth go to rural credit, said Puyat, because RA 10000 has limited “alternative compliance” to the following:

Ø        Wholesale lending to accredited rural financial institutions for retail lending to small farmers or fisherfolk, or opening of special deposit accounts with accredited rural financial institutions;

Ø        Loans for agriculture infrastructure like farm-to-market roads and postharvest facilities;

Ø        Investments in preferred shares of stock of rural financial institutions, including farmers’ cooperatives and mutual benefit associations;

Ø        Loans for, or investments in, activities identified under the Agricultural Modernization Credit and Financing    Program or AMCFP; and

Ø        Traditional agri-related “alternative compliance” modes like investments in Land Bank or Development Bank of the Philippines (DBP) bonds and shares of stock of Quedancor, or rediscounting of guaranteed loans of Quedancor and PCIC.

Puyat said RA 10000 also provided for stiffer penalties against banks guilty of non-compliance or under-compliance with the agri-agra loan requirement.

Whereas PD 717 only provided for a fine of P1,000 to P30,000 per day depending on the bank’s asset size, rate of compliance and length of non-compliance, Puyat noted that RA 10000 requires an erring bank to pay an amount equivalent to 0.5 percent of the total amount not complied or undercomplied.

“This new penalty provision is simpler and more transparent,” she said. “It is also more advantageous than the previous scheme because it automatically adjusts the amount in proportion to an erring bank’s delinquency.”

In 2007, penalties paid by banks reached only P26.59 million. In contrast, “if the new penalty under RA 10000 was already in effect that year, the penalty would have totaled P455 million—based on the total under-compliance amount of P91 billion,” Puyat said.

Unlike the PD 717 provision that funnels all penalty collections into the BSP,    the amended agri-agra law allocates just 10 percent of the penalties to the BSP; the balance of 90 percent now goes to the AGFP and PCIC, she said.

“With this new law, even the penalty works for the benefit of the agriculture and agrarian reform sectors by buffering the guarantee funds used to secure loans for farmers and fisherfolk,” Puyat said.

Also, RA 10000 has put in place a “review mechanism” that mandates a three-year review of the amended law’s provisions by BSP, DA and Department of Agrarian Reform (DAR), and empowers these three institutions to submit their joint findings to Congress for its appropriate action or actions.

“By adding a review mechanism—and including the DA and DAR in this process—the concerns not only of the financial sector but also of agriculture and agrarian reform sectors are given an opportunity to be heard in ascertaining whether the percentage of mandated compliance and the list of alternative compliance are sufficient and effective,” Puyat said. ### DA Press Release


 

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