Third District Rep. Arthur Yap proposed modes that allows direct lending to rural and cooperative banks and to farmers to strengthen countryside lending.

In House Bill 5181, proposing additional breadth of the Agri-Agra Reform Credit Act, Yap explained that the loans should be directed to borrowers who will use the money for initiatives that will also benefit the agriculture sector.

The proposed measure also seeks to allow direct investments to accredited rural financial institutions (RFIs) as another alternative form of compliance to the Agri-Agra Reform Credit Act.

“RFIs 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,” according to Yap

As a background, Yap cited Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009 which was repealed by Presidential Decree 717.

The law aims to increase credit to the agriculture and agrarian reform sectors where it orders banks to set aside at least 25 percent of their total loanable funds for agriculture and agrarian reform lending, of which 10 percent should go to agrarian reform beneficiaries (ARBs).

The law also provides the bank with alternative modes to comply with the 25 percent requirement aside from the extension of loans and purchase of eligible loans from other banks.

These alternatives include paid subscription of shares of stock in accredited rural financial institutions and investments in the special deposit accounts of RFIs.

Banks that fail to comply with the requirements of RA 10000 will have to pay a penalty equivalent to 0.5 percent of their non-compliance or under-compliance, which will be computed on a quarterly basis.

Yap cited the records of the Bangko Sentral ng Pilipinas (BSP) that show universal and commercial banks have a higher alternative compliance than direct lending.

He also cited the explanation of the Bankers Association of the Philippines (BAP) that its members usually gravitate towards alternative modes of compliance with less risk exposures and are seeking for alternative ways to comply with the requirements of the law.

The BAP is of the position that the law’s intent should be broadened to “countryside lending”, according to Yap.

In HB 5181 proposed that Section 7 of the Agri-Agra Reform Credit Act of 2009 that provides for alternative mode of compliance for Agri-Agra Loans to include direct loans to rural and cooperative banks and to farmers and invest directly to accredited RFIs accredited by the BSP as such under existing rules and regulations.