Financial technology firms are emerging as alternative lenders for micro, small, and medium enterprises (MSMEs), including those in agriculture, amid banks’ continued hesitancy to extend loans to the sector.
Bangko Sentral ng Pilipinas (BSP) Monetary Board member Romeo Bernardo said fintech firms are playing an increasing role in providing credit, particularly to informal sector participants who may not have access to traditional banking channels.
The development aligns with the central bank’s efforts to facilitate funding distribution to government agricultural agencies using penalties collected from banks that fail to comply with the Agri-Agra Reform Credit Act of 2009.
The law mandates banks to allocate 25% of their loanable funds to agriculture and fisheries, with 10% designated for agrarian reform beneficiaries.
While banks retain 10% of these funds, the bulk is directed to the Department of Agriculture and the Department of Agrarian Reform for credit programs.
Loan availability for agricultural workers has increased following revisions to the law that broadened the definition of eligible borrowers to include firms involved in water systems and the food supply value chain.
The BSP reported that bank financing for agriculture and rural development reached 192.4% of total funds in the first half of 2024, up from 36.4% in the same period a year earlier.
The country’s fintech sector has expanded, with 285 firms now in operation, 22% of which offer lending services, according to Fintech Alliance.Ph.
The increasing presence of digital lenders highlights a shift in how financing is accessed by MSMEs and agricultural players.
Bernardo noted that improving the collection and analysis of financial data from entrepreneurs could help drive agricultural growth and reduce poverty.
He said banks remain cautious about lending due to risk factors, emphasizing their responsibility to depositors.
Efforts to reform the agricultural sector remain a priority, with measures being implemented to enhance financial access.
The Philippine Institute for Development Studies estimated that agriculture accounts for 65% of the demand for production financing. The Philippine Statistics Authority reported that the poverty rate among farmers stood at 30% in 2021, second only to fisherfolk at 30.6%.
The government continues to explore initiatives to strengthen financing for agriculture and MSMEs, with fintech firms playing an increasingly critical role in bridging the credit gap.