LOREN BATS FOR PASSAGE OF AGRI-AGRA REFORM CREDIT ACT

Senator Loren Legarda is pushing for the immediate passage of a law that would amend Presidential Decree No. 717 or the Agri-Agra Law to promote rural development by enhancing access of the agricultural sector to financial services and programs that increase market efficiency and promote modernization in the rural agricultural sector.

Loren, chairman of the Senate committee on agriculture and food, noted that the law has become less effective in channeling credit to the agriculture sector and the agrarian reform beneficiaries.

"PD 717 mandates banks to extend 25% of their loanable funds to the agricultural and agrarian reform sectors. However, the absence of the network linkages has led most banks to resort to alternative compliance under PD 717. This consists of investments in eligible government securities, which in most cases has no connection whatsoever to agri-agra credits," Loren said.

A bicameral conference is scheduled this afternoon (October 20) at the Senate to discuss the disagreeing provisions of Senate Bill No. 3431 and House Bill No. 6095, which are both intended to amend the Agri-Agra Law. When enacted into law, this will be known as the "Agri-Agra Reform Credit Act of 2009".

"The passage of a law which will amend Agri-Agra Law is urgent because it will have a positive contribution to a sector in our society that is broad enough to include 35% or almost 12 million of our population's work force but are pushed into marginalization by grievous policy neglect," Loren said.

Loren noted that in 2008, the total credit demand for agriculture amounted to P206.453 billion. Of this amount, she said, only 24.05 %, or less than one-fourth, was supplied by the banks and other institutions in the country's financial sector.

"Some 1.6 million farmers and fisherfolk relied on informal sources for credit including notorious 5/6 lenders. While informal lenders serve a purpose in rural markets, it is a second best arrangement with serious inequities and efficient use of our resources," the lady senator said.

According to Loren, our banking system is a rich source of credit resources while agriculture is full of opportunities for productive activity. What is lacking, she said, is the network and linkages that will put the two together.

"Records show that while unibanks and commercial banks have abundant credit resources, they have been under complying with the Agri-Agra credit requirements mandated by PD 717. The primary reason is that these institutions are based in urban centers which are close to depositing public. Lacking the network in rural markets, they lack the capability to assess agricultural credit and extend loans to farmers and agrarian reform beneficiaries," Loren explained.

"On the other hand, rural banks and thrift banks tend to overcomply with the PD 717 requirement. This demonstrates that there is a viable market for Agri-Agra credits. In order to expand this viable market, we need a network of linkages that will connect the source of deposits in the urban areas on one hand, and the users of credit in rural areas on the other hand," she said.

Data show that as of December 2008, the total loanable funds stood at P2.18 trillion. Of this amount, 25% or 545.274 billion was supposed to be lent to agriculture and agrarian reform sectors. But actual compliance stood only at P492.968 billion, indicating a gap of P52.306 billion between what is mandated by the law and what was actually lent out in compliance to PD 717.

"Because of the aforementioned non-agricultural alternative compliance that makes funds other wise available to the agriculture and agrarian reform sectors available to others even though alien to agriculture, the actual amount that went to agriculture was further reduced to only P372.79 billion," Loren said.

According to the lady senator, non-agricultural alternative compliance stood at a total of P120.17 billion or 72.05% of total alternative compliance. The biggest non-agriculture alternative compliance was the so-called Development Loans which stood at P103.44 billion or 62% of total alternative compliance.

"The 2008 figures show the limited effectiveness of PD 717 in channeling credit to farmers. The provision allowing alternative compliance has slashed off P120.17 billion of funds from agriculture that could have gone to an estimated 1.27 million rice farmers who have no access to credit of whatever kind, or about 577,371 hectares of palay farmland that is not covered by credit," she said.