1.         DESCRIPTION

The Guarantee Facility is an all risks, quick claim and portfolio guarantee instituted to cushion the impact of risks in agricultural credit and thereby encourage increased lending to small farmers and fisherfolk.

2.         RATIONALE

Under DA Special Order No. 438 issued by Secretary Edgardo J. Angara on August 18, 1999, a Study Team was organized to formulate innovative and affordable financing schemes for the purpose of œpromoting greater private sector participation in reaching out to farmers and fisherfolk in the provision of farm inputs, equipment and facilities; promoting greater access by the farmers and fisherfolk to these inputs and equipment; and instituting the processes in availing them. 

3.         OBJECTIVES OF THE GUARANTEE FACILITY

3.1    Implement innovative financing schemes to promote productivity and modernization in the agriculture sector; and

3.2    Encourage lending entities (LEs) -banks, cooperatives, agriculture-based enterprise (ABEs), government and/or private colleges and universities NGOs and other peoples ™ organizations with juridical personality to lend to small farmers and fisherfolk with viable projects but without collateral or deficient in collateral.

4.         LEGAL BASES

4.1  RA 8435, dated February 9, 1998, which mandated QUEDANCOR as the credit guarantee institution for the agriculture and fishery sectors.

4.2  RA 7393, dated 13 April 1992, which mandated QUEDANCOR to establish a credit support mechanism and guarantee system for the benefit of farmers, fisherfolk and other agricultural enterprises.

4.3  DA Special Order No. 438, which mandates the formulation of innovative financing schemes to promote greater private sector participation in reaching out to farmers and fisherfolk through mitigation of credit risks.

5.         DEFINITION OF TERMS

5.1    Small farmer (including agrarian reform beneficiaries) refers to an actual tiller of lands not over 5 hectares.

5.2    Small hog/poultry raiser refers to a raiser with the following maximum inventory at any time:

Poultry     -        1,000 layers or 5,000 broilers
Swine      -        10 sows or 20 fatteners
Cattle       -        10 fatteners or 5 breeders
Dairy        -        10 milking cows
Goat        -        50 heads

5.3       Small fisherfolk refer to:

Fisherman operating fishing vessels with a capacity of 3 gross tons or less;

Operator of fishponds less than 5 hectares or fish cages less than 400 square meters;

Fish worker/helper in fishing boats, fishponds, hatcheries, or fish processing establishments;

Operator of seaweeds, oyster or mussel farms.

5.4    Lending Entity - refers to lending bank, cooperative, agriculture based enterprise, government and/or private college and university, NGO and PO with juridical personality participating in this Guarantee facility.

5.5    Cooperative - refers to a duly registered association of persons with a common bond of interest who has voluntarily joined together to achieve a lawful common social and economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.

5.7    Sole proprietor - a natural person owning a business enterprise or engaged in commercial activity.

5.8    Partnership - an entity of two or more persons who bind themselves to contribute money, property or industry to a common fund with the intention of dividing profits among themselves.

5.9    Corporation - a juridical person, created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incidental to its existence.

5.10 Non-Governmental Organization (NGO) - private, non-profit voluntary organization committed to the task of socio-economic development and established primarily for service.

5.11 Peoples Organization (PO) - refers to a non-governmental organization or community based group with juridical personality whose members are individuals.

5.12 Agriculture-Based Enterprise - refers to an agri-related community based enterprise with asset size of at least P1.5 million, which is engaged in the production, processing, packaging, marketing/distribution or provision of products and/or services produced, utilized, consumed or patronized by farmers and fisherfolk for the advancement of their livelihood activities.

5.13 Unsecured Loan - refers to an agricultural loan without Real Estate Mortgage (REM) collateral.

5.14 Loan Portfolio - refers to agri lending of lending entities to small farmers and fisherfolk under this Guarantee facility.

