Abolition of ‘escape clause’ in Agri-Agra Law pushed

Senate Majority Leader Loren Legarda is pushing for amendments to the Agri-Agra Law or PD 717 to correct commercial banks’ bias against agricultural lending.

Specifically, Senate Bill 707, authored by Legarda, calls for the removal of an escape clause in the law that allows banks to practically get away with token compliance of the mandatory lending provision to small farmers and small-scale agricultural activities.

PD 717 mandates banks to set aside at least 25 percent of their total loan portfolio every year to agricultural production and 10 percent to agrarian reform beneficiaries, but banks are permitted to buy government securities and bonds to comply with the law.

This is allowed because agricultural lending is risky.

However, Legarda said that "the escape clause on substitute modes of compliance with mandatory lending is at the root of a crippling credit squeeze in the rural areas that are in dire need of production loans from formal sources," said Legarda.

SB 707 is proposing several modes of complying with PD 717, all of which will raise much-needed financing for agricultural projects.

One major feature of the bill is for banks to open "social deposit accounts (SDAs) with thrift, rural and cooperative banks outside of Metro Manila, provided these will be used solely for the agriculture, fishery and agrarian reform sectors.

SB 707 also seeks the following: expanding the agricultural conduit for agricultural lending, setting a ceiling as to who should have access to credit under PD 717 to ensure that small and medium-scale farmers and fishermen get priority from the loans, and removing the distinction between loans to re-extend to agricultural production and agrarian reform beneficiaries.

"The bill hopes to genuinely ensure the flow of credit to small farmers and fisherfolks and to small and medium sized agricultural enterprises," said Legarda.

Currently, the lack of credit is forcing poor farmers to rely on usurers and informal sources of credit to sustain their production and livelihood projects, said Legarda, citing a study of the bicameral Congressional Commission on Agricultural Modernization which shows that only one-third of small farmers have availed themselves of loans from banks.

Even the Land Bank of the Philippines’ loan portfolio is tilted toward commercial lending. There are efforts though to reverse this and lend about 65 percent of its total loanable funds to the agriculture sector by 2004.