The Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022

Case Overview and Summary

Summary of Republic Act No. 11901 (The Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022)

Declaration of Policy (Section 2)
- Promote inclusive economic growth by ensuring equal access to opportunities and expanding productivity to raise quality of life.
- Promote rural development by enhancing access of rural communities and agricultural/fisheries households to financial services and programs that increase productivity, enhance market efficiency, promote modernization, and improve welfare.
- Landbank of the Philippines (LBP) and Development Bank of the Philippines (DBP) shall promote savings and credit in rural areas by offering affordable deposit products and low interest rates for loans.
- LBP and DBP shall use resources to innovate, develop, promote and invest in digital, automation technology, branchless banking and cash agent operations to reach remote areas.

Definition of Terms (Section 3)
- Defines terms such as Agrarian Reform Beneficiary (ARB), Agrarian Reform Community (ARC), Agri-Business, Agri-Tourism, Agricultural Lessee, Agricultural or fisheries household, Agricultural Value Chain (AVC), Agricultural Value Chain Financing (AVCF), Agro-Industry Modernization Credit and Financing Program (AMCFP), Amortizing owners, Basic Deposit Account (BDA), Cash agent, Compact farmers, Farmer, Farmworker, Farmers' cooperatives, Farmer's and fisherfolk organizations or associations, Farm-to-Market road, Financial services, Fisherfolk, Fishworker, Green projects, Micro, Small and Medium Enterprise (MSME), Newly Established Bank, Owner-cultivators, Post-harvest Activities, Post-harvest Facilities, Public Rural Infrastructure, Registry System for Basic Sectors in Agriculture (RSBSA), Rural Community, Rural Financial Institution (RFI), Settlers, Sustainable Finance, and Tenant Farmer.

Agriculture, Fisheries and Rural Development Financing System (Section 4)
- Establishes a financing system to improve productivity, income, competitiveness and welfare of rural community beneficiaries, particularly farmers, fisherfolk, ARBs, ARCs, settlers, agricultural lessees, amortizing owners, farmworkers, fishworkers, owner-cultivators, compact farmers, tenant farmers, and members of their household and their MSMEs, as well as farmer's and fisherfolk's cooperatives, organizations and associations.
- Financing shall include loans and investments for activities that enhance productivity and increase income of agricultural and fisheries households, promote agricultural sector productivity and competitiveness, and sustainable development of rural communities.
- Activities covered include those under the AMCFP, off-farm/fishery entrepreneurial activities, agricultural mechanization/modernization, agri-tourism, environmental, social and governance projects, digitalization/automation of farming, fishery and agri-business activities, acquisition of lands under the Agrarian Reform Code, efficient marketing, processing, distribution, storage of agricultural and fishery commodities, public rural infrastructure, programs that promote health and wellness of farmers, fisherfolk and ARBs, and other activities consistent with the foregoing.
- Banking institutions are expected to design and offer financial products and services that suit the specific requirements of their agricultural clients.

Rural Community Beneficiaries (Section 5)
- Financing shall be extended to the rural community beneficiaries named in Section 4 or to cooperatives, associations, MSMEs or organizations in good standing of such beneficiaries, regardless of capitalization, based on the feasibility of the project and their paying capacity, estimated production, and/or securities they can provide as well as assets acquired from the loan proceeds.

Credit Quota (Section 6)
- All banking institutions, except newly-established banks for 5 years, shall set aside a credit quota or a minimum mandatory agricultural and fisheries financing requirement of at least 25% of their total loanable funds.
- Total loanable funds shall be defined by the Bangko Sentral ng Pilipinas (BSP).

Modes of Compliance (Section 7)
- Banks may comply with the mandatory credit requirement by:
(a) Lending to rural community beneficiaries to finance activities under Section 4 (Section 7)
(b) Investing in debt securities issued by DBP and LBP, provided proceeds are used for activities under Section 4 (Section 7(a))
(c) Opening deposit accounts and/or investing in fixed term deposit products with Rural Financial Institutions (RFIs) (Section 7(b))
(d) Rediscounting eligible paper covering agriculture, fisheries and agrarian reform credits with banks (Section 7(c))
(e) Investing directly in shares of stock of RFIs or lending wholesale to RFIs (Section 7(d))
(f) Lending for construction and upgrading of infrastructure, including farm-to-market roads, post-harvest facilities and other public rural infrastructure (Section 7(e))
(g) Lending to agri-business enterprises that maintain agricultural commodity supply-chain arrangements directly with rural community beneficiaries (Section 7(f))
(h) Undertaking Agricultural Value Chain Financing (AVCF) to actors/players in the Agricultural Value Chain that benefits rural communities (Section 7(g))
(i) Engaging in sustainable finance (Section 7(h))
(j) Investing in shares of stock of the Philippine Crop Insurance Corporation (PCIC) or in companies that primarily engage in activities under Section 4, including investments in venture capital corporations that benefit rural community beneficiaries (Section 7(i))
(k) Providing financing to electronic platforms that will facilitate AVCF and supply chain financing transactions among actors in agriculture (Section 7(j))
- Loans to finance activities that generally benefit ARBs, ARCs, or other priority sectors shall be counted at 10 times their outstanding amount for compliance purposes, or as prescribed by the Agricultural Credit Policy Council (ACPC) (Section 7, proviso)
- The BSP may identify other eligible modes of compliance (Section 7, last paragraph)

