The Bangko Sentral ng Pilipinas (BSP) has issued the new circular that will allow banks to offer micro-agri loans as credit to small farmers.

The BSP Monetary Board approved Circular No. 680 for the rules and regulations of the new bank credit and although small in size or not exceeding P150,000 per borrower, the test program for the new loan generated almost P500 million in three years.

BSP Deputy Governor Armando L. Suratos said they are adapting minimum criteria so that more banks will offer the micro-agri loans as microfinance credit.

Based on the new circular signed last February 3, any bank with a track record of at least two years in microfinance and with an acceptable portfolio-at-risk levels will be allowed to offer the micro-agri loans.

Suratos said the micro-agri loans will be subject to the same risk management mechanisms required for microfinance, such as clients’ ability to repay based on cash flow analysis.

“Micro-agri loans that meet the standards will be classified and treated as microfinance loans,” a press release from the BSP said. “As such, they will enjoy the same benefits as microfinance loans such as exemption from the requirement of traditional collateral, complex documentary requirements and application procedures.”

Micro-agri loans are granted to borrowers engaged in farming for at least two years but have other sources of non-farm income.

“Considering the seasonality and cycles of agricultural production, micro-agri loans provide flexibility in terms of payment by allowing the lump sum payment of micro-agri loans up to 40 percent of the total loan amount,” said the BSP.

From 2006 to 2009, BSP conducted a pilot program with 16 rural banks. In three years, P487 million worth of micro-agri loans were released to 16,898 borrowers.

BSP said the feedback from banks were encouraging. “With these positive results, the Monetary Board opened the opportunity for all interested banks to provide micro-agri loans.”