Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

EIGHTEENTH CONGRESS
First RegularSession

6300

House Bill No.

Introduced by Hon. Ferdinand L. Hernandez

AN ACT MANDATING BANKING INSTITUTIONS
TO STRENGTHEN THE FINANCING SYSTEM
FOR AGRICULTURAL, FISHERIES AND RURAL DEVELOPMENT
IN THE PHILIPPINES

Article XIII, Section 5 of the Constitution provides that the State shall provide
support to agriculture through appropriate technology and research, and adequate financial,
production, marketing, and other support services.

The agricultural and fisheries sectors are the lifeblood of the country. The unsung
heroes of these industries are responsible for providing food at our table. These industries are
capital-intensive, and often, our farmers and fishers look for capital infusion from financial
institutions to be able to purchase the necessary supplies and provisions. Unfortunately, the
financing system for our agricultural and fisheries sectors is inefficient, contributing to the
inability of these sectors to meet market demands.

This bill aims to address this inefficiency by overhauling Republic Act No. 10000,
and establishing an agricultural, fisheries and rural financing system to improve the welfare,
competitiveness, income and productivity of rural community beneficiaries. It will require
banks to set aside a credit quota, or a minimum mandatory agricultural and fisheries
financing requirement of at least twenty-five percent (25%) of their total loanable funds. It
also aims to create an Agribusiness Management Capacity And Institution-Building Fund
(Special Fund) to finance agricultural- and fishery-related activities as well as organizational,
capacity- and institution-building programs of cooperatives and other duly-registered
organizations of rural agricultural and fisheries households. Finally, it shall also establish the
Agricultural and Fisheries Finance and Capacity-Building Council (AFFCC) which shall be
responsible for the management of the special fund as well as the identification of eligible
activities and programs to be financed by the said fund.

In view of the foregoing, the approval of this measure is earnestly sought.



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

EIGHTEENTH CONGRESS
FirstRegularSession

House Bill No. peng

Introduced by Hon. Ferdinand L. Hernandez

AN ACT MANDATING BANKING INSTITUTIONS
TO STRENGTHEN THE FINANCING SYSTEM
FOR AGRICULTURAL, FISHERIES AND RURAL DEVELOPMENT
IN THE PHILIPPINES

ARTICLE 1
GENERAL PROVISIONS

SECTION 1. Short Title. — This Act shall be known as “The Rural Agricultural and
Fisheries Financing Enhancement System Act”.

SEC. 2. Declaration of Policy. — \t is hereby declared the policy of the State to
promote inclusive and broad-based economic growth by ensuring equal access to
opportunities under an environment of sustained growth and expanding productivity as the
key to raising the quality of life for all. Towards this end, the State shall promote rural
development by enhancing access of rural communities and agricultural and fisheries
households to financial services and programs that increase productivity, enhance market
efficiency, promote modernization and improve the welfare and economic prospects of
beneficiaries in rural communities through active participation of banking institutions.

SEC. 3. Definition of Terms. — As used in this Act, the following terms shall mean:

(A) Agrarian Reform Beneficiary (ARB) refers to a farmer who was granted Jand
under Presidential Decree No. 27, the Comprehensive Agrarian Reform Law and Republic
Act No. 9700 or the "Comprehensive Agrarian Reform Extension with Reforms" and a
regular farm worker who is landless, irrespective of tenurial arrangement, who benefited from
the redistribution of land, regardless of crops or fruits produced, to include the totality of
factors and support services designed to lift the economic status of the beneficiary and all
other alternative arrangements to the physical distribution of lands, such as production or
profit sharing, labor administration, and the distribution of shares of stock which will allow
the beneficiary to receive a just share of the fruits of the lands one works. The term shall
also include registered agrarian reform beneficiaries’ cooperatives/associations/other farm
‘groups, respectively endorsed as comprising of agrarian reform beneficiaries by the nearest
office of the DAR, as well as ARB households.

