Lending to agriculture and the rise of fintech

ONE of the good news for the agriculture sector this year is the Land Bank of the Philippines (LandBank) ending 2022 with more than P261 billion in loans granted to the agriculture sector, for a growth of about 5 percent from the 2021 figure.

The figure of P261 billion is not a small amount, and LandBank should be applauded for maintaining the bank’s lending to the agricultural sector.

However, I still dream of lending to the agricultural sector at least £1.5 trillion per year, with LandBank still in the lead in terms of total lending. Achieving this P1.5-trillion figure will definitely need a mobilization of financial resources from the government, private sector or banks, and bilateral and multilateral lending institutions.

We also have a new agri-agra lending law, or Republic Act (RA) 11901, titled “The Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022,” which passed into law in July 2022. Compared to RA 10000, or ” The Agri-Agra Reform Credit Act of 2009,” RA 11901 expands coverage for agriculture-related lending, making it easier for banks to lend to the agri-fishery sector.

Specifically, Section 4 of RA 11901 states that agricultural lending covers “industries such as off-farm/fishery entrepreneurial activities, agricultural mechanization/modernization, agri-tourism, environment, social and governance projects, including green projects, digitization/automation of agriculture, fisheries and agricultural activities and processes, acquisition of land authorized under the Agrarian Reform Code of the Philippines and its amendments.”

This section also states that lending may be extended to marketing, processing, distribution, shipping and logistics, and storage of agricultural and fishery commodities, rural public infrastructure and programs to promote the health and well-being of farmers, fishermen and agrarian reform beneficiaries and their families . members.

It is clear that the provisions of RA 11901 make it easier for banks to lend to the agricultural sector compared to RA 10000 which strictly stipulates that banks allocate 15 percent of their loan portfolio to agricultural loans and 10 percent to agrarian reform.

I have yet to see the draft guidelines to implement RA 11901 and my wish is that the government gets more teeth or power to make sure that the law really leads to more loans to the agricultural sector.

RA 11901 also stipulates that the LandBank and the Development Bank of the Philippines (DBP) take the lead in promoting savings in rural areas, which is appropriate because both are state-owned banks that should not only operate for profit.

LandBank and DBP will merge this year, with the former being the surviving entity. Nevertheless, LandBank will also have to restructure its credit facilities towards inclusive business models under the partnership between large companies and governments to help small farmers.

More viable to lend today

When RA 10000 was enacted, there was a perception that lending to farmers and fishermen, whether organized or individual, was extremely risky. This is perhaps due to the fact that in previous decades, lenders could collect only 10 percent of what they lent to farmers and fishermen.

But then a large part of the money that was lent to farmers and fishermen, especially the individuals, was from loan sharks who charged usurious interest, and put the borrowers into a situation where they cannot pay both principal and interest.

Fortunately, the rise of credit cooperatives and rural banks helped farmers and fishermen access formal credit at non-usurious rates.

And I believe that lending to the agricultural sector is no longer as risky as it was decades ago because the LandBank can sustain lending to both food producers and agribusinesses of billions of pesos annually. Therefore, I think it is high time that the leading commercial banks also follow LandBank’s lead.

Access to affordable credit for agriculture is also one of the main recommendations of the private sector-led Go Negosyo-Kapatid Angat Lahat for Agriculture Program, or Kalap, during our meeting with President Ferdinand Marcos Jr. in Malacañang on April 25, 2023.

The rise of financial technology or fintech can also increase the amount of loans to the agricultural sector. And an excellent feature of RA 11901 is that it will help usher in digitization in agriculture, encouraging the use of e-commerce and online transactions. So why not harness the power of financial technology or fintech in lending to the agricultural sector?

Specifically, RA 11901 also states that LandBank and DBP “shall use their resources to innovate, develop, promote and invest in digital, automation technology, branchless banking and cash agent operations to reach remote barangays (villages) and municipalities; using e-commerce, online transactions, banking-on-wheels, retail and non-banking retail outlets, lottery kiosks and mobile phone applications to make banking services accessible to the rural public.”

The popularity and application of fintech in the Philippines is also increasing and there is an organization called the Fintech Philippines Association.

And today we see companies offering loans through online channels, with the application and approval process through social media platforms. But I’m talking here about legitimate loan companies that don’t charge high interest rates and aren’t offensive when they collect payments.

So over the next few years we must facilitate digitization through fintech in agri-agra lending which can also be a big step in the digitization of agriculture in the country as a whole.

The first step towards that direction is to implement RA 11901, paying special attention to its provisions promoting financial technology.

As for the digitization of agriculture as a whole, that will be my topic in next week’s column.