Annual Reports (Section 8)
- The BSP shall furnish reports on compliance with the mandatory financing requirement, including information on amount of penalties collected and remitted to implementing agencies, to the ACPC and Congress yearly.
- The BSP shall monitor compliance by banks with the requirements of this Act.

Penalty Clause (Section 9)
- The BSP shall impose administrative sanctions and other penalties on lending institutions for violation of any provision of this Act.
- Penalties on noncompliance or undercompliance shall be computed at 0.5% of noncompliance or undercompliance, or at rates prescribed by the BSP Monetary Board.
- Upon collection of penalties, the BSP shall remit them to the implementing agencies identified in Sections 9, 10 and 11.
- 5% of penalties collected shall be retained by the BSP to cover administrative expenses.
- 20% shall be allocated as fund for agricultural- and fishery-related organizational- capacity- and institution-building programs and activities to be implemented equally by the LBP and DBP.

Special Fund (Section 10)
- The Special Fund shall consist of penalties due from banks on their noncompliance or undercompliance with the mandatory agri-agra credit requirement under Republic Act No. 10000, collected after the effectivity of this Act, net of the 5% amount retained by the BSP and the 20% allocated for capacity-building programs, and penalties collected under Section 9 of this Act.
- The annual penalties collected by the BSP shall be remitted directly to the implementing agencies, within 1 year and 6 months from imposition, for distribution in accordance with Sections 9, 10 and 11.

Use of the Special Fund (Section 11)
- 35% of the fund shall be allocated to the Department of Agrarian Reform (DAR) for the titling and parcelization of landholdings covered with collective Certificate of Land Ownership Awards (CLOA).
- 65% of the fund shall be made available as a credit facility with minimal interest rates and minimum collateral requirements, to be equally managed by the LBP and the DBP.
- The LBP and DBP shall utilize the Special Fund for lending to farmers and fisheries registered in the Registry System for Basic Sectors in Agriculture (RSBSA), farmers and fisheries cooperatives and associations, and microfinance institutions.
- 2.5% of the DBP's 32.5% share shall be allocated to Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP) for as long as the National Government is a majority shareholder of AAIIBP, to promote financial inclusion in Islamic communities, particularly the ARBs in the Bangsamoro Region.
- All loan repayments and other collections shall be used to fund the credit facility of the LBP, DBP and AAIIBP.
- LBP, DBP and AAIIBP shall be allowed to reimburse direct costs incurred in the management of the fund, but not exceeding 2% of the average quarterly loan balance.

Sunset Clause (Section 12)
- The provisions related to the mandatory credit quota for agriculture, fisheries, and rural development under Section 6 shall cease to have effect on the 10th year from the approval of this Act.
- All unutilized funds allocated for any of the implementing agencies and all loan collections shall be remitted to the General Fund.

Congressional Oversight (Section 13)
- The Congressional Oversight Committee on Agricultural and Fisheries Modernization (COCAFM) shall exercise oversight functions over the implementation of this Act.
- COCAFM shall conduct an independent review of the use of the Special Fund administered by the implementing agencies.

Implementing Guidelines (Section 14)
- The BSP, in consultation with the LBP, DBP, AAIIBP, Cooperative Development Authority (CDA), Department of Agriculture (DA), DAR, the banking industry, microfinance organizations and other relevant agencies, shall promulgate rules and regulations to implement the provisions relating to the mandatory agricultural and fisheries financing requirement, within 60 working days after approval of this Act.

Separability Clause (Section 15)
- If any part, section or provision of this Act is held invalid or unconstitutional, other provisions not affected shall remain in force and effect.

Repealing Clause (Section 16)
- Republic Act No. 10000 is hereby repealed.
- Any other provisions of laws, decrees, regulations, and administrative orders inconsistent with the provisions of this Act are hereby repealed or amended accordingly.

Effectivity (Section 17)
- This Act shall take effect 15 days after its publication in the Official Gazette or in a newspaper of general circulation.