To grow the agriculture and fisheries sector, monetary authorities approved a value chain financing framework to improve the stakeholders’ access to finance.
Despite the impact of agriculture and fisheries sectors on the Philippine economy, obtaining credit remains a challenge, the central bank said in a statement Wednesday.
The lack of access to finance places smallholder farmers at a disadvantage that stymie their integration into higher value markets.
“In general, the sector is considered a high-risk market due to its inherent susceptibility to weather conditions, flooding, pest infestations, and man-made calamities, among others,” it said.
The Monetary Board approved the adoption of an agricultural value chain framework which defines the lending program features and regulatory incentives for guidance of the Bangko Sentral ng Pilipinas (BSP)-supervised financial institutions (BSFIs) that plan to engage in this type of financing.
According to the BSP, the framework addresses the credit risks associated with the agriculture and fisheries sector by shifting the focus of lending from individual farmers and fisherfolk to the whole value chain.
A value chain is a set of actors, suppliers, processors, and aggregators intertwined within the sequence of value-adding activities in bringing a product from the raw material stage to the consumers.
Taking a part within a value chain lets farmers leverage on effective farming technologies and methods, access to formal financing, and sustainable market demand.
“There are currently many pockets of successful agri-value chains in the country. One example is the small onion farmer who was previously producing just for a small localized market,” the BSP noted.
By integrating into a value chain, farmers were able to access financing that allowed them to upgrade their products and processes, and to be assured of a steady market through a leading fast-food chain.
“The farmers are able to supply directly to institutional markets, resulting in increased profit and greater opportunities for expansion. The objective is to see more of such successful stories,” the central bank said.
The BSP explained that the framework provides minimum prudential expectations, including the need for adequate policies and procedures on the analysis of the value chain, availability of appropriate products, utilization of innovative disbursement schemes, and adoption of anchor-firm triggered loan release.
Such framework allows financial institutions to put in place a disaster contingency mechanism, requiring the adoption of risk mitigants to minimize losses and provide relief to a borrower to facilitate recovery.
To encourage engagement in the lending scheme, financial institutions that comply with the regulatory expectations are given the proper incentives.
The incentives include compliance with agri-agra requirement and an additional 25 percent increase in the single borrower’s limit for loans to actors in the agricultural value chains for three years, the monetary authorities explained.
The BSP hopes that the framework will provide the necessary guidance for banks to be able to serve the needs of the agriculture and fisheries sector, specifically the smallholders, in a manner that is viable and sustainable.