Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

FIFTEENTH CONGRESS
First Regular Session

House Bill No. 480 _

Introduced by AKBAYAN Party-List Representatives
Hon. Kaka Bag-ao and Hon. Walden Bello

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Explanatory Notes

In order to spur rural development, more capital must flow into the countryside. There is
a need to freely open the access of small farmers to credit. According to the banking
sector, they are willing to lend small farmers without collateral as long as the small
farmers can demonstrate their income stream. Under the CARP extension with reforms
law, agrarian reform beneficiaries will be given collateral-free loans by the Land Bank of
the Philippines.

To enhance the access of small farmers to credit, this bill proposes to set up an
environment where more financial institutions will be encouraged to extend collateral free
loans to all farmers. The bill aims to include more banks and financial institutions to open
loan windows to small farmers aside from the agrarian reform beneficiaries. It also
provides a guarantee fund for the loans as insurance to the farmers when there is a crop
failure or calamity. The small farmers will be provided with capacity building on how to
make feasibility studies to comply with banks’ loan requirements. The bill offers a package
to mainstream credit for farmers.

In view of the foregoing, the immediate passage of the bill is earnestly sought.

lon. KAKA BAG}AO Hon. WALDEN BELLO

‘epreséntative, &kbayan Party-list Representative, Akbayan Party-list


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

FIFTEENTH CONGRESS
First Regular Session

House BillNo.__ASC_

Introduced by AKBAYAN Party-List Representatives
Hon. Kaka Bag-ao and Hon. Walden Bello

AN ACT
TO PROVIDE FARMERS BROADER ACCESS TO AGRICULTURAL CREDIT AND PROVIDING
MECHANISMS THEREFOR AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled: .

Section 1. Title. - This Act shall be known as the "Agricultural Credit Act of
2010".

Section 2. Declaration of Policy. - It is hereby declared the policy of the
State to promote accelerated growth with equity and modernization of the agricultural
sector to increase productivity and income by enhancing access and efficient use of
agricultural credit by the agrarian sector and providing better environment for bank and
non-bank financial institutions to extend agricultural credit to the said sector, ‘Towards
this end, the government shall ensure that the agrarian reform beneficiaries (ARBs) and
other members of the agricultural sector shall be given optimum opportunity to develop in
order to raise productivity, promote efficiency and equity, and increase income pursuant
to the fundamental policy of the State to promote social justice and. sustainable
development. Henceforth, Certificates of Land Ownership Award (CLOAs) and
Emancipation Patents (EPs), being indefeasible titles registered under the Torrens
System, shall be made instruments for securing credit for farmers and direct investments
to the agricultural sector. The state, in reducing social, economic and political
inequalities, shall give highest priority to laws and measures concerning progressive land
taxation, rationalized land use, continuing budgetary allocation for agrarian reform, and
other pertinent reforms to ensure that the goals of this act are realized.

Section 3. Definition.

(a) Agricultural activity - refers to the cultivation of the soil, planting of
crops, growing of fruit trees, including but not limited to land preparation,
seeding, planting, cultivation, harvesting, bagging and other activities and
Practices performed in conjunction with farming operations.

(b) Agricultural land refers to lands devoted to or suitable for the
cultivation of the soil, planting of crops, growing of fruit trees, raising of
livestock, poultry, fish or aqua-culture production, including the harvesting
of such farm products, and other farm activities and Practices performed in

conjunction with such farming operations done by persons whether natural
or juridical;


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Section 4. Coverage. - This Act shall apply to the following categories of
agricultural lands devoted to agricultural activity, taking into account the pertinent
provisions of agrarian reform laws and other related laws particularly the prohibitions on
sale, transfer, or conveyance of agricultural lands:

4.1 Lands with agricultural lessees, whether or not it has been the subject of
the landowner’s prior exercise of retention rights granted by law, without
Prejudice to the rights of the agricultural lessee;

4.2 Lands covered and fully paid under the CARP and past the 10-year
prohibition period;

4.3 _ Lands covered by homestead grants and free-patents;

4.4 Lands covered by the CARP but not yet fully paid and are either within or
past the 10-year prohibition period;

4.5 Lands covered and fully paid under the CARP but still within the 10-year
prohibition period.

Section 5. Acceptability of Loan Collateral and Guarantee. - N\\ agricultural
lands enumerated under Section 4 of this Act shall be accepted as, collateral by any
formal lending institution, whether bank or non-bank financial institution, to secure loans
of the registered owners as appearing in the Certificate of Land Ownership Award,
Emancipation Patent, Homestead Patent, Free Patent, Original Certificate of Title or
Transfer Certificate of Title. Likewise, expected harvests of farmer-lessees as appearing
in the registered agricultural leasehold contract shall be accepted as collateral by formal
financial institutions to secure loans of the same. Farmer-beneficiaries who own
agricultural lands under Sections 4.4-4.5 may avail of production loans using the
guarantee scheme provided for under this Act.

