Interview: Alex Buenaventura
How can banks be more responsive to the needs of the agriculture and fisheries sector?
ALEX BUENAVENTURA: In order to provide small farmers with easy access to sustainable banking and vertically integrated support services, our strategy in 2017 will be to pilot the creation of non-bank agri-business corporations using the corporative small farms consolidation and management services business model. This programme is crafted to not only provide further funding to agriculture, but also to enable small farmers to be more productive and profitable through increased funding participation from the commercial banking system for plantation style of operations ranging from production to processing. Initially, a share of 19% of the corporative will be owned by Land Bank, and 51% will be owned by big private agri-processing corporations as part of their corporate social responsibility requirement for rural development. Small farmers will buy shares from Land Bank and from unsubscribed shares of the corporative until they collectively own 49% of the corporative. This model will allow for the consolidation of large tracks of land, allowing everyone in a given area — provided they are small landowners — to participate by signing a farm management agreement with the corporative. Whether one is an agrarian reform beneficiary or an individual titled landowner, any type of small farmer can qualify as part of this programme. The corporative will distribute 60% of allowable dividends every semester to farmers pro-rata according to their land area contribution; only 40% of allowable dividends will be distributed according to equity. For example, an agrarian reform community with 300 ha of collectively owned land granted through a Certificate of Land Ownership Award (CLOA) can be distributed among 300 CLOA title co-owner agrarian reform beneficiaries at 1 ha each. These farmers are then able to sign an individual 1-ha farm management agreement with the corporative. This agreement will stipulate that 90% of allowable dividends generated through the corporative harvest every six months for rice production will be distributed to all farmers pro-rata according to each farms’ individual land area ownership and their contribution to the collective.
What factors have impeded commercial bank lending to the agriculture and fisheries sector?
BUENAVENTURA: Commercial banks have not had good experiences lending to the agriculture and fisheries sector since the early 1970s, when the collateral free supervised credit programme began, which lent to small farmers and fisher folk through the formation of a selda (joint-liability group) of five to seven farmers. The creation of the rural banking system was mainly to enforce this government programme, which continued through the 1980s, when lending was done through the formation of larger groups called cooperatives, associations, agrarian reform communities and joint-liability groups of many farmers within mostly contiguous farm areas. In this model, rural banks borrowed from the central bank at 1% interest and became the conduits for supervised credit loans. This caused the closure of many rural banks because of non-repayment by many seldas and cooperatives and because of a high concentration of small agriculture loans in their total loan portfolio. This very poor repayment record has impeded commercial banks from participating in lending to small farmers and fisher folk. Instead, commercial banks have been actively lending to big agri-business corporations.
Approximately $1.8m worth of Land Bank loans to the agriculture and fisheries sector were written off over the past decade due to bad credit. Land Bank has continued to grant microcredit rediscounting lines to cooperatives and rural banks; however, qualification requirements to borrow needed to become more stringent. While we have expanded the number of programmes for farming cooperatives, access to these services has become difficult because of the threeyear profitable financial track record requirement.
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