(B) Agrarian Reform Community (ARC) refers to a barangay or a cluster of
barangays primarily composed and managed by agrarian reform beneficiaries who shall be

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willing to be organized and undertake the integrated development of an area and/or their
organizations/cooperatives.

(C) Agri-Business refers to agriculture and fishery-related activities that put farmers,
fisherfolk processors, distributors, and consumers within a system that produces, processes,
transports, markets, and distributes agricultural and fishery products. It encompasses input
production, farm and fishery operations and management, equipment and supplies
‘manufacturing, food/non-food processing, trading, and retailing.

(D) Agri-Tourism, also referred to as “Farm Tourism” under Republic Act No. 10816,
refers to the practice of attracting visitors and tourists to farm areas for production,
educational and recreational purposes. It involves any agricultural or fishery-based
operation or activity that brings to a duly-accredited farm tourism camp, visitors, tourists,
farmers and fisherfolk who want to be educated and trained on farming and its related
activities.

(E) Agricultural Lessee refers to any person who, with or without help from his/her
immediate farm household, cultivates the land owned by another for a certain price in money,
in produce, or in both.

(F) Agricultural or Fisheries Household - a household is considered to be an
agricultural or fisheries household when at least one member of the household is a farmer, a
fisherman, an agrarian reform beneficiary, a settler, an agricultural lessee, an amortizing
owner, a farmworker, a fishworker, an owner-cultivator, a compact farmer, or a tenant
farmer.

(G) Agricultural Value Chain (AVC) refers to a set of actors/players, such as
producers (farmers, fisherfolks), traders, suppliers, processors, aggregators, who conduct
Jinked sequence of value-adding activities involved in converting an agricultural product
from its raw material to final form and bringing it to consumers.

Agricultural Value Chain Financing (AVCF) refers to financing to an AVC
following the identification and analysis of AVC and the design of appropriate financial
products and services for actors/ players that form part of the AVC.

(H) Agro-Industry Modernization Credit and Financing Program (AMCEFP) refers to
the umbrella credit/financing program of the government for the agriculture and fisheries
sector created under Republic Act No. 8435.

() Amortizing Owners refer to landowners who amortize payment for the land to a
private individual or to the State.

(J) Compact Farmers refer to those farmers with adjoining farms operating as a single
unit under one management, farm plan and budget.

(K) Farmer refers to natural person whose primary livelihood is cultivation of land
or the production of agricultural crops, agroforest products, or livestock, either by oneself, or
primarily with the assistance of their immediate farm household, whether the land is owned
by them or by another person under a leasehold or share tenancy agreement or arrangement
with the owner thereof.

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(L) Farmworker refers to a natural person who renders service for value as an
employce or laborer in an agricultural enterprise or farm regardless of whether their
compensation is paid on a daily, weekly, monthly or "pakyaw” basis. The term includes an
individual whose work has ceased as a consequence of, or in connection with, a pending
agrarian dispute who has not obtained a substantially equivalent and regular farm
employment.

(M) Farmers’ Cooperatives refer to organizations composed primarily of small
agricultural producers, farmers, farmworkers, or other agrarian reform beneficiaries who
voluntarily organize themselves for the purpose of pooling land, manpower, technological,
financial or other economic resources, and operate on the principle of one member, one vote.
A juridical person may be a member of a cooperative, with the same rights and duties as a
natural person.

(N) Farmer's and Fisherfolk's Organizations or Associations refer to farmer's and
fisherfolk's cooperatives, associations or corporations duly registered with appropriate
government agencies and which are composed primarily of small agricultural producers,
farmers, farmworkers, agrarian reform beneficiaries, fisherfolk who voluntarily join together
to form business enterprises or non-business organizations which they themselves own,
control and patronize.

(O) Farm-To-Market Road refers to a road linking the agriculture and fisheries
production sites, coastal landing point and post-harvest facility to the market and arterial road
and highway.

