Throughout the years, we have seen how the agricultural sector, particularly the farmers, have rescued our economy from collapse. Raising their living standards is decided largely by the priority and investment. One of the many ways to achieve this is by enhancing farm productivity and sustainability.
In a typical rural setup, households need a sizeable expansion of credit for investing in agriculture and cushion seasonal fluctuations in earnings. However, the use of high-yielding varieties, fertilizers and other improved inputs entails higher capital deployments. Since cash flows and savings in rural areas for the majority of households are small, they likewise tend to heavily rely on credit for other basic consumption needs like food and education. They also need access to financial institutions that can provide them with lower credit rates and at reasonable terms, compared with traditional moneylenders that only place them on debt-traps. This is where the rural banks step in.
Rural banks have been established to help farmers through the stages of production, from buying inputs up to marketing their products. Also, they exist to provide adequate and timely credit to farmers in order to reach desirable outputs. Unlike informal credit markets, rural banks give lower interest rates.
As rural banks are extending credit to farmers, they absorb all the risks involved in the endeavor. However, through a risk management tool recently introduced by the Department of Agrarian Reform in partnership with the Philippine Crop Insurance Corp. and the Department of Agriculture, dubbed as the “Agrarian Reform Beneficiaries—Agricultural Insurance Program [ARB-AIP],” agricultural risks are evened out and potential consequences of natural disasters to make losses are bearable.
Officially launched to facilitate sustainable access of ARBs and ARB households for their on-farm and non-farm enterprises, this insurance program is also designed to lessen the cost of borrowing by ARBs where the cost of crop insurance is being shouldered not by the borrower but subsidized by the government. The ARB-AIP program has an initial appropriation fund of P1 billion for 2013, which will be exclusively used to finance the premium subsidy for agricultural insurance coverage of farm investments of ARBs.
The Philippines is still a primarily agricultural country. By boosting the agriculture sector, which contributes a fifth of our total gross domestic product, rural banks become active partners in increasing national income and also provide jobs and support to tens of thousands of families and almost one half of our labor force.