Presidential Assistant for Food Security and Agricultural Modernization Francis N. Pangilinan spoke the truth when he said that for the Philippines “to reach developed nation status in the next 10 to 15 years,” it should “put farmers, fisherfolk and agricultural communities first.”
When we talk about steady and sustainable economic growth, the importance of having a strong agriculture sector cannot be overemphasized as it accounts for 30 percent of the country’s total land area and 30.4 percent of the 37.94 million employed Filipinos in January 2013.
The government is the backbone of a drive to empower the agriculture sector. As such, it should ensure that the agriculture sector receives enough resources to fund efforts toward modernization and protection from risks, as well as studies and research on the viability of agriculture as an enterprise and a source of living.
In the 2015 Budget message of President Benigno Simeon C. Aquino 3rd, he said that the combined budget for agricultural agencies, amounting to a total of P86.1 billion, has been allocated to the Agricultural Development Program. In the same note, he said that the government hopes to boost the productivity of the agriculture and fisheries sector to 3.5-4.5 percent growth in gross value-added by 2016.
Such goal is not possible with the government working alone. It needs the help of the private sector, especially banks and other financial institutions, to allow the agriculture sector to develop and achieve its optimum potential. It is probably under this idea that the Congress created and implemented Republic Act 10000 or the Agri-Agra Reform Credit Act, which mandates banks to set aside 25 percent of their total loanable funds for the agricultural and agrarian reform sector.
For many years, rural banks have been the reliable partners of the government for this endeavor, lending billions to the low-income, farmers and fisher folk. In fact, as of the first quarter of this year, rural banks—together with the cooperative banking sector—have extended a total of P29.5 billion in loans in compliance with the Agri-Agra Law.
Unfortunately, the market is evolving and the law is already becoming too difficult to adhere to. For one, banks are confronted by the fact that there are not enough agri-agra clients anymore, especially in cities and first class municipalities.
Mandatory lending is also becoming a burden to banks, business-wise, that some would rather be penalized and pay fines than absorb the risks that mandatory lending brings.
Forced lending is also quite contrary to the desire of the central bank for banks to keep a healthy loan portfolio. Considering the irony, the mandatory allocation should, if not totally abolished, be gradually lowered to a certain percentage that is manageable for rural banks, especially for those in already modernized localities. This way, banks are given enough room to lend, while still practicing their banking standards, and explore other sectors in need of financial support.
While the objective of the government—that is to lift the agriculture sector—is one worthy of support, the impact on banks is too big to be ignored.