Senator Loren Legarda, chairperson of the Senate Committee on Agriculture said that the amended Agri-Agra Law or Republic Act 10000 would improve the mechanisms to deliver credit to the agricultural sector and to agrarian reform beneficiaries. The Agri-Agra Reform Credit Act of 2009, a consolidation of Senate Bill 3431, with Legarda as one of the chief authors, and House Bill 6095 with Representative Abraham Kahlil Mitra as one of the chief authors, revised the alternative modes of compliance to investments that directly benefit small farmers, fishermen, and their cooperatives or farm associations.

The data show that while PD 717—the old agri-agra law passed during the time of President Ferdinand Marcos—required banks to allocate 25% of total loanable funds to agriculture and agrarian reform beneficiaries, rural banks actually allocated over 40% of total loanable funds to agri-agra credits in 2007 and 2008.  This overcompliance demonstrates that a viable market for agri credits does exist.   Institutions like unibanks, commercial banks and thrift banks converge in the deposit-rich urban areas but lack the capability to service the credit needs of agriculture and rural markets.

The authors of the amended credit law realized the potential of tapping the specialized strengths of different types of financial institutions to serve the needs of different sectors of the economy. PD 717 failed to develop the network of linkages between urban-based banks and the banks with a strong presence in the rural markets.   The objective of the law is to fill that gap by encouraging urban-based unibanks, commercial banks and thrift banks to link up with rural banks in delivering credit to the countryside.

Alternative compliance under PD 717 included investments that were totally unrelated to agriculture. The provisions of the amended law ensure that alternative compliance pertains to activities directly related to agriculture and agrarian reform to ensure funds are channeled to farmers and fisherfolk.  These include wholesale lending to rural and thrift banks that would lend retail directly to farmers and fisherfolk as well as loans for the construction of agri-related infrastructures such as farm-to-market roads and post-harvest facilities.

As of November 2009, the loanable funds of the banking sector reached P2.27 trillion, which meant that lending to agri-agra should have reached over P500 billion while loans to small and medium enterprises must have amounted to P227 billion. But loans extended to agriculture sector only stood less than P350 billion.

“Congress is *not* asking the banks to be irresponsible in their evaluation of credit risk.  However, banks have to look beyond their narrow and myopic profit motives and be more responsive to their obligation to contribute to economic development.”  Legarda urged.  “The investment that we all must now make to develop agricultural markets will pay off with expanded opportunities, even for banks.  However, in the transition we must all pick up the challenge and contribute to the development of the network of linkages needed to make the system work.”

Loren said that the penalties on noncompliance shall be computed at one-half of one percent (0.5%) of noncompliance and undercompliance and shall be directed to the development of the agri-agra sector. Ninety percent (90%) of the penalties collected shall be allocated between the Philippine Agricultural Guarantee Fund Pool (AGFP) and the Philippine Crop Insurance Corporation according to the needs of the agri-agra sector Act and the remaining ten percent (10%) shall be given to the BSP to cover administrative expenses.