(P) Financial Services refer to services extended by banks/financial institutions such
as, but not limited to, credit/lending, deposits, rediscounting, and insurance.

(Q) Fisherfolk refers to people directly or personally and physically engaged in
catching and/or culturing and processing fishery and/or aquatic resources.

(R) Fishworker refers to a person whether or not regularly employed in commercial
fishing and related industries, whose income is either from wages, profit sharing or stratified
sharing basis, including those working in fishpens, fish corral/traps, fishponds, prawn farms,
sea farms, salt beds, fish ports, fishing boat or trawlers, or fish processing and/or packing
plants, but excluding administrators, security guards and overseers.

(S) Green Finance refers to financial services and products designed to promote the
flow of finance towards green economic activities and projects. Aside from financing to
promote climate change adaptation and mitigation, green finance also covers environmental
improvement and efficiency improvement in natural capital preservation and resource
mobilization.

(T) Micro, Small And Medium Enterprise (MSME) refers to any business activity or
enterprise defined as such under existing laws.

(U) Newly-Established Bank refers to a domestic or foreign bank without banking
presence in the Philippines prior to the issuance of its certificate of authority to operate. It
shall not include banks that have been formed through the acquisition, purchase of ownership
of the voting stock of an existing domestic bank or the merger or consolidation of banks.

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(V) Owner-Cultivators refer to natural persons who own lands by purchase,
inheritance, or land distribution by the State. Owner-Cultivators can operate the farm
themselves, supervise wage labor or delegate operations to farmers.

(W) Philippine Crop Insurance Corporation (PCIC) refers to a government-owned and
controlled corporation which provides insurance protection to the country’s agricultural
producers, particularly the subsistence farmers against crop losses arising from natural
calamities such as typhoons, rising sea levels, floods, drought, earthquakes, volcanic
eruptions, plant diseases and pest infestation, and non-crop agricultural asset losses due to
perils for which the asset has been insured against.

(X) Post-Harvest Activities refer to threshing, drying, milling, grading, storing, and
handling of produce and such other activities of a similar nature such as stripping,
winnowing, chipping and washing.

(Y) Post-Harvest Facilities refer to threshers, moisture meters, dryers, weighing
scales, milling equipment, fish ports, fish landings, ice plants and cold storage facilities,
processing plants, warehouses, buying stations, market infrastructure and transportation
facilities, and such other facilities, supporting post-harvest activities.

(Z) Public Rural Infrastructure refers to infrastructure in rural communities such as
highways, streets, bridges, tunnels, railways, railroad, transport systems, ports, airports,
hydropower projects, canals, dams, irrigation, government buildings and housing projects,
public schools, public hospitals, public health centers, public markets, slaughterhouses,
warehouses, solid waste management, sewerage, flood control, drainage, dredging and other
similar infrastructure projects.

(AA) Rural Community refers to areas that are defined as such by the Philippine
Statistics Authority (PSA).

(AB) Rural Financial Institution (RFI) refers to any financial institution established
and is operating in a rural community.

(AC) Settlers refer to persons who range from the forest-clearing pioneers, including
indigenous people, with a subsistence economy to the better equipped and more experienced
farmers.

(AD) Tenant Farmer refers to one who cultivates another's land under a sharing or
leasehold agreement.

ARTICLE I
AGRICULTURAL FISHERIES AND RURAL FINANCING SYSTEM

SEC. 4. Agriculture, Fisheries and Rural Financing System. — There shall be an
agricultural, fisheries and rural financing system to improve the welfare, competitiveness,
income and productivity of the rural community beneficiaries, particularly the farmers,
fisherfolk, agrarian reform beneficiaries, agrarian reform communities, settlers, agricultural
lessees, amortizing owners, farmworkers, fishworkers, owner-cultivators, compact farmers,
tenant farmers, and members of their households and their MSMEs, as well as farmers’ and
fisherfolk's cooperatives, organizations and associations, through government and private
banking institutions.

