By Cai Ordinario, May 7 2019; Business Mirror

Image Credit to Business World

NADI, Fiji—The Bangko Sentral ng Pilipinas (BSP) is mulling over the possibility of pushing for the repeal of the Agri-Agra Reform Credit Act due to its failure to expand farmers’ access to credit.

In an interview, BSP Governor Benjamin E. Diokno said if the government wants to help farmers, this can be done through the national budget and government financial institutions (GFIs) and not through commercial banks.

Diokno said that, while the BSP does not yet have an official stand on the agri-agra law, “the Monetary Board members are in consensus” that something
must be done to address problems in its implementation as the law was not able to achieve its purpose and even created “market distortions.”

“There’s a consensus among Monetary Board members that we have to fix [the law] because it did not achieve its objective,” Diokno said. “If you want to help [the farm] sector, then go through the budget, not through the banking system. To me that’s the first best solution.”

Under the Agri-Agra Reform Credit Act or Republic Act 10000, government and private banks should allocate 25 percent of their total loanable funds to the agri-fisheries sector, with 10 percent being distributed to agrarian-reform beneficiaries (ARBs) and the remaining 15 percent to the farm sector.

Due to the failure of the law to compel commercial banks to extend credit, Diokno said banks are penalized. This, he said, creates “market distortions” that limit their ability to provide financing for other clients.

He said asking the commercial banks to shoulder the burden of government is placing too much pressure on the financial sector.

Where are the fines?

Diokno said another issue with the law is the fines and how these are used by the Department of Agriculture. He said the fines paid by banks are given to the DA.

“I have been asking where the fines are and I learned that it’s with the Department of Agriculture. I don’t know how these funds are being used. You should ask Secretary [Emmanuel] Piñol. Maybe that’s why he doesn’t want to abolish that law,” Diokno said.

In end-September 2018, universal and commercial banks’ compliance with the 10 percent required lending to the agrarian-reform sector hit 0.79 percent; their compliance with the 15 percent required lending to the agricultural sector reached only 12.95 percent.

The thrift banking sector follows the universal and commercial banks’ trend, with a 1.2-percent compliance rate against the 10-percent mandate for the agrarian-reform sector and 6.19 percent as against the 15-percent mandate for the agricultural sector.