product that addresses the needs of the agriculture sector, specifically the poor farming households. definitely, there is room for complementation. first, many clients of microfinance are also engaged in agriculture activities. in the philippines, it has been proven that those who are involved in small agricultural activities also manage other forms of enterprises. these agricultural workers usually maintain microenterprises to meet consumption needs and other short term expenses of the household. in this regard, microfinance may be extended to this worker, with some modifications on the proven methodology and technology of microenterprise lending. for instance, traditional client selection using character and cash flow analysis … may be supplemented by technical criteria relating to the particular agricultural activity. this way, the selection process is more attuned to the intricacies of the household, its microenterprise, as well as its agricultural activity. second, the basic feature of flexibility in microfinance can be similarly applied to agriculture finance. flexibility in terms of repayment schedules, delivery channels and even collateral requirements is very important. some microfinance institutions that have successfully catered to the agriculture market have created flexible repayment schedules and payment options that attract a wide range of agricultural activities. clients are still expected to have frequent repayments with the option of having a certain percentage of the loan as bulk payment. while these schedules take the crop cycle and produce sales into consideration, they still emphasize that repayment is expected regardless of the results at the end of the crop cycle. flexibility in delivery channels can also be very beneficial for agriculture finance. microfinance institutions, both in the bank and non - bank sector, continue to expand their branching networks, thereby enhancing access to finance. innovations in technology are also increasing delivery channels for microfinance. in the philippines, for instance, the development of mobile phone banking and electronic cash platforms have provided the opportunity for both enhanced access and lower costs. finally, flexibility insofar as collateral requirements is also an option for agriculture finance. microfinance institutions have proven that collateral substitutes such as group guarantees, peer pressure or even the use of personal property have been effective in reducing reliance on traditional capital and in ensuring repayment. this may be studied further to see what arrangements could be flexible, yet prudent enough for agriculture loans. risk mitigating factors that are applied by microfinance institutions such as portfolio diversification, inclusion of savings and insurance products may also be effective for agriculture finance. it is important that we remain

##finance ngos which collect savings greater than the compensating balance should be subject to regulation and supervision. circular 272 issued january 2001 by the bangko sentral ng pilipinas provided the enabling policy and regulatory framework for microfinance in the banking sector. parallel to this, bangko sentral mounted capacity building programs and sustained information campaigns. microfinance has flourished since then. today, 223 banks are involved in microfinance with a combined loan portfolio of about p4 billion lent out to over 660, 000 borrowers. nevertheless, there is still much more that we can do. it is fitting therefore that we are addressing the obstacles to gaining access to agricultural credit through microfinance, a methodology and technology that has been proven successful. it is important to remember that the success of microfinance is anchored on the following fundamental principles : first, microfinance is typically linked to households and their microenterprises. the household is seen as one with diverse activities and multiple streams of income and expenditures. microfinance therefore looks at the regular cash flow of the household and the microenterprise – not the loan use, in determining the size, term and repayment structure of the loan. as a result, microfinance loans are primarily short term loans with frequent repayments. second, microfinance loans are characteristically used for additional capital to grow an existing business. the loan amounts are not very large. some microfinance institutions even use a growth - loan process where the clients start off with a very small loan and can only access larger loans incrementally after showing a good repayment record. this has been proven successful in mitigating risks and in establishing credit discipline among the borrowers. there are several other basic principles of microfinance, but i have focused on these 2 characteristics as they are the features that seem fundamentally incongruent to the financing needs of the agriculture sector. in particular, cash flow lending and frequent repayments do not fit the seasonal nature of agricultural incomes. in addition, short term financing, as well as the relatively small loan amounts, result in a lack of term financing which is important to particular types of agricultural activities. the risks for both types of financing are also very diverse. agriculture finance bears unique risks such as price and yield risks. having said this, it does not mean we are dismissing the possibility of combining some of the best practices of microfinance with salient features of agriculture finance to create a