RURAL/FARM CREDIT

• How can we increase / improve access of small farmers to agricultural credit?
  Implement AFMA's specific provisions on credit including the phase-out of directed credit programs, the consequent consolidation of the loanable funds into one program, the AMCFP and the rationalization of loan guarantee programs. It is equally imperative to address the issue on the bankability and viability of agricultural projects.  
  
  
• How can we address the credit requirements of the so-called "ultra" poor?  
  The "ultra" poor's immediate concern is not credit for production but meeting basic requirements of food, clothing and shelter. It is a problem that can be addressed more effectively by DSWD.
  
  
• Why does lending have to be thru financial institutions (e.g. banks)?
  Various studies agree that direct lending by government non-financial institutions have genrally resulted in poor repayment rates, proving their inability to properly manage credit operations.  
  
  
• How can we convince banks to lend to small farmers?
  Banks need not be convinced for as long as the basic requirements are in place: viable projects, strong organizations (e.g. cooperatives) and creditworthy members. The provision of risk-reducing instruments like loan guarantees and crop insurance may also help encourage banks to lend to agriculture. Bank intermediation costs and taxation should likewise be minimized.  
  
  
• How can we increase the viability of agricultural projects?
  The government should strengthen support for rural infrastructure and the provision of technical assistance and other support services to the small farmers/fisherfolk. Resolve/facilitate once and for all implementation of CARP.  
  
  
• How can we strengthen organizations and make their members creditworthy?
  The government should expand support for institution-building including savings mobilization. 
  
  
• What is the impact of the fiscal crisis on farm credit?
  The fiscal crisis has raised interest rates and, therefore, the cost of credit because of government's increased demand for loans. This has resulted in a crunch of loanable funds among banks as well as slowdown in private sector demand for such funds. Since agriculture continues to be the government's priority sector, measures to counteract the effects of the current crisis are already being out in place especially with respect to increasing support services and the continued reduction of distortions or inefficiencies in the rural financial market.  
  
  
• Why do interest rates have to be market-oriented?
  Because "cheap" credit discriminates against small borrowers in favor of big borrowers. It also puts tremendous pressure on limited government resources.

on AMCFP

• How does the AMCFP differ from past agri-credit programs?  
  Unlike previous agri-credit programs, the AMCFP revolves around the following principles:
  
        1. Demand-driven - there will be no specific allocation for particular sectors
        2. Lending decisions and/or credit delivery should be limited only to banks and strong or viable lending
            cooperatives and NGOs
  
  
  no government or quasi-government non-financial institutions would undertake lending whether directly or indirectly. This will help instill better financial discipline among borrowers and thus, do away with the "dole-out" mentality which contributed in raising the default rates of credit programs.
  
  
• How will the AMCFP be of help to small farmers and fisherfolk?
  The principles governing the implementation of the AMCFP are meant to correct market-distorting policies that were previously applied by the government in implementing agri-credit programs. The distortive policies generally resulted in poor loan repayment (inefficiency) and poor clientele quality of outreach (ineffectiveness). By correcting the distortive policies, the AMCFP will be of better help to small farmers and fisherfolk.
  
  
• How can the DA increase the viability of agricultural projects?  
  Increased focus by the DA on the provision of other important support services including infrastructure, research and extension, training or institution building, policy development and advocacy is intended to improve the viability conditions in rural areas, raise the bankability of borrowers and contribute to easing and sustaining the flow of funds to agriculture and fisheries.
  
  
• Would a market-determined interest rate be beneficial to small farmers and fisherfolk?
  A common misconception is that a market-determined interest rate is akin to a higher interest rate. Actually, a market-determined interest rate only implies that the interest (or the price of the loan) will be set at a level that is sufficient to cover the actual cost of providing the loan. A substitute term that may be used, therefore, is "cost-recovery interest rate". Small farmers and fisherfolk stand to benefit more from cost-recovery interest rates because by recovering the cost of the loan, the lending operations may be sustained. This, in turn, will translate to a wider outreach for the lending facility.
  
  
• Why does lending have to be through financial institutions (e.g. banks)?  
  Various studies show that direct lending operations by government non-financial institutions have generally resulted in high administrative cost and poor repayment rates, proving their inability to properly manage credit operations. Hence, lending operations have been delegated to financial institutions as they are better qualified to manage such matters.
  
