Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS:

Regular Session

House Bill No_ 2866

Introduced by REP. JOSEPHINE RAMIREZ SATO.

EXPLANATORY NOTE
Background

During a meeting initiated by the National Grains Authority (NGA now NEA) and the
Central Bank of the Philippines (now BSP) with private banks in 1978, a consensus
was reached whereby government will come up with a guarantee mechanism which
shall mitigate the banks’ risks in connection with the former's proposition that the
banks provide additional procurement capital to rice millers, warehousemen and
traders. The banks were assured that loans granted to grains businessmen would be
deemed as compliance with the Agri-Agra Law (later repealed by the Agrarian Credit
Reform Act) which mandated banking institutions to set aside 25% of their loanable
funds for agricultural credit.

The proposal was the offshoot of bumper harvests in recent years, This enabled the
country to attain self sufficiency in rice in 1976 and enter the export market the
following year. The grains business sector however, which absorbed 80% of market
directed produce, could not efficiently procure surplus production due to inadequate
procurement capital, On the other hand, NGA intervention in the market was limited
to 10% which was calculated to stabilize the price of the commodity in the market
Thus to sustain the gains in rice production, the absorptive capacity of the grains
businessmen had to be enhanced through the financial assistance of the private
banks.

The lending scheme designed to provide additional capital to grains businessmen
was the Grains Quedan Financing Program (GQFP). This was conceptualized when
the government established a Guarantee Fund and created the Quedan Guarantee
Fund Board (QGFB, predecessor of Quedancor) to administer the Fund. The
program revolved around the quedan or negotiable warehouse receipt which
represented palay stocks deposited in franchised bonded warehouses, To entice the
active participation of the banks, the Program provided the following incentives


1. Quedancor guarantees the existence of palay stocks pledged by
businessmen to banks through quedans. In the event of default and the
pledged stocks are non-existent, Quedancor shall pay the lending bank its
obligation including interests and penalties up to loan maturity, (This was
later strengthened with sovereign guarantee when the QGFB was
reconstituted into Quedancor through RA 7393)

2. The NFA guarantees that in case of loan maturity but the pledged stocks
could not be disposed due to unfavorable prices in the market, the grains
agency shall purchase the volume of stocks necessary to settle the loan.

3, Loans granted under the Program were deemed as compliance with the
Agri-Agra Law (PD 717)

4. Lending banks may rediscount quedan loans with the Central Bank.

5. Quedancor shoulders the administrative costs of program promotion, client
prospecting, credit and background investigation, collateral appraisal,
account monitoring and trouble shooting of accounts. However, it was the
sole prerogative of the banks to approve loans,

The Program was implemented through the following steps

1. Grains businessmen secure Special Franchise from NFA (now from
Quedancor). This authorizes franchised bonded warehousemen to issue
negotiable warehouse receipts or quedans to third party depositors or for
their own stocks.

2. Accredited lending banks grant loans to grains businessmen who pledge
their quedans representing palay stocks deposited in franchised bonded
warehouses,

3. Quedancor issues guarantees to lending banks which grant loans to grains
businessmen.

Due to its success in its limited implementation to palay and in response to the
persistent clamor by other sectors of the food industry for coverage, the Program
was eventually expanded to include corn and other grains substitutes such as
sorghum, soybeans, peanuts and food commodities recommended by NFA and the
Food Terminal Inc. (FTI)

When QGFB was reorganized into Quedancor in 1992, one of its priority mandates
was the establishment of a credit support mechanism for the benefit of farmers,
fishermen, rural workers, cooperatives, retailers, wholesalers and primary
processors of agricultural and aquatic commodities. Credit support mechanism was
in the form of assistance in client prospecting, credit evaluation, collateral appraisal,
co-financing arrangement, co-guarantee and other similar incentives for rural


borrowers and lending institutions. Another concern was financing support to
agrarian reform beneficiaries and their cooperatives for their production inputs and
labor costs and their acquisition of farm equipment and post-harvest facilities.