6.         PURPOSE OF THE GUARANTEE FACILITY

To strengthen the securitization on loan requirements of projects/activities on agricultural crop production, livestock, poultry, and fishery such as:

6.1  Procurement of production inputs (e.g. seeds, planting, stocking and rearing materials, fertilizer) and payment for farm services (labor, animal and machines);

6.2  Purchase of farm/fishing equipment/machines, work animals and other farm implements;

6.3  Acquisition/construction of post-harvest agricultural facilities and machinery; and

6.4  Processing, packaging, marketing/distribution of products/services as consumed or patronized by farmers or fisherfolk for their livelihood activities.

7.         ELIGIBILITY REQUIREMENTS OF THE BORROWERS OF ENTITIES UNDER THE GUARANTEE FACILITY

7.1  Must be a bonafide resident of a farming or fishing area for at least one year as certified by a barangay official;

7.2  Must have a viable project;

7.3  Must have sufficient experience/knowledge of the project; and

7.4  Must not have an existing loan with any other lending entities

8.         LENDING ENTITY ACCREDITATION

The following organizations may be accredited as lending entities (LEs) under the Special Agricultural Financing Window:

8.1    Banks which shall refer to Universal Banks, Commercial Banks, Rural banks, Cooperative Banks, Thrift Banks (to include Savings and Loan Associations) and Development Banks;

8.2    Cooperatives duly registered with the Cooperative Development Authority;

8.3    Government and/or Private Colleges or Universities;

8.4    Agriculture-Based Enterprises (ABEs), which can be sole proprietors, partnerships or corporations; and

8.5    Non-Government Organization (NGOs), Other Peoples ™ Organizations (POs), with juridical personality.

Accreditation of Lending Banks. Lending Banks (LBs) intending to participate under the program shall submit to QUEDANCOR the following documents and pay a non-refundable accreditation fee/subscription of QUEDANCOR Shares of Stock:

a.      Letter-Request for Accreditation;
b.      Board resolution (original copy) authorizing the LB to participate and designating the officer(s) with specimen signatures who shall represent the LB and sign all documents pertaining to its accreditation;
c.       List of Key LB officers;
d.      Latest Audited/Certified Financial Statements for the last 3 years;
e.      List of borrowers with existing projects, loan amount, and collateral status;
f.        Copy of the LB ™s credit evaluation process and policies and list of loan/credit evaluation officers, including their educational background and work experience.

QUEDANCOR and the LB shall enter into an omnibus Guarantee Agreement, which specifies the guarantee loan credit limit for the concerned LB effective for two years.

Accreditation of other Rural Lending Entities . Any proprietor, partnership, cooperative, corporation, government and/or private college and university, NGOs and other people ™s organization with juridical personality intending to be a lending entity under the program shall submit an Application for Accreditation to QUEDANCOR together with the documents enumerated below and pay a non-refundable accreditation fee or subscription of Corporation ™s shares of stocks. Upon approval, QUEDANCOR and the LE shall enter into an omnibus Guarantee Agreement, which specifies the guarantee loan credit limit for the concerned LE effective for two years.

General Requirements:

a.      Duly accomplished Application for Accreditation;
b.      Duly certified Financial Statements for the last three years; and
c.       Mayor ™s Permit/Municipal License/Certificate of Trade Registration, (if applicable; and
d.      List of borrowers with existing projects, loan amount, and collateral status; and
e.      Copy of the LE ™s credit evaluation process and policies and list of loan/credit evaluation officers, including their educational background and work experience.

Additional Requirements:

For Cooperatives/NGOs/Pos

a.      Board Resolution/Secretary ™s Certificate (original copy) authorizing the cooperative, NGO/PO with juridical personality to participate and designating its authorized representative(s) thereof with specimen signatures;
b.      List of names and addresses of current key officials and members.

For Partnerships/Corporations (Agricultural Based Enterprises)/Government and/or Private Colleges and Universities

a.      Board resolution/Special Power of Attorney/Secretary ™s Certificate (original copy) authorizing the firm, government and/or private college and university, to participate and designating its authorized representative(s) thereof with specimen signatures;
b.      List of names and addresses of current key officers; and
c.       List of Stockholders/Partners/Members with the corresponding percentage of ownership/or interest in the firm/enterprise (if applicable).

