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Appeal for repeal


By Fil C. Sionil

The Bankers Association of the Philippines (BAP) is untiring. Persistent.

It’s at it again – putting forward its appeal to the authorities to include in the legislative agenda the repeal and/or introduction of  certain amendments to the Agri-Agra Law to make it more in sync with market environment.

A position paper from BAP states  that  “mandated lending, as a form of interference in the market for loan products and credit services, should be avoided.”

Compliance with the Agri-Agra law has never been satisfactory. To this day, compliance remains just  a desire.

The  total allocation for the sector as of March this year amounted to P502.45 billion but  the amount is actually more than the absorptive capacity of the farm sector.

Sought to shed some light on this matter, East West Vice Chair and Chief Executive Officer Tony Moncupa Jr. says BAP perseveres in its annual appeal for the amendments to make the required credit allocation “pro development and pro-consumer.”

The required credit allocation is a  distortion, he said. “Any interference in the free interplay of market forces is surely, and always will be, inefficient.”

BAP’s determination stems from its virtual admission of low compliance since amendments were instituted  nine years ago under Republic Act (RA) 1000, which updated Presidential Decree (PD) 717, issued by then President Marcos in 1975, mandating banks and financial institutions to allocate 15 percent of their loanable funds to agriculture sector and 10 percent to the agrarian reform program of the government.

RA 1000 removed alternative forms of compliance such as lending to the education and housing sectors, which had been allowed in PD 717. It  also  imposed a  stricter  tag price of  0.5 percent of the amount involved for non-compliance.

Despite the tougher monitoring and increase in penalties, banks’ compliance rate is far from the course, at 13.8 percent. The total allocation for the sector as of March this year amounted  to R502.45 billion, which the BAP believes is “more than enough for the absorptive capacity of the farm sector.”

Full compliance, both via direct and alternative modes, was difficult to attain for reasons unique only to the agricultural sector (e.g., climate and weather risks). In fact, the agrarian segment of the program suffered more for lack of market the last several years.

The BAP suggests several alternatives that could improve  Agri-Agra compliance, among them, repackaging entirely the nation’s agricultural credit policy away from the mandated lending; widening participation options in the agricultural financing program for lending institutions unable to directly lend due to differences in situations; raising the credit standards in agriculture by building database on credit performance and scores to professionalize the market and facilitate monitoring of loans and borrowers.

BAP is also, pitching for financial literacy to further promote reforms for a more inclusive, affordable, and accessible agricultural financing program.

The emphasis is to educate farmers and rural folks on credit responsibilities and basic finance, which should include credit risk management and the certainty of penalties in case of defaults and delinquencies. Credit responsibility is underscored here as it is beneficial to both counter-parties – the borrower and the lender.

Removing this friction will unleash billions of pesos of loanable funds that could be made available to other sectors of the economy.

“It will bring down the intermediation,” a move that will redound to the benefit of the banking public through lowering the cost of borrowed funds, says Mr. Moncupa.

With so many things going-on in our legislative mill, this side of the wall still looks forward that these BAP ideas will finally come to life.

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