As part of financial inclusion initiatives, the Bangko Sentral ng Pilipinas (BSP) and the Asian Development Bank (ADB) recently turned over the pilot project of the Agricultural Value Chain Financing (AVCF) program to the Agricultural Credit Policy Council (ACPC).

In a statement Thursday, March 21, the BSP said the ACPC, which is under the Department of Agriculture, will now have the capacity building under the AVCF by providing financial institutions the initial funding for relending to qualified borrowers in the value chain.

AVCF is an information-based lending methodology. Its approach "helps banks to determine acceptable collateral substitutes and focus less on the use of hard collateral,” said the BSP.

In addition, the program “enables banks to identify and mitigate credit risks in lending to agriculture, in general, and to small farmers and fisherfolk, in particular.”

The turnover ceremony held last Feb. 15, 2024 formalized the transition of the AVCF project to its next phase under the ACPC, following the completion of AVCF pilot project which was launched in September 2019.

The pilot project consisted of trainings, mentoring, and field visits for six participating banks, with output documented in the AVCF toolkit and case studies.

Back in 2018, before the pilot project, the BSP has been linking the banking industry to the agriculture sector to provide assistance such as credit and financing to smallholder farmers.

At the time, the BSP had estimated that there was credit gap of P367 billion while the percentage of loans for production and economic activity for agriculture, along with fisheries and forestry, was just at 2.9 percent.

The BSP said banks have the funds for the agriculture sector but they require deeper understanding of lending to the sector and managing their risks.

The agriculture sector is vulnerable to crop and facility damage due to bad weather conditions and natural disasters, and other issues such as productivity and capacity issues, infrastructure, and a not reliable or inadequate borrowers’ data.

To improve access to the agriculture sector, the BSP approved a regulation in 2016 or the Agricultural Value Chain Financing Framework to provide incentives to banks as well as to address the key risk factors such as lack of reliable information about the farmers, unstable markets, and income sources that are typical deterrents for banks.

The BSP issued Circular No. 908 to promote the AVCF as an innovative financing approach and provide guidelines and incentives to banks. Organized value chains are able to address the identified risk factors.

They are also able to increase productivity and business sustainability, which can in turn encourage banks to develop appropriate products that support the financing needs of smallholders and other actors along the chain.