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Agricultural, fisheries and rural financing, as used herein, shall consist of loans,
investments and grants to finance activities that shall enhance productivity and increase
income of an agricultural and fisheries household, thereby promoting agricultural sector
productivity and competitiveness, as well as sustainable development of rural communities.
These shall include, but not be limited to, activities identified under the AMCFP as
‘enumerated under Chapter 3 Section 23 of Republic Act No. 8435, off-farm/ishery activities,
agricultural mechanization/ modernization, agri-tourism, green finance projects, acquisition
of lands authorized under the Agrarian Reform Code of the Philippines and its amendments,
efficient and effective marketing, processing, distribution and storage of agricultural and
fishery commodities, public rural infrastructure, as well as programs that shall address the
developmental needs of rural communities, such as, but not limited to, projects that promote
the livelihood, skills enhancement, and other capacity-building activities of the rural
community beneficiaries and all other activities consistent or analogous to the foregoing, as
may be determined by the Agricultural and Fisheries Finance and Capacity-Building Council
(AFFCC).

SEC. 5. Rural Community Beneficiaries. ~The financing mentioned in the preceding
section shall be extended to the rural community beneficiaries named therein 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,
their estimated production, and/or securities they can provide as well as such assets as may be
acquired by them from the proceeds of the loan, investments and grants.

SEC. 6, Credit Quota. ~ All banking institutions, whether government or private,
except newly-established banks for a period of five (5) years from date of commencement of
the banks’ operations, shall set aside a credit quota, or a minimum mandatory agricultural and
fisheries financing requirement of at least twenty-five percent (25%) of their total loanable
funds.

The total loanable funds generated by a banking institution shall be defined by the
BSP. During the first year of effectivity of this Act, the total loanable funds generated shall
be computed starting from 20 April 2010, the effectivity of Republic Act No. 10000, after
which the bank’s total loanable funds shall be determined based on funds generated starting
from the second year of effectivity of this Act.

SEC. 7. Modes of Compliance. Banks may comply with the mandatory credit
requirement by lending to rural community beneficiaries, to finance agricultural and fishery-
related activities identified under the AMCFP as enumerated under Chapter 3 Section 23 of
Republic Act No. 8435, off-farnvfishery activities, agricultural mechanization/modernization,
agri-tourism, green finance projects, marketing, processing, distribution and storage of
agricultural and fishery commodities, livelihood projects, skills enhancement or capacity-
building programs.

Banks may also comply with the mandatory financing requirement through other
means as follows:

(a) Invest in debt securities, including those issued by the Development Bank of the
Philippines (DBP) and the Land Bank of the Philippines (LBP): Provided, That
the proceeds from said debt securities shall be used to finance activities under
Section 4 hereof: Provided, further, That the proceeds from debt securities issued
by the DBP and the LBP shall be separately accounted for and shall not be

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considered for purposes of computing the loanable funds under Section 6 hereof
of the said banks;

(b) Open deposit accounts with rural financial institutions: Provided, That the deposit
accounts shall be separately accounted for by the depository bank and shall not be
considered for purposes of computing the loanable funds under Section 6 hereof
of the said banks;

(c)Rediscount with banks eligible paper covering agriculture, fisheries and agrarian
reform credits: Provided, That rediscounted paper shall no longer be eligible as
‘compliance on the part of the originating bank;

(4) Invest directly in shares of stock of rural financial institutions, subject to
prevailing laws, rules or regulations or lend wholesale to rural financial
institutions: Provided, That the wholesale loans shall be credited as compliance of
the bank acting as wholesale lender alone;

(e) Lend for the construction and upgrading of infrastructure, including but not
limited to, farm-to-market roads, as well as the provision of post-harvest facilities
and other public RURAL infrastructure that will benefit the agriculture, fisheries
and agrarian reform sector;

