Agricultural Microfinance


MABS developed the MABS Approach to Agricultural Microfinance in 2004 with the intent of filling in the widening void in formal agricultural financing for small farmers. Having worked with rural banks since 1998, the MABS Program believe that the rural banks, strategically located in the countryside, are in the best position to provide financial services to the small farmers and fisherfolk who constitute 90% of the total farmers and fisherfolk in the country.

The MABS Approach to Agricultural Microfinance is an approach to micro agricultural lending that aims to provide small farmers access to formal source/s of credit at affordable financial rates. It is focused on the market segment where clients have regular weekly, semi-monthly or monthly income sources to pay a regular loan amortization.

More on Agricultural Microfinance

The MABS Approach to Agricultural Microfinance is not a supervised agricultural credit. The amount of loan is determined through a cash flow analysis of the household income and expenses and not on pre-determined financial requirements of an agricultural commodity. A MAP client has an option to pay the loan by means of a straight amortization scheme or through a payment scheme that combines regular amortization and a balloon payment at the time of harvest/marketing. A micro agri loan using the MABS Approach finance a variety of farm and fishing activities that include grains, fruits, vegetables, livestock and marine products.


Pilot tested with five rural banking units in September 2004, The MABS Approach to Agricultural Microfinance is now being offered by 49 rural banking units in Luzon, Visayas and Mindanao. A total of 25,946 loans amounting to Php326.5 million have been disbursed since 2004.

A bank offering the MAP reaps the following benefits:

  • In-house staff training on the MABS Approach to Agricultural Microfinance,
  • Generic Micro Agri loan Product (MAP) Manual including MAP loan forms,
  • A compilation of the different agricultural product profiles; and
  • MABS technical assistance during pilot phase.

BSP Rules and Regulations on Agricultural Microfinance

Date Issued: 02.03.2010

CIRCULAR NO. 680
Series of 2010

Subject: Rules and Regulations for the Provision of Micro-Agri Loans

Section 1.   Statement of Policy. The Bangko Sentral ng Pilipinas adopts a holistic approach in addressing social and economic objectives through microfinance. Microfinance utilizes an innovative technology and methodology that has proven successful in providing the appropriate financing for microentrepreneurs who were previously underserved by the formal financial system.  Through the years, it has been evident that the microfinance technology and methodology can be appropriately utilized to deliver other types of financial services in a sound, prudent and sustainable manner, including credit for small farming activities.

Section 2.   Minimum Criteria to Determine Banks’ Capacity to Offer Micro-Agri Loans. The BSP will review the application based on the following basic principles:

1. To ensure that the banks have the capacity and technical capability to offer micro-agri loans

2. To ensure that the provision of micro-agri loans uphold adequate and appropriate risk management systems and procedures as well as the microfinance best methodologies and technologies

Based on the above principles, the BSP may consider the banks’ micro-agri loans as microfinance loans upon satisfaction of the following requirements:

1. The bank must have a track record of at least two years in implementing sustainable microfinance programs, including acceptable portfolio-at-risk (PAR) levels as evaluated against prevailing BSP standards.

2. The bank must have an appropriate micro-agri loan product manual to be included in the bank’s microfinance manual as one of the types of services or products offered to prospective clients. Loan/ account officers must be trained about the micro-agri loan product and that the details of the program can be communicated clearly to the clients.

Section 3.   Basic Product Characteristics. The micro-agri loan product shall have the criteria/ characteristics of a microfinance loan as provided in existing regulations in addition to the following product characteristics:

Subject

Particulars

Purpose/ Term

»Short term purposes only (up to 12 months) whether it is for farm activities, agri-business, agri-related fixed assets, among others.

Eligibility

»Multiple income generation activities (farm and off-farm)
»Farm activities at least 2 years in operation
»Existing borrowers with good track record based on banks’ policies

Loan Amoun

»Up to PhP 150,000 
»Loans to start small and increase incrementally based on banks’ policies

Loan Value

»Capacity to pay based on household cash flow analysis

Payment

»Frequent amortization (weekly, semi monthly, monthly)
»Lump sum payment may be considered an option of up to 40% of loan amount

Security

»Like microfinance loans, collateral substitutes may be required

Section 4.   Appropriate Risk Management. Micro-agri loans shall be subject to the same risk management mechanisms required for microfinance loans including, but not limited to the following:

1. Clients’ ability to repay based on cash flow analysis and affordability especially the new clients. The prospective client must h ave other sources of income sufficient for the periodic payment of the loan while the loan project is not yet generating income, evaluated through household cash flow analysis

2. Adequate loan monitoring, collection, control, provisioning consistent with existing BSP regulations

3. The loan product is included in the banks’ microfinance manual as one of the types of services or products offered to prospective clients

4. The micro-agri loans must have a sub-control ledger.

Section 5.   Regulatory Treatment. The approved micro-agri loan product  will be considered as a microfinance loan and have the same regulatory treatment as provided by existing microfinance regulations.

Section 6.   Effectivity. This Circular shall take effect fifteen calendar days following its publication either in the Official Gazette or in a newspaper of general circulation.


FOR THE MONETARY BOARD.

ARMANDO L. SURATOS 
Officer-in-Charge

Source: http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=2503

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