Republic of the Philippines:
HOUSE OF REPRESENTATIVES
Queson City

EIGHTEENTH CONGRESS
First Regular Session

HOUSE BILL NO. 6173

2s

Introduced by HON. LUIS RAYMUND “LRAY” F. VILLAFUERTE, JR.

EXPLANATORY NOTE

Article Il, Section 9 of the 1987 Constitution of the Republic of the Philippines
provides that, “The State shall promote a just and dynamic social order that will
ensure the prosperity and independence of the nation and free the people from
poverty through policies that provide adequate social services, promote full
employment, a rising standard of living, and an improved quality of life for all.”

Further, Article XIII, Section 5 of the same Constitution directs the State to “provide
support to agriculture through (...) adequate financial, production, marketing, and
other support services.”

According to Selected Statistics on Agriculture released by the Philippine Statistics
Authority (PSA) in 2019, about 24.30 percent or about 10 million of the 43.46 million
Filipino labor force are farmers. Among agricultural households, however, poverty
rates are as high as 65.2 percent among corn farmers and 56.4 percent among
farmhands and laborers.

Poverty rates in rural agricultural communities can still however improve, as
entrepreneurial income notably reduced year-on-year poverty by 15 percent in 2018.
This presents a unique opportunity to the 8.9 million rural agricultural households
that derive 30 percent of their annual income from entrepreneurial activities.

This Bill seeks to promote sustainable inclusive and broad-based economic growth,
through the cfeation of an Agriculture, Fisheries and Rural Financing System that will
extend loans, investments, and grants to the agriculture sector. As proposed, the Bill
requires all banking institutions to set aside a Credit Quota of at least 25 percent of
their total loanable funds through a list of authorized mechanisms.

The Bill also creates 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.



To ensure compliance, the Bill further directs the Bangko Sentral ng Pilipinas (BSP)
to furnish reports on the compliance of financial institutions with the mandatory

Credit Quota
any provision:

rates prescrib

ind to impose administrative sanctions and other penalties for violating
of this Act.

by the BSP Monetary Board. Upon collection of such penalties, the

Penalties on seid or under-compliance shall be computed at 0.5%, or at

BSP shall re
Building Cour
the Special F

it these to the Agricultural and Fisheries Finance and Capacity-
cil (AFFCC) for deposit to a Special Fund. The AFFCC shall manage
und and set its target amount as well as manage capacity-building

programs and activities.

State's commi

iment to the promotion of inclusive and broad-based economic growth

Through the lent of financial institutions, this Bill realizes the Philippine

that raises tl
environment

In view of the

@ quality of life through equal access to opportunities under an
f sustained growth and expanding productivity

foregoing, the approval of this bill is earnestly sought.

LUIS, MUND “] Y” F, VILLAFUERTE, JR.



Int

Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon Eity

EIGHTEENTH CONGRESS
First Regular Session

HOUSE BILL wo._° us

oduced by HON. LUIS RAYMUND “LRAY” F. VILLAFUERTE, JR.

MANDATI
FOR AGRI

Be
in Congre:

SECTION

AN ACT

|G BANKING INSTITUTIONS TO STRENGTHEN THE FINANCING SYSTEM
ULTURAL, FISHERIES AND RURAL DEVELOPMENT IN THE PHILIPPINES

enacted by the Senate and House of Representatives of the Philippines
3s assembled:

ARTICLE!
GENERAL PROVISIONS
1. Short Title. - This Act shall be known as “The Rural Agricultural and

Fisheries Financing Enhancement System Act”

SECTION
promote it

2. Declaration of Policy. ~ It is hereby deciared the policy of the State to
jclusive and broad-based economic growth by ensuring equal access to

opportunities under an environment of sustained growth and expanding productivity

as the key
rural devel

to raising the quality of life for all. Towards this end, the State shall promote
lopment 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
of banking

SECTION
mean:

prospects of beneficiaries in rural communities through active participation
institutions.

3. Definition of Terms. - As used in this Act, the following terms shall



(A) Agrarian Reform Beneficiary (ARB) refers to a farmer who was granted land
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

paid the beneficiary to receive a just share of the fruits of the lands of one
works. The term shall also include registered agrarian reform beneficiaries’
ratives/associations/other farm groups, respectively endorsed as
ice of agrarian reform beneficiaries by the nearest office of the DAR, as
well as ARB households.

(8) Agrarian Reform Community (ARC) refers to a barangay or a cluster of
barangays primarily composed and managed by agrarian reform beneficiaries
wha shalll be 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, production, farm and fishery operations and
management, equipment and supplies manufacturing, food/non-food
processing, trading, and retailing

(0)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-

acide operation or activity that brings to a duly-accredited farm
tourism camp, visitors, tourists, farmers and fisherfolk who want to be educated
al trained on farming and its related activities.