Section 6. Use of Loan Proceeds, - The proceeds of loans that may be
granted under this Act shall be used solely to finance any agricultural activities such as
Production, processing, storage and post-harvest facilities, shallow tube well and pump
irrigation, distribution and marketing of agricultural products, and other related
agricultural activities on the land being used as collateral, or in the case of farmer-
lessees, on the land subject of the leasehold contract. Lands enumerated under 4.4 and
4.5, cannot be used as security or collateral for any obligation except the obligation to
pay for the land acquisition cost of the government or any other amount that may be
owed to the government resulting from the availment of production loans.

Section 7, Land Bank Authorization of the Loan and Additional
Requirements. ~ For partially paid and unpaid lands used as collateral under this Act,
all loans that are to be granted by lending institutions are deemed to be with
authorization and consent of the Land Bank of the Philippines (LBP) and the Department
of Agrarian Reform (DAR) subordinated to any or all prior encumbrance existing in favor
of the LBP,

The consent of the co-owners, in the,case of co-owned lands, and the ratification
of the majority of the members, in the case of cooperative-owned lands, shall likewise be
obtained without prejudice to the submission of standard documentary requirements of
banks and other formal lending institutions for the processing of loans as provided by
pertinent banking laws, rules and regulations.

Section 8. Valuation. -_ In order to assist bank and non-bank financial
institutions to be fully aware of the land valuation formula under the agrarian reform
program, the DAR.and LBP shall undertake measures to disseminate the said valuation
formula and provide technical assistance to bank and non-bank financial institutions such


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that they may be able to evaluate the value of lands under Section 4 offered as security
by borrowers.

Section 9. Access to Guarantee. ~ Farmer-beneficiaries who are owners of
encumbered or non-transferable lands classified under Sub-Sections 4.4 and 4.5 and
farmer-lessees shall be provided a credit guarantee by the Quedan and Rural Credit
Guarantee Corporation (QUEDANCOR): Provided, That the guarantee cover shall not
exceed EIGHTY PERCENT (80%) of the principal amount of the loan: Provided, further,
That the principal amount of the loan shall not exceed the amount determined by the
QUEDANCOR and the Department of Agriculture (DA) based on the agricultural activity
and locality in which such is proposed: Provided, furthermore, That credit guarantees
shall be subject to prior approval by the QUEDANCOR: Provided, finally, That for all loans
guaranteed by QUEDANCOR pursuant to this Act, the principle of excussion under Article
2058 and pertinent provisions of the New Civil Code shall not apply.

Section 10. Event of Default and Foreclosure of Mortgage. - In the event
of default of the borrower under this Act, the bank and non-bank financial institutions
may proceed against the security of the loan in accordance with existing laws and subject,
to the provisions of this Act: Provided, That in the case of encumbered and non-
transferable lands classified under Sub-Sections 4.4 and 4.5, the bank and non-bank
financial institutions shall be paid the guarantee only after assigning the loan receivables
to the QUEDANCOR after which the QUEDANCOR shall assign the loan. receivables to the
LBP: Provided, further, That QUEDANCOR shall be paid the amount of the claim paid to
the banks upon redemption: Provided, furthermore, That if the farmer-beneficiary has
not yet fully paid the amortization of the land awarded to him under the CARP, the
agricultural productivity loan shall be added to the total loans owed by the beneficiary to
the government: Provided, finally, That in case the farmer-beneficiary, availing of the
loan with guarantee owns land classified under Sec. 4.4, the agricultural productivity
loan and the guarantee thereon shall be granted on the basis of pertinent eligibility
criteria but not including the use of the awarded land as security or collateral thereto.

Creditors of farmer-lessees shall be paid by the guarantee provided by the
QUEDANCOR. For this purpose, “farmer-lessees shall execute a waiver on their claim on
the expected harvests from the land they till in favor of the QUEDANCOR: Provided, That
such waiver shall not include more than seventy-five per centum (75%) of the expected
harvests from the land subject of the leasehold contract.

The LBP and the DAR shall provide for an appropriate mechanism to ensure that
loan due the government are paid taking into account the objectives of making all
agricultural lands productive.

Foreclosure of mortgages constituted over unencumbered and transferable lands
categorized under Sub-Sections 4.1, 4.2, and 4.3 shall be governed by existing laws
subject to Section 71, 72(b) and 73-A of the Comprehensive Agrarian Reform Law:
Provided, That private lenders may not bid in the auction nor acquire title to the
agricultural land unless they have complied with Section 11 of this Act.

