15 AGI FP Governing Board Order No. 001 Series of 2010 AMENDED IMPLEMENTING RULES AND REGULATIONS OF THE AGRICULTURAL GUARANTEE FUND POOL (AGFP) Pursuant to Administrative Order No. 225-A as further articulated by the Department of Agriculture Administrative Order (DA-AO) No. 23, series of 2008 dated 07 July 2008, the following implementing rules and regulations are hereby issued to govern the implementation of the Agricultural Guarantee Fund Pool. This guideline considers the expanded coverage of the AGFP to inch jude fisheries and other food crops as decided by the AGFP Governing Board 1.0 2.0 PROGRAM DESCRIPTION AND PURPOSE The AGFP is established by virtue of Administrative Order No. 225-A issued on 26 May 2008. The AO stipulates, among others, that the GFis and GOCCs to allocate and contribute five percent (5%) of their 2007 surplus for projects in palay and food production, and as contribution to the AGFP. The AGFP shall be used to mitigate the risks involved in agricultural lending thereby facilitating the provision of credit in the agriculture sector. The AGEP shall encourage PFs and other credit conduits to expand their outreach to new small farmer and fisherfolk (SFF) borrowers; and/or expanded lending to existing SFF borrowers by providing guarantee coverage to unsecured loans extended by the PFis and other credit conduits to SFF borrowers engaged in palay and/or food production projects/activities. DEFINITION OF TERMS: 2.1 Credit Conduits are either Banks, Cooperatives, Small or Medium Enterprises (SMEs), Large Corporations, Non- Government Organizations or Farmers Organizations (FO) with juridical personality that provides financial assistance to farmers. 2.2 Deed of Subrogation - an agreement signed by the credit conduit transferring its right of claims from the principal debtor to the guarantor, 2.3 Food Commodity Production - refers to crop, poultry and livestock production including fisheries. 2.4 Guarantee - is an agreement under which one party (guarantor) agrees to pay unconditionally (except fraud), the loan obligation60 61 62 63 64 65 66 67 68 69 70 7 73 74 75 16 78 79 80 81 82 83 84 85 86 87 88 89 90 a1 92 93. 94 95 96 7 98. 99) 25 26 eq 28 29 of the borrower if the borrower fails to pay the loan after its maturity. Guarantee Fee - amount paid by the credit conduits to secure payment of principal amount extended to SFF. Past Due Ratio — total uncollected amount after the loan maturity against the total loan portfolio of the credit conduit. Principal amount to be guaranteed - amount of principal actually disbursed to the sub-borrowers by the credit conduit, net of interest and other charges deducted in advance. Small Farmers — include small crop growers and small livestock and poultry growers as defined below: 2.8.1 Small Crop Growers - refer to owner-cultivator, tenants, leaseholders, etc. who are actually tilling not more than seven (7) hectares of agricultural lands. 2.8.2 Small Poultry and Livestock Raisers ~ refer to those having the following maximum hog, poultry and livestock inventory at the time of accreditation by the Servicing Bank: 2.8.2.a Poultry - 1,000 poultry layers or 5,000 broilers; 2.8.2.0 Swine — 10 sow level or 20 fatteners; 2.8.2.c Cattle ~ 10 fatteners or 5 breeders; 2.8.2.4 Dairy — 10 milking cows; or 28.2.e Goat 50 heads Small Fisherfolk - refer to individuals whose principal source or sources of livelinood are the varying types of fishing activities. with earnings, such as: 2.9.1 Coastal Fisherman - owns or operates a total weight of not more than three (3) gross tons of fishing boat and paraphernalia and conducts fishing activities within fifteen (15) kilometers radius from the shoreline. Engaged in coastal fishing only. 2.9.2 Fishpond Operator - owner/operator of fishponds of not more than five (5) hectares including those under fishpond lease agreement (FLA). Engaged in fishpond operation only. rk AGH Governing Boa Auer Spent Roles Reg2.9.3 Fishcage Operator ~ owner/operator of fishcages with total area of not more than 400 square meters. Engaged in fisheage operation only. The following shall also be considered as small fisherfolk + Those engaged in gathering seashells and the like and in catching aquatic resources using traps and other devices; + Those engaged in aquaculture, which covers all forms of raising and culturing fish and other fishery species in brackish and marine areas, of not more than five (5) hectares; 2.10 SME ~ any business enterprise engaged in agribusiness and/or services whether single proprietorship, partnership or corporation whose total assets, inclusive of those arising from loans but exclusive of land on which the particular business entity's office, plant and equipment are situated, must have a value of more than P 3.00 MM but not to exceed P100 MM 2.11. Unsecured Loan - refers to the amount of loan not covered by Real Estate Mortgage (REM) and chattel mortgage. 3.0 ORGANIZATION AND MANAGEMENT The Department of Agriculture (DA), in coordination with Land Bank of the Philippines (LANDBANK), shall exercise direction and supervision over the AGFP, through a Governing Board and a Program Management Committee. 