Agri Agra Law Compliance among Philippine Banks: Trends and Insights

Purpose - This study examined the trends of compliance by the Philippine banking sector and offered insights and suggestions based on the findings. Being an agricultural country, the agricultural (agri) and agrarian (agra) sector of the Philippines is constantly in need of funds from the banking and financial sector in order to meet operational requirements if it is to develop and grow. However, since most farmers and farming enterprises are not bankable due to strict banking standards and requirements including collateral, lack of financing remains a chronic challenge. Thus, a mechanism formulated by the Philippine government together with the Bangko Sentral ng Pilipinas (BSP) also known as the Central Bank of the Philippines, included an Agri-Agra Law requiring all banks within its jurisdiction to channel one-fourth of their net loanable funds to agriculture to spur development and economic growth in the countryside. Design/Methodology/Approach - To accomplish the research objectives, this study utilized descriptive and trend analyses. Findings - Results showed that while there appeared to be compliance relative to the Agri requirement of the law, banks as a whole remained non-compliant in terms of the Agra requirement of the law such that instead of direct lending to agribusinesses and agrarian reform beneficiaries, banks preferred to comply via alternative modes of compliance. Research Implications - This implies that banks still consider farmers, agricultural and agro-based enterprises and agrarian beneficiaries as lending risks and minimally profitable to do business with. It is suggested therefore that changes be introduced in the implementing rules and regulations of the Agri-Agra Law to address the risk issues and make it more financially rewarding for banks to lend to the agricultural and agrarian sector through the introduction of incentives.