Performance Highlights

Loan and Guarantee Releases

(in P Million)
Sole | Guaranteed| Special
Year | Guarantee) "Go." Window | el EASES | enatciaies
Mode

1978-19683 | “oie | : fl _ =
_ eee! 11,535.48 679.27| _393.32| 12,608.06] _ 2,269,618
QGFBTOTAL | 42,153.82 679.27| __303.32| 13,226.40| 2,801,639
| A6R2 2000 8.635.80| _1,800.34| _2,157.01| 12,593.15| _1,379,799 |
2001-2007 | 2,333.40 | 1,96 | 18,638.53 _20,974.39| 1,170,014
QREGC"-TOTAL | 40,969.70 _1,802.30| 20,795.54 | 33,567.54 | _2849.813
2008 - 2013 131.87 643| _65275| _791.10| __33,200
GRAND TOTAL 23,255.39 2488.05 | oye41e4 | 47:585.04| 5,084,652

*QGFB - Quedan Guarantee Fund Board

**QRCGC — - Quedan & Rural Credit Guarantee Corp.

From 1978 up to 1991, the erstwhile QGFB with its initial guarantee fund of P95M
generated P12.15B through the sole guarantee mode. All the beneficiaries were
grains and other food businessmen including farmer-cooperatives who pledged their
stocks through quedans. In 1984, QGFB was authorized to undertake joint financing
with partner banks and to pursue financing on its own using its retained earings.

Under the co-financing mode, QGFB and partner banks financed market retailer
loans on a 50/50 basis with 100% guarantee cover on the banks’ exposure. Income
from this arrangement was equally shared between the partners. Total loans
released from 1984-1991 amounted to P679.27M. QGFB implemented special
lending only in areas where the services of banks were not available. Over the same



period, cumulative loans granted reached P393.32M. The aggregate loan generation
under the three lending modes was P13.22B. In sum, this much of capital was
channeled from the urban centers to the rural areas benefiting about 2,501,639
farmers, grains businessmen and food market retailers.

On the other hand, total guarantee claims paid to banks amounted to P147M, The
bulk of guarantee calls was caused by the El Nino phenomenon which hit the country
in 1987 and adversely affected the agriculture industry. When QGFB was
reconstituted into Quedancor in 1992, its net assets amounted to P164M, And all
through these years, it never received any budgetary support from the national
government since operating expenses were defrayed from incomes from operations
and investments.

‘As Quedancor, the Corporation received equity infusion of over P400M from the
national government released over an 8-year period (1992-2000). Total loans
generated for the period was P12.59B with P8.63B, P1.80B and P2.15B released
through the guarantee, co-financing and special lending modes. The number of
direct and indirect beneficiaries was placed at 1,379,799

Guarantee calls again peaked towards the end of the 1990s as a result of the
worldwide economic meltdown that started in 1997. Many businessmen-borrowers
defaulted on their loans while a number of partner banks in the rural areas folded.
These developments substantially reduced the guarantee funds of the Corporation.
But amidst these adversities, Quedancor’s credibility as a reliable facilitator and
guarantor remained intact

Bank Support

Under its guarantee and co-financing programs, accredited partner banks in the
1990s numbered 256 consisting of 170 rural banks, 37 commercial banks, 17 stock
savings banks, 14 universal banks, 12 thrift/savings/mortgage banks, 4 foreign
banks and 2 specialized government banks. Since then, many banks did not renew
their accreditation due to closures, mergers while some simply shied away when the
Corporation undertook direct lending as its priority thrust beginning in 2001

Focus on Direct Lending and Resulting Impact

Starting in 2001, under a new national leadership and a new management team at
its helm, Quedancor ventured heavily into direct lending on production loans. In
pursuit of this undertaking, the Corporation resorted to borrowings from the capital
market. Further, it opened additional provincial offices and created support
departments/divisions at the head office and hired additional personnel to man these
offices, Over a period of 6 years (2001-2007), total loan releases reached P20.97B
with direct lending accounting for P18.63B with only P2.33B for guaranteed loans
Only P1.96M was released through co-financing


The high costs of borrowed funds and maintenance of personnel and services as
well as the low collection performance on direct loans compromised the financial
viability of the Corporation. Quedancor defaulted on its loan obligations with its
creditor banks. By the end of 2006, the Corporation posted a net lost of P23M.

Later Developments

In August of 2008, the Corporation upon instructions of its governing board ceased
its direct lending activities. In June 2012, the Board also directed management to
discontinue reviving the co-financing program for food market retailers. The only
program allowed for implementation was the guarantee program. However, the vital
factors necessary to successfully implement the guarantee program were not in
place hence the difficulty to make headway. The only activity which has kept the
Corporation afloat since 2007 is the collection of trade receivables and disposal of
acquired assets. The yearly collections, however, continued to decline as current
accounts are settled while the more saleable acquired assets have been disposed,

For their part, the employees of Quedancor have worked tirelessly and even sought
ways to help rehabilitate the Corporation. They crafted a rehabilitation plan that
unfortunately was left unappreciated. They opposed the RAT PLAN which was
approved in 2010 by elevating their grievances to the courts. But despite court
rulings in their favor, their ranks have been methodically decimated leaving only a
few to continue the struggle.