  
• How do we avail of the program?
  • For those applying as wholesalers (e.g. banks), there are certain requirements dictated by the ACPC that applicants are supposed to satisfy.
  • For those applying as retailers (e.g. banks, cooperatives, NGOs), the requirements are dictated by accredited wholesalers.
  • For end-borrowers, the requirements are dictated by accredited retailers. However, it should be noted that all applicants (e.g. wholesalers, retailers, end-borrowers), are still subject to general requirements of the AMCFP. This is to ensure that basic principles underpinning the AMCFP are followed.
    
    
• How do wholesalers differ from retailers?  
  Wholesalers are financial institutions such as the Landbank of the Philippines, Development Bank of the Philippines, and other banks that might be accredited that will lend to viable cooperatives and NGOs.
  Retailers are accredited banks, cooperatives and NGOs who will lend to smallholders.
  
  
• Who's in charge of the program?
  The Agricultural Credit Policy Council (ACPC) will serve as the Program Oversight Committee. Its primary function once the AMCFP starts is to monitor the proceedings of the program and see to it that the funds released are really going to intended beneficiaries (e.g. small farmers and fisherfolk). Also, having been chiefly responsible for the AMCFP design, the ACPC also serves as an information center. Accredited financial institutions mentioned earlier will serve as fund managers.
  
  
• Will Directed Credit Programs (DCPs) be affected by the consolidation/ phase-out mandated by the AMCFP?
  It is specifically stated in the phase-out guidelines that consolidation of all DCPs and the consequent turn-over of funds will be completed over a period of four (4) years, to give DCPs enough time to prepare. Until then, DCPs will not be affected and can continue to operate.
  
  
• When will the program start?  
  The Operating Guidelines for the program has already been approved. However, we are still waiting for the: 1) consolidation of funds from DCPs, 2) availability of credit funds from the AFMA budget, which is presently being worked out by the Department of Agriculture and Congress. Once the pooling of funds is completed, the AMCFP can get going.
  
  
• Until the AMCFP starts, where can borrowers avail of a loan?  
  Borrowers can still avail of loans from existing DCPs.
  
  
• What is the coverage of the program?  
  • Agriculture and fisheries production including processing of fisheries and agri-based products and farm inputs; Acquisition of work animals, farm and fishery equipment and machinery;
  • Acquisition of seeds, fertilizer, poultry, livestock, feeds and other similar items;
  • Procurement of agriculture and fisheries products for storage, trading, processing and distribution;
  • Acquisition of water pumps and installation of tube wells for irrigation;
  • Construction, acquisition and repair of facilities for production, processing, storage, transportation, communication, marketing and other such facilities in support of agriculture and fisheries;
  • Working capital for agriculture and fisheries graduates to enable them to engage in agriculture and fisheries-related economic activities;
  • Agri-business activities which support soil and water conservation and ecology-enhancing activities;
  • Privately-funded and LGU-funded irrigation systems that are designed to protect the watershed;
  • Working capital for long-gestating projects; and
  • Credit guarantees on uncollateralized loans to farmers and fisherfolk.
    
    
• What new schemes are available to boost agricultural lending?
            Given the reality that not all farmers can borrow from banks due to lack of collateral record, the ACPC is tasked to design and pilot-test for possible replication nationwide by financial institutions, financing schemes designed primarily to address the peculiarities and requirements of marginalized farmers and fisherfolk. The idea is to give those farmers and fisherfolk the opportunity to be productive and eventually, acquire the necessary tools to join the main credit stream, particularly the AMCFP.
  
            The ACPC is currently implementing the following innovative financing schemes (IFS):
  
  
  1. Special Agricultural Financing Window (SAFW) - A credit line/rediscounting facility designed to encourage rural lending agents to lend to collateral-short small farmers and fisherfolk.
     
     
  2. Rural Household Business Financing (RHBF) Program - The Location Specific Financing Schemes (LSFS) is the second component part of the DA/ACPC-Landbank Innovative Financing Schemes (IFS) Program that seeks to improve the credit access of small farmers/fisherfolk particularly those without or are deficient in collateral. This component seeks to find workable alternative financing schemes that are locally evolved and are tailor-fit to the characteristics of the collateral short rural agri/fishery-based borrowers.
     
     The Rural Household Business Financing (RHBF) Program shall be the first scheme to be pilot-tested. Other scheme(s) that may later be developed shall likewise be implemented adopting this set of guidelines.