3.1. Guarantee Fund Governing Board (Governing Board) 3.1.1 The Governing Board shall be composed of the following: Chair - DA Undersecretary Members - ‘Representative, NAPC {at least Assistant Secretary) Representative, LANDBANK (at least Vice President) Representative, ACPC {at least Deputy Executive Director) Representative, DOF {at least Assistant Secretary) Representative, Academe Representative, Countryside Financial Institution (CF) AGF Lend Inpfeom3.2 ule The members of the AGFP Governing Board coming from government agencies shall be officially designated by the heads of their respective offices. Representatives from the academe and CFI shall serve by invitation and at the pleasure of the Secretary of Agriculture The functions of the Governing Board are as follows’ + Define appropriate organizational program structure as well as the hiring and firing of necessary personnel; + Approveldisapprove the AGFP’s Annual Work and Financial Plan; + Set and approve/disapprove guarantee lines, claims, and leveraging ratio; © Oversee effective utilization of the AGFP; © Submit quarterly reports of the status of the Fund to the DA Secretary * Enter into contracts as it may deem necessary to effectively carry out its functions in the implementation of the guarantee program; * Create Committee(s) and working group(s) as it may deem necessary to effectively carry out its functions. Such committees may be composed of representatives of agencies attached to the DA and such other entities with experience in implementing or supervising guarantee programs; + Delegate authority as deemed necessary; * Formulate and ensure proper implementation of program policies; * Perform other functions necessary for the efficient implementation of the Fund. Program Management Committee (PMC) 3.21 3.2.2 The PMC shall be composed of the following: Chair - LANDBANK Representative (1) Co-chair - DA Representative (1) Members - LANDBANK Representative (1) - DA Representatives (2) The chair, co-chair and members of the PMC coming from government agencies shall be officially designated by the heads of their respective offices. The functions of the PMC are as follows’ + Execute the Governing Board's decisions; AGH Goering Bonn} One No) Amended Spleen Roles cad Regan RR) 163.3 * Review Annual Work and Financial Plan and recommend to GB for approval + Review, evaluate and —_approve/disapprove applications/claims for guarantee within its delegated authority and recommend those beyond its authority for Governing Board approval; + Notify the Governing Board on the approvalidisapproval of applications/claims within their delegated authority; In the implementation of the AGFP, LANDBANK shall act as the program institutional manager. As. institutional manager, the LANDBANK shall: * Enter into agreement with concerned parties to operationalize the PMO, as approved by the Governing Board; * Perform such acts, thru the PMO, necessary in carrying out the purpose of the AGFP and as directed by the Governing Board Program Management Office (PMO) The PMO shall be composed of the following: + Program Manager Accountant Management Information System (MIS) Specialist Administrative Officer Guarantee Officers Additional PMO personnel may be hired depending upon the volume of transactions or workload, subject to the approval of the Governing Board. The PMO shall have the following functions: ‘+ Provide administrative, technical and secretariat support to the Governing Board and PMC in carrying out their functions; + Prepare annual work plans and operating budgets of the AGFP for review by the PMC and endorsement to the Governing Board for approval, + Facilitate and monitor compliance to the AGFP-GB directives and approved policies; * Review and recommend policies and procedures for PMC’s consideration and endorse these to Governing Board for approval; * Prepare regular monitoring and financial reports to the Governing Board, through the PMC, regarding the status of the AGP;* Coordinate the activities of the participating institutions to ensure the smooth implementation of the AGFP. + Facilitate the conduct of meetings, conferences, workshops and training activities to create awareness and interest among targeted partners on AGFP; + Review/recommend to the PMC application for guarantee lines! claims * Validate guarantee applications/claims in coordination with LANDBANK Field Offices, if applicable. + Process request for claims payment within the prescribed period * Manage the guarantee portfolio of the AGFP including the portfolio on subrogated accounts. + Perform other tasks as may be assigned by the Governing Board/PMC. * Monitor and report the status of the funds invested. 