9.         ALTERNATIVE SECURITIES

LEs may require borrowers to submit any one or a combination of the following:

9.1    Deed of assignment of farm produce or agricultural crops;

9.2    Chattel Mortgage (machinery and equipment directly related to the project);

9.3    Two (2) Co-makers of known financial capability (submit Co-makers Statement) and/or Suretyship Agreement with the cooperative, Agri-Based Enterprise, NGO, other PO, or other institution where the borrower is a member (as applicable); and/or

9.4    Other Acceptable Securities.

10.       LIABILITY OF THE GUARANTEE FUND AND EXTENT OF THE GUARANTEE COVER

At any time during the program implementation, the outstanding guarantee exposure of QUEDANCOR shall be limited to three (3) times the total outstanding balance of the Guarantee Facility. QUEDANCOR shall guarantee up to 85% of the unsecured portion of each loan in the lending entity ™s portfolio, covering outstanding principal plus interest up to maturity date, or to actual date of pre-termination/declaration of default whichever is shorter, but in no case shall this exceed P150,000 per borrower. QUEDANCOR reserves the right to exclude from the portfolio submitted for guarantee coverage, any questionable loan borrower. All rights proceeding from the guarantee cover are assignable.

In the event of undue delay in the payment of guarantee claims beyond the fifteen (15) days maximum period, the interest up to actual date of payment shall be charged against the guarantee fund.

11.       GUARANTEE FEES AND OTHER FEES

11.1    A guarantee fee of at least 3.0% per annum of the outstanding principal of the loan portfolio (depending on the risk of the portfolio) shall be paid by the lending entity upon filing of application for guarantee cover. For guaranteed loans with a term of more than one (1) year, a subsequent annual guarantee fee at the rate herein provided shall be paid within fifteen (15) days from every annual anniversary of the guarantee cover. The guarantee fee is not refundable nor subject to rebate.

11.2    In relation to Item 15.3 hereof, a penalty fee equivalent to the percent share of spurious and bad loan accounts to the loan portfolio with guarantee coverage shall be imposed on the concerned LE. If majority of the loans are spurious and bad loans, QUEDANCOR shall have the prerogative to reject the whole portfolio.

12.       GUARANTEE AGREEMENT BETWEEN QUEDANCOR AND THE LENDING ENTITY

The agreement between QUEDANCOR and the LE shall be of two types. The first agreement is an omnibus guarantee agreement executed during the accreditation process and shall stipulate the general terms and conditions of the guarantee such as the maximum guarantee coverage. The second agreement is an operative guarantee agreement for every agri credit loan portfolio submitted and approved for guarantee coverage by QUEDANCOR, which shall contain the specific terms and conditions of the guarantee.

13.       REQUIREMENTS/PROCEDURE FOR GUARANTEE COVERAGE

13.1 All required documents under Section 8 shall be submitted for evaluation. Upon approval of the guarantee application by QUEDANCOR, an omnibus guarantee agreement shall be executed between QUEDANCOR and the LE, specifying among others, the maximum guarantee coverage.

13.2 The accredited Lending Entity (LE) shall submit a portfolio of agri loans for guarantee on a regular basis (depending on the actual loan releases) up to its guarantee loan credit limit. As such, an operative guarantee agreement shall be executed for every agri credit loan portfolio submitted and approved for guarantee coverage. The LE shall submit the following documents: a) a certificate that all borrowers included in the portfolio have met the eligibility requirements under Section 7 hereof; b) a list or summary of loans to be guaranteed; c) loan evaluation report. Additional documents or information, however, may be requested by QUEDANCOR during this process.

The aforementioned requirements shall be submitted directly either to Quedancor Head Office or to the nearest Quedancor District Office.

13.3 QUEDANCOR shall undertake a random background and credit investigation, and evaluation of proposals on selected borrowers. LEs shall be notified on the status of their request for guarantee coverage. Disapproval of one or two loans will not affect the other loans in the portfolio, but subject to penalty under Section 11.2 hereof.