(f) Lend to agri-business enterprises that maintain agricultural commodity supply-
chain arrangements directly with rural community beneficiaries;

(g) Undertake agricultural value chain financing to actors/ players in the AVC that
benefits rural communities; and

(h)Invest in shares of stock of the PCIC or in companies that primarily engage in
activities under Section 4 hereof that benefit rural community beneficiaries:

Provided That, the loans and investments that are counted as compliance are not
funded by proceeds from the issuance of debt securities, and/or lending of other banks that
have been counted as compliance with the mandatory credit: Provided Further, that loans to
finance activities that shall generally benefit agrarian reform beneficiaries, agrarian reform
communities, or other priority sectors, as may be determined by the AFFCC, shall be counted
at not more than ten times (10X) their outstanding amount, or as otherwise prescribed by the
BSP, for purposes of determining compliance with the mandatory agricultural and fisheries
financing requirement.

SEC. 8. The modes of compliance enumerated in the preceding section shall be
subject to review by the AFFCC after implementation to determine whether these are
adequate to support the financing requirements of rural communities and recommend to
Congress for appropriate action.

SEC. 9. Annual Reports. — The BSP shall furnish reports on the compliance with the
mandatory agricultural and fisheries financing requirement to the Congress on a yearly basis.
The BSP shall, as part of its regulatory functions, monitor the compliance by the banks with
the requirements of this Act.

SEC. 10. Penalty Clause. — The BSP shall impose administrative sanctions and other
penalties on the lending institutions for violation of any of the provisions of this Act.

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Penalties on non-compliance or under-compliance with the mandatory agricultural and
fisheries financing requirement shall be computed at one-half of one percent (0.5%) of non-
compliance or under-compliance, or at rates prescribed by the BSP Monetary Board. Upon
collection of the penalties, the BSP shall remit the same to the AFFCC for deposit to the
special fund created under Article III of this Act. Ten percent (10%) of the penalties
collected shall be retained by the BSP to cover administrative expenses.

ARTICLE II

AGRIBUSINESS MANAGEMENT CAPACITY AND INSTITUTION-BUILDING FUND
AND PROGRAM

SEC, 11. There shall be created an Agribusiness Management Capacity And
Institution-Building Fund (Special Fund) to finance agricultural- and fishery-related activities
as well as organizational-, capacity- and institution-building programs of cooperatives and
other duly-registered organizations of rural agricultural and fisheries households. The Special
Fund shall be sufficient to ensure effective implementation of the aforementioned activities
and programs. For this purpose, banks may comply with the mandatory credit requirement by
providing contributions to the Special Fund.

SEC. 12. The initial amount of the Special Fund shall at least be P10 billion and
shall include penalties due from banks on their non-compliance or under-compliance with the
mandatory Agri-Agra credit requirement under Republic Act No. 10000, collected after the
effectivity of this Act, net of the ten (10) percent amount to be retained by the BSP. In case of
a shortfall, the banks shall advance a maximum amount of P2 billion, which shall be
chargeable against future penalties under this Act, and shall not be considered as a mode of
compliance under Section 11 hereof.

SEC, 13. The AFFCC shall enter into an agreement with the banking industry on the
management of the Special Fund as well as the implementation of the activities and programs
of the Special Fund, in accordance with the approval of and guidelines prescribed by the
AFFCC. The agreement shall also require the banking industry to monitor and evaluate the
activities financed by the Special Fund, and report its findings to the AFFCC.

SEC 14. Banks, duly-registered training and capacity-building organizations,
cooperatives and other duly-registered organizations of, or that support rural agricultural and
fisheries houscholds may apply with the AFFCC for funding for their capacity and
institution-building programs and activities.