The House of Representatives Committee on Agriculture rejected the proposal to
deactivate Quedancor in 2008. The legislators held that the Corporation had
substantial trade receivables and decided to give the corporation more time for
rehabilitation. Many among the legislators were aware that their constituents were
beneficiaries of the credit and guarantee programs implemented by Quedancor.

Since then, however, the long sought and prayed for rehabilitation remained elusive
Yet Quedancor has managed to survive, albeit barely, amidst daunting challenges
indicating an inner strength deserving a second look. Thus Congress must do its part
and pass measures to nurture the corporation back to recovery and productivity.

Desired Action

For starters, Quedancor’s present authorized capital stock of P2B must be increased
to P20B. This is because while the P'1.2B share of the national government is almost
fully capitalized, only a small portion is intact due to the settlement of guarantee
claims. The equity balance of the national government is only P190M which has yet
to be released by DBM. On the other hand, available guarantee fund with Quedancor
is P300M, an insignificant amount considering that the estimated credit requirements
just for rice, corn, high value crops, fisheries and livestock production for year 2014
is over P400B and the figure is projected to increase every year.


Without a doubt, a significant increase in the guarantee fund of the Corporation will
rekindle the interest and active participation of the banks in extending credit to
agriculture. After all, the banking sector is mandated under the Agrarian Credit
Reform Act (whichiivepeatad.the Agri-Agra Law) to set aside 25% of their loanable
funds for agricultural credit. IN'2007, the reported value of the 25% was equivalent to
P1.8T. In other words, the lending institutions do have the financial muscle to finance
the credit needs of agriculture provided that the risks inherent to agricultural lending
are mitigated by guarantee cover. Loans covered by the guarantees of Quedancor
and investments of banks in the capital stock of the Corporation are likewise
considered compliance with the Law.

As discussed earlier, guarantee funds are vulnerable to man made as well as natural
calamities such as the El Nino phenomenon in 1987 and the economic meltdown in
1997. Borrowers affected by calamities inevitably default on their loans resulting in
guarantee claims thareby depleting guarantee funds. Thus it is necessary to sustain
the guarantee fund with yearly replenishment from the GAA, On the other hand,
collections or recoveries from defaulting accounts shall be remitted to the National
Treasury.

The Corporation is authorized by its charfer to fix interest and penalties for
delinquent accounts. For purposes of effective collection and to ease the burden on
delinquent “borrowers affected by circumstances beyond their control, the
Corporation must now be explicitly empawered to condone surcharges, penalties
and interests under meritorious reasons. This will enable borrowers, specially the
farmers, to regain their status of good standing with the lending banks

It is also about time that the corporate’ name of Quedan and Rural Credit Guarantee
Corporation be ‘changed ‘to “Agricultural Credit and Guarantee Corporation or
AGRICOR for short, The new name is more descriptive of Quedancor’s functions
and would give a fresh start for the Corporation.

‘These are the major points of the proposal to amend the Charter of Quedancor or
Republic Act No. 7393 in order to revitalize the corporation, keep it abreast with
developments and make it more responsive to the credit needs of agriculture today
and thie coming years.” .

Itis on this note that we earnestly seek your support and approval

JOSEPHIN AMR
Long/bistridf, Proving
Occidental Mindoro



Republic of the Philippines
Congress of the Philippines
Quezon City

Sixteenth Congress

House Bill No. 2866

Introduced by REP. JOSEPHINE RAMIREZ SATO

AN ACT REORGANIZING QUEDAN AND RURAL CREDIT GUARANTEE CORPORATION (QUEDANCOR),
RENAMING IT AS AGRICULTURAL CREDIT AND GUARANTEE CORPORATION (AGRICOR), BROADENING
ITS POWERS AND RESOURCES TO MAKE IT MORE RESPONSIVE TO THE CREDIT NEEDS OF FARMERS
AND RURAL ENTERPRISES, AND FOR OTHER PURPOSES

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

SECTION 1. Sec, 1 of Republic Act No. 7393 is hereby amended to read as follows:

“Sec.1, — This Act shall be known as the Agricultural Credit and Guarantee
Corporation (AGRICOR) Act.”

SECTION 2. Sec, 3(a) of Republic Act No. 7393 is hereby amended to read as follows

“Sec. 3(a) ‘Corporation’ — The Agricultural Credit and Guarantee
Corporation.”