4.0 POLICIES ON GUARANTEE COVERAGE AND CLAIMS 4.1 Eligible Conduits. The following are the eligible entities that can seek guarantee coverage under the AGFP: 4.1.1 Banks (e.g. Rural Banks, Cooperative Banks, Thrift Banks) 4.1.2 Cooperatives 41.3 Small and Medium Enterprises and Other Large Corporations, such as input suppliers 4.1.4 Non-Government Organizations and Farmers’ Organizations, other than cooperatives 4.2 Eligibility Requirements for Credit Conduits (CCs). The Credit Conduit (CC) must pass the following: 4.21 Banks 4.2.1.a Must have satisfactory credit standing with its creditors; 4.2.1.0 Must have past due ratio of not more than 15%; 4.2.1.¢ Must have at least three-year track record in lending/ financing to farmers; 4.2.1.d Must have a capital adequacy ratio of at least 10% 4.2.1.0 Must have adequate reserve requirement; 4.2.1. Must be profitable on the year preceding the application and as of the time of application for guarantee line; AGE Gimerning Bound Onley Na. Series of 3030 tons RR) of te AGEP pementing Roles42.1.9 Must have no adverse findings based on background investigation on its owners, directors and management 4.2.2. Cooperatives 422a 4.2.2.b 4.2.2.0 4.2.2.4 4220 4.2.24 42.29 Must have satisfactory credit standing with creditors; Must have past due ratio of not more than 15% for credit coops and 25% for non-credit coops; Must have at least one-year track record in lending/ financing to farmers; Must have a risk asset ratio (for credit cooperative) of not less than 10%; Must have part or full time core management team: Must be profitable on the year preceding the application and as of the time of application for guarantee line: Must have no adverse findings based on background investigation on its officers and management. 4.2.3. Small and Medium Enterprises (SMEs) and Large Corporations 4.2.3.4 Must have no ownership and/or labor dispute for the past three (3) years; 4.2.3.0 Must have satisfactory credit standing with creditors; 4.2.3.¢ Must be profitable on the year preceding the application and as of the time of application for guarantee line; 4.2.3.d Must be at least 60% Filipino-owned, if corporation and 100% Filipino-owned, if sole proprietorship; 4.2.3.e Must have a debt-equity ratio of not more than 80:20; 4.2.3 Must have no adverse findings based on background investigation on its owners and management 4.2.3.9 Must have at least three-year track record in lending/financing to farmers; 4.2.4 Non-Government Organizations 424a 424b Must be registered with a registering entity (e.g. SEC, etc.); Must have satisfactory credit standing with creditors;43 4.2.4.¢ Must have a complete part or full time core management team; 4.2.4.4 Must be profitable on the year preceding the application and as of the time of application for guarantee line, if applicable; 4.2.4.¢ Must have no adverse findings based on background investigation on its directors and management; 4.2.4 Must have at least one-year track record in lending/financing to farmers. 4.2.5 Farmers Organizations other than Cooperatives 4.2.5.4 Must be registered with a registering entity (e.g. SEC, NIA, etc); 4.2.5.0 Must be operational and with satisfactory credit standing with its creditors, if any or with supervising government agencies/entities such as NIA, DOLE, DAR, etc: 4.2.5.c Must have a functioning Board of Directors or its equivalent, and presence of core management team (e.g. manager, bookkeeper and treasurer or officially designated officers to manage the lending program); 4.2.5.4 Must have a positive networth on the year preceding the application and as of the time of application for guarantee line 4.25.e Must have no adverse findings based on background investigation on its directors and management; 4.2.54 Must have lending policies and guidelines and with basic recording system (e.g. loan disbursement and collection systems, etc.) Eligibility of Sub- borrowers for Guarantee Cover The sub-borrowers who are eligible for guarantee cover are those new small farmer and fisherfolk (SFF) borrowers; and/or existing SFF borrowers who are engaged in food crops/commodities production. First priority is lending to new SFF borrowers. However, to the extent that the fund is not fully utilized to cover the loans of newly accessing SFF, the AGFP fund may also be used to guarantee loans to encourage credit conduits to expand lending to existing SFF. Sub-borrowers in good standing shall be entitled to renewal of coverage. Sub-borrowers with outstanding obligations with the AGFP by virtue of subrogation will also be eligible for future AGEP Governing Boas Oner Nao. Se44 45 46 47 guarantee coverage provided that non-payment of original loan is not due to fraud or bad faith and provided further that the sub- borrower executes plan of payment on the unpaid loan. Eligible Accounts for Guarantee Cover Eligible accounts should exhibit all of the following: * Unsecured loans/accounts of eligible sub-borrowers not covered by any collateral + Loan purpose is to finance palay and other food crops/commodities production; and + Those accounts which were released to the sub-borrowers by the credit conduits not more than forty five (45) days prior to approval of the guarantee coverage, provided there is no damage to the crop at the time of approval of guarantee