14.       PROCESSING OF GUARANTEE CLAIMS AND RESTRUCTURING OF LOANS

14.1 When a loan in the portfolio is past due (15 days after maturity date for production loans) or in arrears for one (1) amortization for fixed asset loans, the LE, after exerting its best effort to collect, may declare the loan in default.

14.2 Within fifteen (15) days from default declaration, the LE shall inform QUEDANCOR in writing the status of defaulting loans, supported by a demand letter to the borrowers duly received, to expedite the payment of claims.

14.3 Upon submission of all required documents, and found to be in order, guarantee claims will be paid within fifteen (15) days from the submission date provided the LE has not exceeded its twenty (20) percent past due ceiling on its portfolio under facility.

14.4 The LE shall, on the same day of receipt of guarantee payment, surrender the original copy of the operative guarantee agreement if all the loans in the operative agreement have defaulted. The LE need not surrender the operative agreement in case of partial defaults i.e., not all loans in the operative agreement have defaulted. Subrogation of individual promissory notes with underlying securities and other acceptable securities (if any) may be considered on a case to case basis.

14.5         The LEs are hereby authorized to restructure loans as follows:

a.      Past due loans in excess of the aforementioned twenty (20) percent past due ceiling (Section 14.3).

b.      Loans with paid guarantee claims (within the twenty percent past due ceiling) but whose defaults are occasioned by justifiable reasons (e.g. natural calamities) may be restructured. QUEDANCOR shall deputize the LE to collect payments from the restructured or defaulting loans for a service fee of 1% of the total restructured or defaulting loans collected. Any payment from this particular borrower, notwithstanding additional loans from the LE, shall be applied first to the restructured account pari passu between LE and QUEDANCOR.

15.       GROUNDS FOR CANCELLATION/NULLIFICATION OF GUARANTEE COVERAGE

Any of the following shall be grounds for cancellation or nullification of guarantee coverage and/or non-payment of guarantee claim:

15.1 Collusion between and/or among the borrower Quedan Operations Officer (QOO) and LE in the extension of credit such as but not limited to the following:

a.      When the borrower and/or the officer(s)/employee(s) of QUEDANCOR/LE enter into an agreement for fraudulent purposes or whenever said parties conspire to defraud QUEDANCOR.
b.      When LE officer/employee acquiesces, consents, or agrees with anyone to the granting of loan to unqualified borrower.

15.2    When any LB officer/employee fails to apply in payment of the borrower ™s loan any amount authorized to be deducted from a deposit account and subsequently allows withdrawal by the borrower, without payment of the loan to the prejudice of QUEDANCOR.

15.3    When LE makes false statement, misrepresentation, omission or concealment in the eligibility requirements of borrowers, as well as in the reports submitted and/or in the guarantee claim filed with QUEDANCOR.

15.4    When LE releases a loan that exceeds the amount or term of loan recommended herein, or has incomplete or defective documentation and/or is not covered by the recommended alternative securities;

15.5    When LE holds-out any portion of the borrower ™s loan;

The aforementioned provisions shall not preclude QUEDANCOR from rescinding or nullifying its guarantee coverage for violation of these Guidelines or for other causes involving fraud, bad faith or other machinations.

16.       FUNDING

An initial fund of P401.9 million from the following sources: a) P123.9 million fund balance of the 1997 Gintong Ani Funds II originally intended for the insurance program of PCIC reallocated to QUEDANCOR; b) 178 million fund balance of the DA funds for Self Help Group with LBP; and c) P100 million DA funds for Integrated Rural Financing with LBP, will be allocated to finance this facility.

17.       SPECIAL PROVISIONS

A Project Management Committee (PMC) shall be constituted pursuant to the MOA.

18.       EFFECTIVITY

This Circular shall take effect immediately.

Adopted: 04 Sept. 2000

(SGD.) ELMER GARCIA MENDOZA
President & CEO