Philippine banks have begun to operate under the provisions of Republic Act 10000 which mandates credit to agriculture and agrarian reform beneficiaries.
RA 10000 supersedes Presidential Decree 717 but continues to require banks to allocate 15 percent of their loanable funds for agriculture and another 10 percent for agrarian reform beneficiaries. The new law, however, imposes stricter guidelines by limiting the modes of alternative compliance.
A committee composed of representatives from the Department of Agriculture, Department of Agrarian Reform and Bangko Sentral ng Pilipinas (BSP) has been working closely to coordinate the execution of the new agri-agra law.
The BSP developed a new reportorial system to monitor the compliance of banks under the law. Banks were required to submit their inaugural report last January under the new guidelines. This report identifies in more detail how banks comply with the provisions of RA 10000.
Among the acceptable modes of alternative compliance provided under RA 10000 is funding through so-called Rural Financial Institutions (RFIs).
To date, BSP has approved the RFI applications of the Rural Bank of Kiamba in Sarangani; Producer’s Savings Bank in Pasig City; and Rural Bank of Barili in Cebu.
BSP-accredited RFIs are banks authorized to raise funds for agri-agra lending by accepting wholesale loans, placements in RFI special accounts and equity investments (preferred stocks) from other financial institutions.
RFIs then act as direct conduits to the agriculture sector and agrarian reform beneficiaries by channeling the funds specifically allotted by other banks for the program. This gives RFIs a critical role in the funding chain.
Having RFIs also eliminates the old practice of “layering” funding through several conduits before the proceeds are received by the targeted beneficiaries or intended projects.
The BSP has defined guidelines to determine if a bank which has sought accreditation qualifies as an RFI.
BSP reminds, however, that its accreditation is neither an endorsement to infuse funds to the RFI nor an affirmation of the soundness of its operations. The accreditation only establishes a bank’s focus on agri-agra lending. Financial institutions are expected to exercise due diligence and prudence when lending, depositing or investing in RFIs.