LBP foreclosure of mortgages constituted over encumbered and non-transferable
lands categorized under Sub-Sections 4.4 and 45 shall be in accordance with Section 26,
paragraph two (2) and Section 37, paragraph four (4) of Republic Act (R.A.) No. 6657.
Provided, That foreclosure of lands categorized under Sub-Section 4.5 shall be in
accordance with the terms and conditions to be determined by the LBP and the DAR.

For mortgages of expected harvests of farmer-lessees, the QUEDANCOR shall
impose the waiver executed by him/her under this Act and claim all or a portion of the

actual harvests until such time thatthe outstanding debt ofthe fermer-lessee shall have
een paid.


Section 11. Bidders in Auctions of Agricultural Land. - In all cases of
foreclosure of mortgages constituted over lands described in Section 4 and Sub-sections
4.1, 4.2, and 4.3, of this Act, whether by the LBP or any other bank and non-bank
financial institutions, no bidder in the auction shall be allowed to bid nor shall the
agricultural land be sold to any person not qualified to own agricultural land as
determined by the DAR in accordance with Sections 6 and 70 of R.A. No. 6657.

Section 12. Exercise of Redemption Right. - In case the landholding is sold
to a third person through public auction for failure of the borrower to pay the loan, the
owner or agrarian reform beneficiary shall have the right to redeem the same at a
reasonable price and consideration including interest thereon: Provided, That the entire
landholding must be redeemed: Provided, further, That if there are more than one
redemptionist owner or agrarian reform beneficiary, each shall be entitled to the said right
of redemption only to the extent of the area actually cultivated by him or can afford to
pay but not exceeding the three (3) hectares award limit. The right of redemption under
this section may be exercised within one (1) year from the date of registration of the sale,
and shall have priority over any other right of legal redemption.

Section 13. Monitoring of Loan Proceeds. - The DAR and the DA shall be
primarily responsible for the monitoring of the utilization of loan proceeds of borrowers
under this Act: Provided, That bank and non-bank financial institutions shall provide semi-
annual reports to the Bangko Sentral ng Pilipinas (BSP), furnishing copies to DAR, DA-
Agricultural Credit Policy Council (ACPC) and QUEDANCOR on the status of the loans as
well as issues affecting the implementation of the project for the latter to submit policy
corrective actions and/or recommendations: Provided, further, That QUEDANCOR shall
likewise provide quarterly reports to the BSP, DAR and DA on the status of the
implementation of the guarantee coverage under this Act.

Section 14. Guarantee Fund. - There is hereby created a Guarantee Fund
for agricultural and agrarian borrowers with an amount of at least Five Billion Pesos
(P5,000,000,000.00) which shall be managed and administered by the QUEDANCOR. An
initial amount of one billion pesos (P 1,000,000,000.00) shall be sourced from fifty
percent (50%) of the total furiding allocation of the Comprehensive Agrarian Reform
Program-Credit Guarantee Fund for Agricultural Landowners (CARP-CGFAL), proceeds of
the sales of the Assets Privatization Trust (APT), receipts from assets recovered by the
Presidential Commission on Good Government (PCGG), and a portion of the twenty-five
Percent (25%) allocation for support services under Sec. 36 of R.A. No. 6657. OF THE
TOTAL GUARANTEE FUND, ONE BILLION FIVE HUNDRED MILLION PESOS
(P1,500,000,000) SHALL BE SOURCED AND INCLUDED IN THE ANNUAL GENERAL
APPROPRIATIONS ACT. Other sources of funding or appropriations shall include the
following:

1. Proceeds of the Agri-Agra Reform Bonds to be issued by the Department of
Finance (DOF) and guaranteed by the Republic of the Philippines: Provided,
That the DOF, in coordination with the DAR, may increase or decrease the
amount of Guarantee Fund in accordance with the total level of utility and
demand for credit: Provided, further, That one percent (1%) of the total
loanable funds of all public and private banking institutions under the ten
percent (10%) agrarian reform credit in Section 3 of Presidential Decree (P.D.)
No. 717 (Agri-Agra Law) shall be invested exclusively, without any alternative
mode of compliance, for the purchase of the Agri-Agra Reform Bonds:
Provided, furthermore, That the DOF shall determine and fix the features of
the Agri-Agra Reform Bonds competitive with existing bonds and securities in
domestic market circulation: Provided, finally, That the BSP shall draft the

incentive program to encourage all public and private banking institutions to
purchase such bonds; and

2. Other government funds not otherwise appropriated.


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All funds appropriated to implement the provisions of this Act shall be considered
continuing appropriations during the period of its implementation.

