Fixing barriers to lending, such as lack of information, is important to an effective mandated credit for agriculture and agrarian borrowers, as well as the micro, small and medium enterprises (MSMEs) sectors, according to the Bangko Sentral ng Pilipinas (BSP).
“Mandated lending is basically you require the lender, ready or not, on a quota basis, to lend to a segment that creditor may or may not be ready to serve. So that is where the problem lies,” central bank Governor Nestor Espenilla Jr. told reporters in an ambush interview in Makati City over the weekend.
Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009 requires banks to allocate 25 percent of their total loan portfolio to the agri-agra sector.
MSMEs comprise another sector to which bank are mandated by law to set aside 10 percent of credit funds for lending.
“So, if you don’t know those customers, you are not geared to serve that customer, you are faced with a difficult choice of not complying … then you pay the penalty. And if you comply, even though the risk is something that you may not know how to control, you may actually lose a lot because you may lose principal. That is the problem with that,” Espenilla said.
Bangko Sentral data showed that loans by banks to the agri-agra sector rose by 16 percent as of end-March 2017, but fell short of the 25 percent threshold.
Banks set aside P502.45 billion for agriculture and agrarian reform in January to March, up P71.08 billion from P431.36 billion in the same period last year.
Total loanable funds of the banking industry rose by 21.7 percent to P3.62 trillion from P2.97 trillion in the same comparable period.
The combined allocation 13.96 percent of total loanable funds was below the 25 percent threshold.
Meanwhile, loans made available by banks to MSMEs rose by 7.7 percent to P494.88 billion, or P35.42 billion higher than the P459.46 billion allocated year-on-year.
Total loanable funds of the banking industry rose by 20 percent to P5.98 trillion from P4.98 trillion, but the combined allocation of 8.4 percent to MSMES was below the 10 percent threshold.
“Maybe the way to solve this is, rather than focusing on mandated lending, the focus should be on the infrastructures that deal with the issues that make it easier for creditors to lend on a voluntary basis,” Espenilla said. Improving the implementation of the credit information law will help, he added.
The Credit Information System Act or Republic Act No. 9510 mandates the collection and dissemination of fair and accurate information relevant to, or arising from, credit and credit-related activities of all entities participating in the financial system.
Espenilla said there are other issues at play, such as the difficulty of enforcing contracts.
“So rather than force the issue it is better to fix the barriers to lending,” he said.
MAYVELIN U. CARABALLO