In part 1 of this series, we discussed how banks may comply with the mandatory credit requirement by lending to rural community beneficiaries, to finance agricultural and fishery-related activities as enumerated under Section 4 of RA 11901, or the Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022.
Aside from those, Section 7 provides other ways by which banks may also comply with the mandatory financing requirement through other means.
Banks may invest in debt securities, including those issued by the Developmental Bank of the Philippines and the Land Bank of the Philippines, however, they must ensure that the proceeds from said debt securities shall be used to finance activities qualified under the law under Section 4 thereof. They may likewise open deposit accounts and/or invest in fixed-term deposit products with any financial institution established and operating in a rural community, termed “Rural Financial Institution or RFI”.
Directly investing in shares of stock of RFIs, subject to prevailing laws, rules, or regulations, or lending wholesale to RFIs is also considered compliance with the requirement.
Proceeds from debt securities issued by the DBP and the LBP as well as any deposit accounts/products with RFIs shall be separately accounted for by the depository bank and shall not be considered for purposes of computing the loanable funds of the said banks.
Banks may also consider rediscounting with banks such as eligible paper covering agriculture, fisheries, and agrarian reform credits. The rediscounted paper shall no longer be eligible for compliance on the part of the originating bank. Loans for the construction and upgrading of infrastructure, including but not limited to, farm-to-market roads, as well as the provision of post-harvest facilities and other public rural infrastructure that will benefit the rural community, and agri-business enterprises that maintain agricultural commodity supply-chain arrangements directly with rural community beneficiaries are also considered as compliance to the law.
They may also undertake agricultural value chain financing, or make available financial products and services to actors/players in the AVC that benefits rural communities; engage in sustainable finance; invest in shares of stock of the Philippine Crop Insurance Corporation or PCIC, or in companies that primarily engage in activities under Section 4 of the law, including investments in venture capital corporations, that benefit rural community beneficiaries; and Provide financing to electronic platforms that will facilitate AVCF and supply chain financing transactions among actors in agriculture.
Banks are cautioned that the loans and investments which are counted as compliance must not be funded by proceeds from the issuance of debt securities, and/or deposit/lending of other banks that have been counted as compliance with the mandatory credit. Note as well that certain activities may be counted at ten times their outstanding amount, or as otherwise prescribed, for purposes of determining compliance with the mandatory agricultural and fisheries financing requirement if these activities generally benefit agrarian reform beneficiaries under the agrarian reform law and its amendments and extensions, or agrarian reform community, i.e., a barangay or a cluster of barangays primarily composed of and managed by agrarian reform beneficiaries which are organized and willing to undertake the integrated development of an area and/or their organizations/cooperatives.
I mentioned that financial institutions are watching this law and its implementing rules closely, largely because of the hefty penalty that comes with non-compliance. The main regulator for the banking and financial institutions in the country, the Bangko Sentral ng Pilipinas, is empowered to impose administrative sanctions and other penalties on the lending institutions for violation of the New Agri Agra Law. Penalties on noncompliance or under compliance shall be computed at one-half of one (0.05) percent of noncompliance or under compliance, or at rates prescribed by the BSP Monetary Board.
Hence, the higher a bank’s total loanable fund, the greater the probability of paying a higher penalty in case of failure to comply with the 25 percent credit quota.
With so much of the country’s food security and the overall development of rural areas at stake, we hope that the law achieves its laudable objectives to the end and that financial institutions are marshaled to provide much-needed financial support to agricultural industries.
The Daily Tribune