Farmer-beneficiaries who desire to mortgage their lands through their
cooperatives or associations shall set-up a buffer fund solely intended to guarantee the
loans secured by the farmer-beneficiary. The cooperative or association shall set aside an
amount equivalent to at least five percent (5%) of the loaned amount and retain an
amount equivalent to at least ten percent (10%) of the annual net earnings of the farmer-
beneficiaries from his land in subsequent harvests until such time that the loan is fully
paid, as build-up capital of the buffer fund.

To further strengthen recovery of loans, non-cooperative farmer-borrowers living
in the same locality, will be encouraged to form or join a small group of farmer-borrowers
and guarantee each other following the successful credit models like the Self-Reliant
Team (SRT) of QUEDANCOR and the micro-finance scheme.

Section 15. Capacity Building and Feasibility Studies Fund. - The DAR,
the DA and the LBP shall provide technical assistance in capacity building and the
preparation of feasibility studies or investment studies as may be required by the
concerned banking or lending institution. For this purpose, there is hereby created a
capacity building and feasibility studies fund to support the training preparation of
feasibility studies and related capacity building activities of agricultural borrowers. The
Presidential Agrarian Reform Council (PARC) is hereby directed to set aside Three
Hundred Million Pesos (P300,000,000.00) from the Agrarian Reform Fund (ARF) in the
initial year of implementation of the law. Succeeding fund requirements shall be included
in the annual General Appropriations Act. The DAR and the LBP are hereby directed to
implement measures to generate additional funds for this purpose. The DAR shall draft
the rules and regulations of the utilization of the Fund.

Section 16. Compliance with the Agri-Agra Law (P.D. No. 717) and Other
Incentives. - The purchase of QUEDANCOR Agri-Agra Reform Bonds and loans granted
under this Act shall form part of compliance with the Agri-Agra Law (P.D. No. 717) by the
lending institution. ;

Any transaction of sale, transfer or conveyance of lands under this Act shall be
exempt from the payment of capital gains tax, registration fees, and all other taxes and
fees for the conveyance or transfer as provided for under Sections 66 and 67 of R.A. No.
6657.

Section 17. Simplification of Loan Procedures. ~ In order to expedite and
help facilitate timely access of farmers, agrarian reform beneficiaries and their
cooperatives to formal credit, the DAR, LBP, DA and QUEDANCOR, in consultation with
concerned government agencies, farmers, cooperatives and the banking sectors, shall
formulate, within ninety (90) days after the approval of this Act, a simplified, efficient and
practicable mechanics for processing and approving loan applications which would
demand only the necessary and most indispensable requirements from the loan applicant.

Section 18. Penalties. - For lands already covered under R.A. No. 6657, P.D.
No. 27 or related agrarian reform laws, violations and other prohibited acts contrary to
the exclusivity of loan purpose as defined under Section 6 hereof, such as misuse or
diversion of financial and support services extended to agrarian reform beneficiaries or a
deviation by the borrower in the use of loan proceeds, shall result in the cancellation of
EPs/CLOAs or perpetual disqualification to be agrarian reform beneficiaries, or both.

The DAR shall be responsible for monitoring compliance of the provisions under
Sections 6 and 13 of this Act, and shall initiate the necessary action against those who
violate the provisions thereof: Provided, That if the offender is a public official or
employee found to be in collusion to defraud the farmer, bank and other financial
institution, or the government, the penalty shall be imprisonment of prision mayor with


absolute disqualification as accessory penalty and a fine of not more than double the
amount of fraud but not less than One Hundred Thousand Pesos (P100,000.00):
Provided, further, That if the offender is a juridical person the penalty shall be imposed on
the responsible officers thereof.

Section 19. Implementing Rules and Regulations (IRR). - The DAR, DA,
DOF and LBP, in consultation with concerned government agencies, farmers, cooperatives
and the banking sectors, shall formulate the implementing rules and regulations of this
Act within ninety (90) days after its approval. Such rules and regulations shall take effect
fifteen (15) days after the publication in a newspaper of general circulation in the
Philippines.

Section 20. Repealing Clause. - All existing laws, Executive Orders, issuances,
rules and regulations, or part thereof inconsistent with the provisions of this Act are
hereby repealed or modified accordingly. Nothing in this Act shall be construed to amend
existing policies, rules and regulations on collateral-free loans or loans using social
collateral to small farmers and other marginalized sectors by government financial
institutions and other institutions engaged in micro-finance activities,

Section 21. Separability Clause. - In the event any of the provision of this Act
is declared unconstitutional, the validity of the other provisions shall not be affected by
said declaration.

Section 22. Effectivity Clause. - This Act shall take effect immediately after
publication in the Official Gazette or in at least two (2) national newspaper of general
circulation.

Approved.