The Committee on Government Enterprises and Privatization approved House Bill 2489 which will institutionalize the Agricultural Guarantee Fund Pool (AGFP) and rename it as the Agricultural Guarantee Corporation (AGC).
The AGFP was the brainchild of Third District Rep. Arthur Yap, when he was agriculture secretary during the administration of Gloria Macapagal-Arroyo.
It was established by virtue of Administrative Order 225-A issued by the President on May 16, 2008.
The AO stipulates, among others, for the GFIs and GOCCs to allocate and contribute five percent of their 2007 surplus for projects in palay and food production, and as a contribution to the AGFP.
The program was envisioned to last five years.
In 2015, the AGFP of the Department of Agriculture (DA) provided guarantee coverage for nearly P5.21 billion in agricultural loans last year, according to the Agricultural Credit Policy Council (ACPC).
Since its launch in 2008, the AGFP has already provided guarantee coverage for P31.1 billion in loans given out by participating financial institutions to more than 745,000 small agricultural producers.
When Yap was updated of the AGFP’s performance, he felt certain that the program should be institutionalized to complete the agri-finance ecosystem.
Presently, millions of farmers struggle to adapt to the effects of climate change while they wait for technical support, sustainable agricultural practices, and infrastructure from the government.
The IRRI revealed several problems besetting the Philippine rice industry –high cost of inputs, low price of palay, lack of capital, lack of postharvest facilities, pests and diseases, and an inadequate irrigation system which impacts both wet and dry seasons.
According to Director Jocelyn Alma Badiola of the Department of Agriculture – Agricultural Credit Policy Council, “this measure will be a big help as it will establish a credit-support mechanism for our small farmers and fisher folk. The proposal could potentially increase access to credit by the marginal rural borrowers”
Rep. Jesus Sacdalan of the 1st District of North Cotabato and Chair of the Committee on Government Enterprises and Privatization, along with the other Committee Members present, after hearing the Author’s sponsorship speech and the inputs from invited resource persons approved the proposal and asked to co-sponsor the bill.
It was highlighted during the Committee hearing that despite the penalties imposed on Banks for non-compliance to the Agri-Agra law which requires them to lend 10% of their loanable funds to agrarian reform and 15% to agriculture, the actual compliance is only at 14 percent combined. Of this 14% compliance, half is in actual agri-agra financing. The other half is via alternative compliance like investing in government bonds.
“This is a much welcomed development. The AGFP has been doing well. From the P484 Million contributed by Government Owned & Controlled Corporations (GOCCs) and Government Financial Institutions (GFIs) who were mandated to contribute their 5% of their 2007 surplus and the P4 Billion from the National Government, the Fund has grown to P6.4 Billion as of April 2017,” according to Edna Atienza, executive director of the AGFP.
The sad reality remains. Banks would rather pay the .5% penalty for non or under-compliance to the Agri-Agra law than to lend to small farmers. Formal lenders steer clear of agri-agra financing as farmers cannot put up collateral to secure their loan. They say that retail lending is tedious and costly and climate change is making agriculture less and less feasible. Filipino families having farming as their sole source of income entail non-payment of loans during family emergencies.
“We do not have a viable AGFP in place, and our farmers do not have many movable assets. A financing ecosystem has to be built or else the government will keep on funding the agriculture sector. If we can continue to grow the AGFP, we can use this to further develop Philippine agriculture,” Yap said.
Agricultural guarantee calls out to formal lenders to lend to farmers and fisherfolk who cannot offer collateral for their loans, with the AGFP guaranteeing their loans up to 85% of the uncollected amount. The Bangko Sentral ng Pilipinas (BSP) has also added an incentive by assigning a 20% risk weight for AGFP guaranteed loans. The guarantee fee is only 2% per annum and, for a 6 month loan, at only 1%. A rebate of 50% is given for loans covered by the PCIC.
Loans to agrarian reform beneficiaries are also given 50% rebate. If loan is to an agrarian beneficiary and covered by PCIC, the guarantee fee gets 75 percent rebate. Thus, for a P100,000 loan, guarantee fee can be as low as P250. Lender is guaranteed up to P85,000.
During the BSP-Asian Development Bank (ADB) Agricultural Finance Conference held at the BSP this May 10-11, the ADB manifested its intent on designing a similar program for other Southeast Asian Countries.