Loans extended by banks to the agriculture sector significantly rose to P3.2 trillion as of June 2023 from the P848 million agri-agra credit allocated in the same period in 2022, the Bangko Sentral ng Pilipinas (BSP) said.

In a report on the Philippine financial system for the second semester of 2023, the central bank said the level of compliance with the mandatory agriculture, fisheries and rural development (AFRD) financing under Republic Act 11901 sharply improved.

It said banks allocated 37.7 percent of their total loans for AFRD financing as of June 2023, higher than the 10.3 percent allocated for agri-agra credit in the same period a year earlier.

'This shows that key enhancements under Republic Act 11901, or 'The Agriculture, Fisheries, and Rural Development Financing Enhancement Act of 2022' have enabled banks to contribute to the development of the AFRD sector,' the BSP said.

Pursuant to Section 13 of the AFRD Law, RA 11901 lapsed into law on July 2, 2022 and became effective on Aug. 1, 2022.

The latest law repealed RA 10000 or the Agri-Agra Law and abolished the distinction between the 10 percent agrarian reform and the 15 percent agricultural credit, making the credit quota more inclusive to the entire agricultural value chain.

Monetary Board member Bruce Tolentino earlier said reforms made on loans extended to the agriculture sector, through RA 11901, are now generating positive results in the banking system.

'We've had the reform for one year, and in that year, loans to farmers and agriculture have quadrupled,' Tolentino has said, adding that the penalties paid by banks to the BSP have been cut down by six times.

According to Tolentino, the banks opted to pay the penalties since it was 'cheaper' than lending to the farmers prior to the passage of RA 11901.

He also said that lending to the agriculture sector is better done through an entire value chain approach instead of just being limited or targeted to farmers.

For the BSP's part, the central bank rolled out a report template for the mandatory AFRD Financing Act to monitor banks' compliance with the AFRD financing requirement.

The BSP also issued Circular 1159 on Nov. 4, 2022, which recognized sustainable finance as an eligible form of compliance with the minimum requirement for AFRD financing.

'(The BSP) will also capture data that can be used to assess the effectiveness of the provisions of the law and inform policymaking,' the central bank said.

The BSP will also adopt targeted initiatives to ensure that smaller banks can cater to agriculture, fisheries and rural communities.

It said that small banks should be equipped to provide suitable financial products and services to these clients amid a competitive digital financial environment.

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