In an effort to further address the financing needs of small farmers, the Monetary Board has approved the general rules and regulations that will allow banks to provide Micro-Agri Loans. This type of credit applies the successful methodologies, standards and best practices of providing microfinance loans in the provision of small loans to farmers. With this approval, small farmers in the countryside can have potentially more access to bank credit.
Prior to this innovation, small loans to farmers were considered traditional agricultural credit which typically require collateral, have stringent documentary requirements and complex application procedures. These conditions have become a major barrier for small farmers to access much needed financial services to grow their production and increase their economic activity.
Micro-agri loans that meet the standards shall be classified and treated as microfinance loans. As such, they will enjoy the same benefits as microfinance loans such as exemption from the requirement of traditional collateral, complex documentary requirements and application procedures. Like typical microfinance loans, micro-agri loans are in small amounts not exceeding P150,000; with a short loan term and frequent amortizations; based on the borrowers capacity to pay as determined through household cash flow analysis; and are typically unsecured, or secured with non-traditional collateral substitutes like group guarantee or household/personal assets. Micro-agri loans are granted to borrowers engaged in farming for at least two years but have other sources of non-farm income. Considering the seasonality and cycles of agricultural production, micro-agri loans provide flexibility in terms of payment by allowing the lump sum payment of micro-agri loans up to 40% of the total loan amount.
To ensure that micro-agri loans are delivered to clients in a prudent and sustainable manner, banks must have the capacity, technical capability and appropriate risk management mechanisms in place to provide this product. The bank must have a good track record in microfinance; appropriate micro-agri loan product manual; adequately trained loan/account officers; and adequate loan monitoring, collection, control and provisioning consistent with existing BSP regulations for microfinance.
The application of microfinance principles to agricultural credit has been proven effective in the pilot project of the Rural Bankers Association of the Philippines-Microenterprise Access to Banking Services (RBAP-MABS), which was approved by the Monetary Board on 19 January 2006. Data from the 16 RBAP-MABS banks participating in the micro-agri pilot project show that from the pilot’s commencement in 2006 up to October 2009, a total of 16,898 borrowers have benefited from micro-agri loan disbursements amounting to PhP 487 million. Participating banks likewise report that these micro-agri loans are performing relatively better than the traditional agricultural loans. With these positive results, the Monetary Board opened the opportunity for all interested banks to provide micro-agri loans. This approval, which will greatly benefit banks’ agri-based microfinance clients, is in line with the BSP’s proactive approach to building an inclusive financial system that aims to bring in those previously unserved by the formal financial system such as the small farmers in the rural areas.