SECTION 3. Sec. 4 of Republic Act No. 7393 is hereby amended to read as follows:

“Sec. 4. Reorganization.- The Quedan and Rural Credit Guarantee
Corporation is hereby reorganized in accordance with the provisions of this Act,
renamed as the Agricultural Credit and Guarantee Corporation and hereafter
referred to as the Corporation. The Corporation is hereby attached to the
Department of Agriculture pursuant to Administrative Order No. 59 (1988), but
subject to the regulatory powers of the Securities and Exchange Commission
insofar as allowed under Sections 9, 10 and 13 hereof.”

SECTION 4. There shall be three (3) subsections for Sec. 7 of Republic Act No. 7393
to read as follows

“Sec. 7 (a) Authorized Capital Stock. ~ The authorized capital stock of the
Corporation shall be Twenty billion pesos (P20,000,000,000.00) to be divided
into twenty billion common and voting shares, with the par value of One peso
(P1.00) per share, sixty percent (60%) thereof to be subscribed solely by the


National Government and/or government-owned or -controlled corporations and
forty percent (40%) thereof solely by smalll farmers, fisherfolk, their cooperatives
and other private investors: Provided, however, That the shares of the National
Government and government-owned or -controlled corporations may be sold to
one another but not to private investors.

Sec. 7 (b) Initial Budgetary Appropriations. — Pending subscription in the
capital stocks by the National Government to the Corporation, the
Department of Budget and Management (DBM) is hereby directed to set
aside an initial appropriations of Two Billion pesos (P2,000,000,000.00)
representing payment to be incurred for Personal Services (PS) and
Maintenance and Other Operating Expenses (MOOE) for the Corporation;
Provided that once the necessary funds come in and the Corporation
realizes income therefrom, the DBM shall be reimbursed for the purpose,
afterwhich it shall operate on a self-liquidating basis in the succeeding
years.

Sec. 7 (c) Government to Restore Capital Impairment. - The DBM shall
appropriate in the Annual General Appropriations Act the amount incurred
by the Corporation during the previous year representing guarantee calls
by participating lending banks to ensure fund availability and thus sustain
the integrity of the guarantee system. In turn, recoveries on paid guarantee
claims from defaulting borrowers shall be remitted to the National
Treasury.”

SECTION 65. Sec. 8 of Republic Act No. 7393 is hereby amended to read as follows:

“Sec. 8. Subscription by National Government. - Upon the effectivity of this Act,
the National Government shall be deemed to have subscribed to such number of
shares of the Corporation equivalent in par value to, and considered paid for by,
the net assets of the Quedan and Rural Credit Guarantee Corporation
(Quedancor), as determined and certified by the Commission on Audit within
three (3) months from the effectivity hereof.“

x x x

SECTION 6. Sec. 11(f) of Republic Act No. 7393 is hereby amended to read as follows:

“Sec. 11(f). Prescribe fees and charges for the Corporation's services; fix
interest; enforce penalties and other charges ; condone the same for
meritorious reasons as may be provided by law; and impose fines and
sanctions for violations of its rules and regulations”



SECTION 7. Sec. 12 of Republic Act No, 7393 is hereby amended to read as follows:

“SEC. 12. Governing Board. - The affairs and business of the Corporation shall
be directed, its properties managed and preserved, and its corporate powers
exercised, unless otherwise provided in this Act, by a Governing Board
consisting of fifteen (15) members composed initially of the following: the
Secretary of Agriculture, the Secretary of Agrarian Reform, the Secretary of
Budget and Management, the Governor of the Bangko Sentral ng Pilipinas,
the Chairman of the Cooperative Development Authority, the President of Land
Bank of the Philippines, the President of the Development Bank of the
Philippines, the top three private investors, and three (3) other
representations from the cooperatives, local government units and rural
financial institutions to be endorsed by nationally organized associations
and approved by members of the Governing Board. Said representatives shall
serve for a term of one (1) year. Members of the Governing Board who would
proportionately represent the private investments in the Corporation shall be

decided upon by the initial members of the Governing Board.

The Secretary of Agriculture who shall be permanent ex officio chairman,
shall preside over the meetings of the Governing Board where aside from
voting regularly he shall vote to break a tie. He shall likewise preside over

the stockholders' meetings.

