Incoming Central Bank Governor Nestor Espenilla urged commercial banks and other financial institutions to
seize the business opportunity and growth potential in lending to the agriculture sector, where about P364 billion of financing demand remains unmet.
Espenilla, who currently serves as a deputy governor at the Bangko Sentral ng Pilipinas (BSP), said lenders should supply the financing needs not only of the farmers and fishermen but also of the whole value chain that supports them.
In a recent study, the Agricultural Credit Policy Council (ACPC), which assists the Department of Agriculture in synchronizing all credit policies and programs in support of the Department’s priority plans, estimates a still huge unmet credit demand for priority agricultural commodities at P364 billion.
“My hope is that the banks and other financial institutions will see the ACPC figures as an invitation to study the agriculture sector closer and to recognize the business opportunities and growth potential that they can offer,” Espenilla said in a speech at the BSP-Asian Development Bank Conference on Financing Agriculture Value Chain in the Philippines earlier this week. .
“Financing today is a very competitive and complex business, but I am confident that you will play a crucial role in providing adequate financial services to agriculture sector,” he added.
Access to finance a challenge
Espenilla sees agriculture as a primary source of income for 31 percent of the workforce in the country.
About 32 percent of rural lands in the Philippines are intended for agriculture, with more than half of the Filipino population living in these areas. But Espenilla pointed out that the share of agriculture to gross domestic product (GDP) lags behind other sectors and has been declining over the past four years from 10.5 percent in 2013 to only 9.7 percent in 2016.
Such figures suggest there are fundamental constraints hampering the sector’s potential for growth, and one of the attendant challenges is access to finance, he said.
The World Bank has forecast that global food demand will surge 70 percent by the year 2050 – a significant requirement that necessitates at least $80 billion annually in investment, most of which is expected to come from the private sector.
In the Philippine context, ACPC notes that 53 percent of farmers obtain their loans from formal sources.
“While their is plenty of room for improvement, this is quite an encouraging figure, considering only 12 percent Filipino adults borrowed from a formal financial institution in 2014 based on a survey commissioned by the BSP,” the incoming central bank chief said.
Yet, Espenilla noted that there still remains a huge unmet credit demand for priority agricultural commodities, estimated at P364 billion by ACPC.
Efforts by the monetary authorities to establish an inclusive financial system have enhanced access to a wide range of financial products and services that empower individuals to seize the opportunities presented to them by a growing economy.
The BSP’s approach has been to develop enabling policies, such as the Agricultural Value Chain Financing (AVCF) under BSP Circular 908, and regulations that will encourage financial institutions to reach unserved and underserved markets in a sustainable manner, Espenilla pointed out.
“Appreciative of the potential of the AVCF as a platform for sustainable agricultural financing, the BSP issued a circular to set the guidelines and incentives for value chain financing,” he said.
Meanwhile, the AVCF Framework addresses the agricultural risks by shifting the focus of lending from individual farmers and fishermen to the whole value chain that supports them.
Value chains enable the financial institutions to develop products that can efficiently and viably serve the financing needs of the various actors in the chain, particularly the smallholder farmers and fisherfolk.
“It addresses the financing constraints of the small players by solving the root cause and allows them to take on other associated challenges such as access to markets, business development and technology,” Espenilla said.
Developing agriculture value chains is a promising approach to provide smallholders the means to leverage on effective farming technologies and methods and participate in high value markets – thereby uplifting their living standard and productivity, and ensuring their business sustainability, he explained.
This, in turn, improves their risk profile and creditworthiness from the perspective of the financial institutions, he added.