ARTICLE IV
AGRICULTURAL AND FISHERIES
FINANCE AND CAPACITY-BUILDING COUNCIL (AFFCC)

SEC, 15. Agricultural And Fisheries Finance and Capacity-Building Council
(AFFCC). — There shall be created an Agricultural and Fisheries Finance and Capacity-
Building Council (AFFCC) which shall be composed of the Heads, or their designated
representatives, of the following agencies: the Department of representatives, of: the Bankers
Association of the Philippines (BAP), as Vice Chair; the Agriculture (DA), as Chair; the
Bangko Sentral ng Pilipinas (BSP); the Department of Agrarian Reform (DAR); the
Department of Trade and Industry (DTI); the Cooperative Development Authority (CDA);
the Land Bank of the Philippines (LBP); the Development Bank of the Philippines (DBP);
and nine (9) representatives from the private sector as members, one of whom shall be

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appointed as Vice-Chair. The private sector representatives shall include the heads, or their
designated Rural Bankers Association of the Philippines (RBAP); the Chamber of Thrift
Banks (CTB); the Cooperative Banks Federation of the Philippines (BANGKOOP); the
Microfinance Council of the Philippines, Inc. (MCP1); the Philippine Chamber of Commerce
and Industry (PCC1); and a representative each from the cooperative sector, the farmers, and
the fisherfolk sector.

SEC. 16. Powers, Duties and Functions of the AFFCC. — The AFFCC shall have
the following powers, duties, and functions:

a) to set the target amount for the Special Fund to meet the organizational- and
capacity-building requirements of cooperatives and other duly-registered
organizations of rural agricultural and fisheries households over a period of ten
(10) years;

b) to determine the annual requirement of the Special Fund;

¢) to identify eligible recipients of the Special Fund;

d) to identify eligible agricultural- and fishery-related activities and capacity building
programs that may be financed by the Special Fund;

€) to ensure the effective implementation and programs financed by the Special
Fund;

) to periodically assess the adequacy of the fund capital in financing the capacity-
building requirements of rural cooperatives and other duly-registered
organizations of rural agricultural and fisheries households; and

2) to ensure compliance with the reporting, monitoring, evaluation and audit
requirements of the Special Fund and activities financed.

ARTICLE V
MISCELLANEOUS PROVISIONS

SEC, 17. Audit. — The Special Fund shall be audited by the Commission on Audit
(COA) in accordance with existing auditing laws, rules and regulations.

SEC, 18. Oversight Committee. — There shall be an oversight committee composed of
the following: the Chairperson of the Committee on Banks and Financial Intermediaries of
the House of Representatives, Chairperson of the Committee on Banks, Financial Institutions
and Currencies of the Senate, a representative from the Office of the President and a
representative from the Commission on Audit (COA); to oversee the implementation of the
provisions of this Act.

SEC. 19. Sunset Provisions. — The provisions related to the mandatory credit quota
under Article II as well as the management and administration of the special fund under
Article III shall cease to have effect, ten (10) years from approval of this Act.

SEC, 20. Repealing Clause. ~The provisions of Republic Act No. 10000, Executive
Order No. 113 and any other laws, presidential decrees, executive orders, rules and
regulations, or parts thereof inconsistent with the provisions of this Act are hereby repealed
or modified accordingly.

SEC, 21. Separability Clause. — If any part, section or provision of this Act is held

invalid or unconstitutional, other provisions not affected thereby shall remain in force and
effect.

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SEC. 22. Transitory Provision. — The BSP shall promulgate such rules and
regulations as may be necessary to implement Articles I and II of this Act within ninety (90)
days after effectivity of this Act. Prior to the effectivity of the implementing rules and
regulations of Articles I and I of this Act, the provisions of Republic Act No. 10000 shall
remain in force.

The BSP shall organize a Task Force which shall promulgate such rules and
regulations as may be necessary to implement Articles III and IV of this Act within ninety
(90) days after effectivity of this Act.

SEC. 23. Effectivity. This Act shall take effect fifteen (15) days after its publication
in the Official Gazette or in a newspaper of general circulation.

Approved.

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