The Board shall have a Vice-Chairman who shall be elected from among its
members and who shall assist the Chairman and act in his stead in case of
the latter's absence or incapacity. In case of incapacity or absence of both
the Chairman and Vice-Chairman, the Governing Board shall designate a

temporary Chairman from among its members.”
xX xX xX

SECTION 8. Sec. 20 of Republic Act No. 7393 is hereby amended to read as follows:

“Sec. 20. Compliance with Agri-Agra Reform Credit Act (RA 10000). -
Investment by any banking institution in the authorized capital stock of the
Corporation by purchase of stocks, conversion of debts to equity and other
modes of stock acquisition shall be considered compliance with RA 10000 to
the extent of its equity holdings in the Corporation, Likewise, loans extended by
bank institutions to farmers, fishermen, cooperatives, rural workers and rural
enterprises covered by the guarantees of the Corporation shall be deemed as
compliance with RA 10000, Rediscounting by secondary banks of originating
banks’ loan receivables having the guarantee cover of the Corporation shall

likewise be deemed compliance with the same law.”


SECTION 9. There shall be two (2) subsections for Sec. 23 of Republic Act No. 7393 to
read as follows

“Sec. 23 (a) Investment by Other Government Entities.~ The Department of
Agriculture, the Department of Agrarian Reform, the Cooperative
Development Authority, the Land Bank of the Philippines (LBP), the
Development Bank of the Philippines (DBP), The Social Security System
(SSS), the Government Service Insurance System (GSIS) and the
Philippine Amusement and Gaming Corporation (PAGCOR) are hereby
ordered to invest in the amount of One Billion pesos (P1,000,000,000.00)
each in the capital stock of the Corporation in conformity with Sections 8, 10 and
12 hereof and may, in a trust, provide the Corporation with credit or guarantee
fund to service particular clients, cooperatives and rural aggrupations, as may be
specified by any of these institutions, in accordance with their respective
charters. Their respective Governing Boards, which are tasked to submit a
report to the Office of the President, are advised to convene on the
appropriate measures to be undertaken in order to ensure compliance
hereof within 30 days from approval of this Act.

Sec. 23 (b) The Secretary of the Department of Agriculture, in coordination
with the Land Bank of the Philippines, who exercises direction and
supervision over the Agricultural Guarantee Fund Pool (AGFP) thru a
Governing Board, is hereby directed to transfer said Fund, to the
Corporation within 30 days after signing of this Act.”

SECTION 10. Sec, 27 of Republic Act No. 7393 is hereby amended to read as follows:

“SEC. 27 a) Transitory Provisions.- Upon the effectivity of this Act, the
Governing Board shall immediately be constituted and convened. All incumbent
officers and employees of the Quedan and Rural Credit Guarantee
Corporation shall continue in office as personnel of the Corporation without
demotion in rank nor diminution in compensation and fringe benefits. The
incumbent President of the Quedan and Rural Credit Guarantee Corporation
shall be the President of the Corporation until a new President shall have been
elected by the Governing Board. The President shall, as soon as possible,
prepare and submit to the Governing Board such plans and programs which will
ensure harmonious and effective transitional activities towards the full operations
of the Corporation.

SECTION 11. Sec. 28 on the Authority to Expand Personnel Complement is hereby
amended to read as follows:

“SEC. 28. Authority to Adopt the Organization Structure and Staffing
Pattern (OSSP) Approved by the Department of Budget and Management
(DBM). ~ Notwithstanding the existence of Quedancor Rationalization Plan,


the Corporation shall reorganize and adopt the former’s CY 1994 OSSP in
order to achieve maximum efficiency and effectiveness in the delivery of its
mandated services.

However, officers and employees who have expressed their desire to retire
from government service but were prevailed upon due to circumstances
beyond their control, shall be entitled to the retirement package provided
for under EO No. 366 (s.2004), computed under EO No. 637 (s.2008), as
amended by EO No. 77 (s.2012), including the retirement benefit under RA
No. 660 or the applicable retirement/ separation/unemployment benefit
under RA No. 8291, provided that casual and contractual personnel
separated by Quedancor after 30 June 2012, but will opt to continue
serving the government, shall be paid backwages and allowances
including benefits withheld. In order to implement this provision, the DBM
is directed to immediately release ONE HUNDRED NINETY MILLION pesos
(P190,000,000.00, representing the unreleased portion of the National
Government's share to Quedancor pursuant to RA No. 7393, provided that
should this amount is insufficient to satisfy such expenditure, the same
shall be sourced from its corporate funds.

SECTION 12. Sec, 29 of Republic Act No, 7393 is hereby amended to read as follows:
“SEC, 29. Obligations and Liabilities. - All rights, claims and interests of the
Quedan and Rural Credit Guarantee Corporation, upon the effectivity of this

Act, shall be deemed transferred to the Corporation and all existing obligations
and liabilities of the former shall be assumed by the latter.”

Approved,