(E) Agricultural Lessee refers to any person who, without help from his/her
i ines 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

or

imr



is afarmer, a fisherman, an agrarian reform beneficiary, a settler, an agricultural
lessee, an amortizing owner, a farmworker, a fish-worker, 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 linked 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 (ACVF) 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 (AMCFP)
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 a 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 a 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.

(L) Farmworker refers to a natural person who renders service for value as an
‘employee 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 a business enterprises or non-
business organizations which they themselves own, control and patronize.

(0)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, crediiending, 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)Fish-worker 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 fish pens,
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 toward 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.

(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.

(¥) Post-Harvest Facilities refer to threshers, moisture meters, dryers, weighing
scales, milling equipment, fish ports, fish landings, ice plants and cold storage
facilities, and such other facilities, supporting post-harvest activities.

(2) 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 (RF) 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 II

GRICULTURAL FISHERIES AND RURAL FINANCING SYSTEM

>

SECTION. 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 rural community beneficiaries, particularly
the farmers, fisherfolk, agrarian reform beneficiaries, agrarian reform communities,
settlers, agricultural 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.

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/fishery 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 sans 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.



SECTION. 5. Rural Community Beneficiaries. - The Financing method 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.

SECTION. 6. Credit Quota. - All banking institutions, whether government or
private, except newly-established banks of a period of five (5) years from date of
commencement of the bank's operations, shall set aside a credit quota, or a minimum
mandatory agricultural and fisheries financing requirement of at least twenty-five
(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 second year of effectivity of this Act

SECTION 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-farm/fishery activities, agricultural
mechanization/modemization, 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

ties issued by the DBP and the LBP shall be separately accounted for



tion 6 hereof of the said banks;
n deposit accounts with rural financial institutions: Provided, That the
it accounts shall be separately accounted for by the depository bank and

ion 6 hereof of the said banks;

iscount 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;

d. 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

bank acting as wholesale lender alone;

for the construction and upgrading of infrastructure, including but not

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;

to agri-business enterprises that maintain agricultural commodity supply-
chain arrangement directly with rural community beneficiaries;

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

t 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
by the AFFCC, shall be counted at not more than ten times (10X) their
‘amount, or as otherwise prescribed by the BSP, for the purposes of


SECTION 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.

SECTION 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.

SECTION 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. 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 Il

AGRIBUSINESS MANAGEMENT CAPACITY AND INSTITUTION-BUILDING
FUND AND PROGRAM

SECTION 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.

SECTION 12. The intial amount ofthe Special Fund shall atleast be P10 billion
(Ten Billion Pesos) 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 of P2 billion (Two Billion Pesos), which shall be chargeable
against future penalties under this Act, and shall not be considered as a mode of
compliance under Section 11 hereof.

SECTION 13. The AFFCC shall enter into an agreement with the banking
industry on the management 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.

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

ARTICLE IV
AGRICULTURAL AND FISHERIES FINANCE AND CAPACITY-BUILDING Council

| (AFFCC)

|

SECTION 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, ofthe following agencies: the Department of Agriculture, as Chair; the
Bankers Association of the Philippines (BAP) as Vice Chair; the Bangko Sentral ng
Pilipinas - the Development 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. The private sector
tives shall include the heads or the designated representatives of the Rural
iation of the Philippines (RBAP), the Chamber of Thrift Banks (CTB),
tive Banks Federation of the Philippines (BANGKOOP), the Microfinance

Industry (PCI), and a representative each from the cooperative sector, the farmers,
and the tet ‘sector.

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SECTION 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;

E. To ensure the effective implementation and programs financed by the Special
Fund;

F. 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

teh

requirements of the Special Fund and activities financed.

°

nsure compliance with the reporting, monitoring, evaluation and audit

ARTICLE V
MISCELLANEOUS PROVISIONS

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

SECTION 18. Oversight Committee. - There shall be an oversight committee
composed of the following: the Chairpersons of the Committee on Banks and Financial
Intermediaries of the House of Representatives and of the Senate, the Chairpersons
of the Committee on Agriculture of the House of Representatives and of the Senate,
two Members of the House of Representatives appointed by the Speaker of the House,
two Senators appointed by the Senate President, 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.

SECTION 19. Sunset Provisions. The provisions related to the mandatory
credit quota under Article II as well as the management and administration of the

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special tune under Article III shall cease to have effect, ten (10) years from approval
of this Act.

SECTION 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.

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SECTION 21. Separability Clause. - f any part, section or provision ofthis Act
is held invalid or unconstitutional, other provisions not affected thereby shall remain in
force and effect.

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ao 22. Transitory Provision. - The BSP shall promulgate such rules
and regulations as may be necessary to implement Articles | 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 Article | and Il of this Act, the provisions of Republic Act No.
10000 shalll 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.

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