 |
 |
|
|
       |
Banking system still limits agriculture credit |
|
Ted Torres
The Philippine STAR 10/18/2005 The agriculture, fishery and forestry sector, on the average, only gets a mere five percent of the total loan portfolio of the banking sector extended to the countryside. And of that already extremely small figure, the government financial institutions (GFIs) account for just six percent with the private sector accounting for the main bulk. It was also revealed that of the total loans granted to the agriculture, fishery and forestry sector, only half went to agriculture production. The other half was used for agri-related activities. The main bulk of agricultural credit went to rice and corn, or more specifically to the purchase of farm inputs for the above mentioned products. In a study released recently by the Agricultural Credit Policy Council under the supervision of the Department of Agriculture (DA), it shows that rural credit is basically supply-driven, with a high level of government intervention, and that interest rates are subsidized. "A supply-led credit system is not sustainable in the long run. And while there are real moves to cut down on credit subsidies, much is left to be done to sustain credit flowing to rural and agricultural development," the study, led by Jovita Corpuz and Norman Kraft, said. The study recommended that agencies must develop a policy environment "that encourages banks to lend more to the rural sector especially small borrowers who have difficulty meeting the collateral requirement of banks. Under the Agri-Agra Law of 1975, banks are mandated to allocate 25 percent of their loan portfolio to agriculture and agrarian refomr beneficiaries, or 15 percent for agriculture and 10 percent for agrarian reform. However, the national government still milks the Land Bank of the Philippines (LBP) amounts reaching millions of pesos annually to pay for land reform. Likewise, compliance to the Agri-Agra law actually went to alternative modes of compliance that are permitted under the law. "Some of these are investments in bonds and development loan incentives to financial educational institutions, hospitals, and social housing," the report clearly lamented. Four countries in the region have relatively similar experiences which the report briefly cited. Nationalized commercial banks, development financial institutions and cooperatives dominates agriculture lending in Bangladesh. And up to 1981, banks were required to put up rural branches whcih led to a large commercial share of rural loans and deposits. Lending rates were controlled and banks were encouraged to make agricultural loans that the Bangladesh Bank would refinance at subsidized rates. Mitigating the adverse effect of political intervention is the presence of a strong non-government organizations (NGOs) network serving small towns and peri-urban centers. But the biggest contribution of the Bangladesh in the rural finance market is the Grameen Bank approach of group lending and joing liability of borrowers to ensure good repayment performance. The Grameen approach also includes a mandatory weekly savings of clients which are mostly women. "India’s credit market is characterized by an excellent financial infrastructure with a wide network, although government intervention was heavy in bank branching, mandatory quotas, and below-market interest rates," the study pointed out. Poverty alleviation was the lynchpin of India’s rural finance policies, but with a lot of intervention from government. That included subsidized interest rates, and cash subsidies. It, however, resulted in huge arrears and high transaction costs for banks. But high credit volumes and high levels of rural bank penetration in rural areas. In contrast, Indonesia likes to deregulate its financial sector but intervened in credit-related issues for the agricultural sector. It formed desas acting as conduits for subsidized loans with collateral. It failed prompting government to transform these into rural banks. It was, however, able to introduce private savings mobilization. "Another major mover in the rural financial market in Indonesia is the provincial BKK system whcih provides short-term loans to rural families for non-farm productive services. Finally, minimal intervention by the Thai government was noted. The National Government implemented reforms including deregulating interest rates, relaxing portfolio requirements and foreign exchange controls, improved supervision and examination systems, and improved payment systems. It likewise promoted national savings, transformed the country into a regional financial center, and improved operations of the Thailand Central Bank. The Thai government also established the Bank for Agriculture and Agricultural Cooperatives (BAAC), which is a specialized institution under the Ministry of Finance. The BAAC provides loans to farm households with no collateral requirement and uses the joint liability group lending to ensure the repayment of loans. It also mobilized savings among its borrowers. It was successful with a 90-percent outreach of farm households, high repayment rates, savings mobilization, lending portfolio, efficiency, and profitability. The high productivity and efficiency of BAAC are mainly due to: low interest rates; charges higher interest rates for target loans and cross subsidizes its small clients; interest rates were not adjusted to cover the rise in inflation; nominal interest rates are reduced from 11 percent to nine percent for loans below 30,000 bahts; and charges three percent less on wholesale loans made to cooperatives and associations. |
 |
Circular Letters/Memoranda |
|
Speeches/ Presentations |
|
Photo Gallery |
|
The 2008 RBAP Charter Symposium |
|
2008 CFI Awards |
|
Rural Banking Week Celebration Golf Tournament |
|
Client Satisfaction Survey for Licensing Management System of the Supervision and Examination Sector |
|
Financial Reporting Package 2008 |
|
BSP releases regulations on liquidity, market risk weighting |
