In most emerging countries like the Philippines, the financial systems are ill-prepared to finance the shift to the sustainable agriculture sector. Traditional financial institutions, including banks and micro-financing, have provided limited financial access to this vulnerable and underserved segment.
Indeed, the agricultural loans and investments to farmers are disproportionately low compared to the sector’s share in the country’s GDO (gross domestic product). Critical challenges like the lack of financial footprint, bank accounts, high transaction costs, and accessibility deny the agriculture and agri-food industries access to proper and sustainable financial facilities.
“Many farmers are still underserved by our banks,” Bangko Sentral ng Pilipinas Deputy Governor Bernadette Romulo-Puyat said over the Daily Tribune’s Straight Talk show recently. “When you talk about underserved sectors, they are still the agriculture sector and the farmers. The BSP has also done a lot to make sure that it is easier for farmers or the underserved to get a line of credit from the banks,”
The thrust, Romulo-Puyat said, is part of the holistic BSP initiatives to ensure that the underserved farmers will be provided with appropriate banking services.
Among the reforms initiated by the BSP is to put the requisite for financial inclusion infrastructure or the National Retail Payment System that makes it seamless for financial institutions to move or transfer money using Instapay or PESONet.
PESONet and InstaPay are electronic funds transfer service that enables bank account holders to transfer funds in Philippine peso to another account holder or multiple recipient accounts of other participating banks, e-money issuers, or mobile money operators.
“Imagine the entire country was placed under a strict lockdown in the first few months of the Covid-19 pandemic, but you need to pay for services. PESONet and Instapay were lifesavers during the pandemic. Good thing the BSP established those systems before Covid-19 struck,” Puyat added.
In addition, most local banks have simplified the process of opening an account and now accept a P100 minimum deposit, no dormancy fee, and no maintenance fee, with minimal documentary requirements.
“The National ID system is vital as proof of identity for every Filipino, reducing the need for documents when opening a bank account. Only recently, I opened a digital account, and I presented only my National ID, and I could open an account,” she added.
Because the infrastructure was already in place, the pandemic helped accelerate the onboarding of many Filipinos into the formal financial sector over the past two years.
Puyat cited the financial inclusion survey by the BSP showing only 29 percent of the Filipino adult population have bank accounts. But the number increased significantly to 56 percent in 2021, meaning 22 million Filipinos were onboarded. This increase is the highest two-year growth since the survey began in 2015. The expansion was spurred by the Covid-19 pandemic accelerating the use of digital payments.
The rise in account ownership was attributed to the uptake of e-money accounts, which climbed to 36 percent in 2021 from eight percent in 2019.
Background in DA
According to Puyat, her 12 years stint with the Department of Agriculture had allowed her to network with the sector smoothly, having dealt with credit, mainly how to get access to credit for our farmers, “because they are among the most underserved by the banks.”
“I worked with then BSP Deputy Governor Nestor A. Espenilla, Jr. in revising the Agri-Agra Law (Agri-Agra Reform Credit Act of 2009), and we made the Agricultural Guarantee Fund Pool (AGFP, a DA-led program managed by the Land Bank of the Philippines. The Pool was designed to mitigate risks involved in lending to farmers with partner financial institutions lending unsecured agricultural food production loans to small farmers and fishermen),” Puyat said.
She recounted, “I handled the agricultural guarantee fund pool where one of the board members is now BSP Governor Felipe Medalla. What we were doing was to guarantee 85% of loans lent by banks to the farmers because the banks had a hard time lending to the sector. But because the AGFP guarantees the loans, they could breathe easily.”