Philippines earmarks US$32.8 million guarantee loans for drought-hit farmers

The agriculture department will earmark about PHP1.5 billion (US$32.8 million) from the Agricultural Guarantee Fund Pool (AGFP) to back up loans for farmers who have been affected by the dry spell and the storms in the fourth quarter of 2009.

"We have PHP4.45 billion in available funds in the AGFP, but we might set aside PHP1.5 billion to the Philippine Crop Insurance Corp. (PCIC) and the cooperative banks due to the drought and the calamities that hit the country last year," Bernadette Romulo Puyat, Agriculture undersecretary for special concerns and chairman of the AGFP Governing Board said on Friday.

AGFP is a credit risk-mitigating mechanism formed to encourage rural and cooperative banks to extend credit to small farmers and fisherfolk who are usually deemed high-risk borrowers.

The fund got its money from government-owned and -controlled corporations and government financial institutions - like the Philippine Amusement and Gaming Corporation, the Philippine Charity Sweepstakes Office, the Social Security System, and the Government Service Insurance System - who were mandated by Administrative Order No. 225-A in 2008 to allocate 5% of their 2007 surplus to food production efforts.

The AGFP extends guarantee cover to eligible loan exposures of participating financing institutions of up to 85% of the loan principal. Risk of non-payment of loans due to farmers’ and fishermen's losses from natural calamities like drought, typhoons, floods, pests and diseases is covered by the AGFP.

The PCIC was formed by Presidential Decree No. 1467 in 1978 specifically to insure rice production against loss due to natural disasters and calamities.

This year, Ms. Puyat said she expects AGFP to get more funds, following the recent approval of Agri-Agra Law amendments under Republic Act 10000, which provides stricter rules to better ensure that banks will channel 25% of their loanable funds to the agriculture and the agrarian reform sectors.

The new law stipulates that 90% of penalties collected from RA 10000 violators will go to the AGFP and PCIC.