cover. Guarantee Coverage The guarantee cover shall be up to 85% of the principal eligible loan/account but not to exceed the amount of credit ceiling per commodity as set by the AGFP Governing Board. Ceilings shall be set per commodity/activity type by the Governing Board on an annual basis Guarantee Fee The credit conduit shall pay two percent (2%) guarantee fee per annum based on the amount of the loan extended by the conduits to the eligible sub-borrowers. The guarantee fee shall be reviewed and approved by the Governing Board on an annual basis. Guarantee Line Approval and Renewal A guarantee line shall be established for an eligible credit conduit, subject to the approval of the AGFP approving authorities. The approved guarantee line shall be the maximum amount of guarantee cover that can be extended to the credit conduit at any given time. A guarantee line shall be valid for a period of one-year and may be renewed subject to the performance of the credit conduit, and approval of the AGFP approving authorities Boat Orter Nam nt Regalos RR48 49 Request for Guarantee Coverage All credit conduits with approved guarantee line shall execute a guarantee and collection agreement with the AGFP stating the terms and conditions of the guarantee. All credit conduits with approved and unexpired guarantee lines may request for guarantee coverage. The credit conduit shall request for guarantee coverage for a particular batch of sub- promissory notes, which request shall be submitted to the AGFP PMO or the nearest servicing unit of the participating banks. The request for guarantee coverage by the credit conduits with approved guarantee line is considered approved provided that the sub-notes are compliant to the following program provisions: + That the submitted sub-loans for guarantee cover were disbursed not more than forty-five (45) days prior to the request for guarantee coverage, provided further there is no damage to the food commodity at the time of application of guarantee cover; + That the sub-loans were extended to SFF as defined in items 2.7 and 2.8 of this guidelines; and * That the credit conduit has paid the guarantee fee computed based on the guarantee period as provided for in item 4.9 Acknowledgment receipt will be issued by the PMO upon receipt of notice of payment of guarantee fee by the Credit Conduit. Guarantee fees paid for sub-borrowers whose sub-notes were found invalid for claims will no longer be refunded. Effectivity/Validity of Guarantee Cover The guarantee cover shall be deemed effective from the time the guarantee fee is paid. The guarantee cover shall remain valid for the duration or until the maturity of the sub-loans that were guaranteed but not to exceed the production cycle of the crop plus a two-month extension period. The production cycle of various crops and food commodities and guarantee duration are as follows: an HR of te NGEP AGFP Governing en mended bnplementing Riles aKGuarantee Period (Maximum Period) Production Cycle Palay Production 4 months months Pineapple (Plant) [21 months 12 months | (Raton) 18 months 12 months Sugarcane (Plant) 10 months: 12 months | (Raton) 12 months: 72 months [Banana [42 to 18 months 12 months Yellow Corn 4 months: & months (Cassava to 12 months 1 to 12 months OilPaim 4105 years 12 months: [Other short term crops | 3 to 6 months: 5 to 7 months: Fishpondifisheage Bangus — 6 months 8 months | operations Tilapia — 5 months T months Prawn ~ 6 months ‘& months [Crab — 6 months, ‘months Catfish — 6 months 8 months | Poultry'Livestock Layer = 18 months. 42 months Broiler — 33 to 95 days 3months | Goat (breeding) - § months _| 7 months al | Goat (fattening) - 4 to 5| 8107 months months | Hog (breeding) - 12 months | 12 months Hog (fattening)=5 months _ | 7 months Caitle (fattening) ~ 6 months | 8 months | Cattle (breeding) — 9 months | 11 months Carabao (breeding) 13 | 12 months hoe months - Steet oes Carabao (dairy — 8 to 9| 1010 11 months months Goat (dairy)"- 4 months | 6 months Cattle (dairy - 7 10 9) 9t0 11 months months For the credit conduit's long term exposures that are related to food commodity production, guarantee coverage shall be on annual basis. For the guarantee cover to be valid, the guarantee fee for a particular coverage period (annual) should be paid. For term loans or for food crop/commodity production with production cycle of more than one year, the guarantee coverage shall be renewed on an annual basis until the maturity of the loan 4.10 Risks and Events of Default Covered by Guarantee The guarantee shall cover all risks from losses due to non- payment of loans including those that were caused by natural calamities (such as typhoons, floods, etc.) and pests and diseases, market aberrations, except fraud on the part of the conduit. AGH Gimering Boal ler Nat. Series of 2040 Anraleddnplemenring Role end Regions RR) he AGE414 Guarantee Claim Payments 4nd 4.11.2 When a sub-borrower fails to pay, a guarantee claim shall be filed by the credit conduit to the LANDBANK Lending Center or the AGFP PMO within thirty (30) working days after the last maturity date in the batch, supported by the following: 41t1a 4444.0 4At1c 41114 certification of non-payment issued by the duly authorized representative officer of the CC; duly received demandicollection letter issued by the CC to the sub-borrower: statement of account of the sub-borrower; and proof of occurrence of calamity/pest! disease occurrence, if applicable Claims shall be paid as follows: 41128 4.11.2. 411.2.¢ 4.11.24 The amount of claims to be paid shall be 85% of the unpaid principal balance. The CC shall be liquefied within 15 working days upon submission of the supporting documents as specified in 4.11.1 for an amount equivalent to 80% of the guarantee: After a 30-working day maximum. post- validation commencing from the submission of documents, the credit conduit shall then be paid the remaining amount, if there is still any balance, corresponding to the total approved claims. Liquefied accounts of credit conduits found invalid for claims payment shall then be treated as an account payable by the CC to the AGFP. Remittance of payment on the invalid claims paid to the CC shall be remitted back to the AGFP not longer than 30 working days from the date of notice, otherwise corresponding penalties as set by the Governing Board shall apply, Settlement of the amount shall become a plement Bu Bod Onder Nat. Series of 2010 ARR) the412 51 5.2 5.3 64 pre-approval requirement for application for new coverage of accounts. 4.11.3. For claims filed by farmers’ organizations (FOs) other than cooperatives, payment of claims shall be made after the completion of the validation. Validation of claims and eventual payments shall be done within 60 working days upon receipt of the application for claim by PMO or its authorized representative in the field. 4.11.4 In case the credit conduit's request for guarantee claims payment exceeds 25% of its total outstanding guarantee coverage at the time of its maturity, payment of claims shall be made after validation of at least 50% of the eligible sub-borrowers for guarantee claims payment Field Validation 4.12.1 The PMO shall validate at least 10% of the total guarantee claims. If upon validation, the invalid guarantee claims exceed the 20% of the claims being validated, the entire claim shall be validated. 5.0 COLLECTION OF ACCOUNTS Upon payment of the claims, the CC shall execute a Deed of Subrogation of the subject accounts in favor of the AGFP. After payment of the guarantee claim, the credit conduits shall directly collect from the sub-borrowers for and in behalf of the AGFP through a collection tie-up to be approved by the governing board. Eighty five percent (85%) of any collection made from individual subrogated account shall be remitted by the conduit to the AGFP until the total obligation of such sub-borrower with the AGFP has been fully settled. Remittance of such collection shall be made within fifteen (15) working days from the date of collection; otherwise, an interest of 18% per annum shall be charged starting on the 16" day from the date of collection until fully remitted 6.0 MISCELLANEOUS PROVISIONS Risk Weight All loans extended by conduit-banks that are guaranteed by AGFP shall have a risk weight pursuant to the guidelines to be issued by the BSP. / aplementing Raleant 86.2 6.3 6.4 6.5 Fund Allocation The AGFP fund shall be earmarked as follows: Allocation Banks 50% | Non-Banks - 50% TOTAL 100% OThe fund will be dedicated solely to extending guarantee on loans given by the credit conduits (i.e. banks and non-banks) The claims made on the guarantee fund will be charged against the allocation for the respective conduit types. Losses incurred from guaranteeing loans granted by each type of credit conduit will only affect that particular fund. The amount corresponding to the 50% of the AGFP fund intended to cover loans granted by conduit-banks shall be invested only in assets that are zero percent risk weighted under the Bangko Sentral ng Pilipinas risk-based capital adequacy framework, Leveraging Ratio Maximum allowable leveraging ratio of the fund shall be set to two (2). Incorporation by Reference Except as otherwise provided in this Rules, Administrative Order No. 225-A issued by the Office of the President and Administrative Order No. 23, as amended by Administrative Order No. 23-A, issued by the Department of Agriculture may be incorporated herein by reference in answer or partial answer to any other item not herein provided. Separability Clause In the event any provision of this Rules or the application of such provision to any person or circumstance is declared invalid, the remainder of this Rules or the application of said provisions to other persons or circumstances shall not be affected by such declaration. All previous issuances not consistent with this guideline shall be superseded. AGH Giver SURR) of he NEB666 7.0 EFFECTIVITY 668 These guidelines shall take effect upon approval. STP Fos Siang” 6-07 90-0074 inne 679 Date Approved: “ly 9, 2010 AGEP Goneing Bond Once Not Laer Ipemeton R