Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

‘THIRTEENTH CONGRESS
First Regular Session

279

House Bill No.

Introduced by HONORABLE JOSE C. DE VENECIA, JR.

EXPLANATORY NOTE

“The 1987 Constitution promotes comprehensive rural development through the Agrarian
Reform Program which was envisioned to improve the plight of farmers and their standard of
living. Pursuant to the Constitutional mandate, Republic Act No. 6657, known as the
“Comprehensive Agrarian Reform Law of 1988", aims for: a) a more equitable distribution of
income, opportunities and wealth; b) a sustainable economic growth; and ¢) an expanding
agricultural productivity as key to improve the quality of life for all, especially the
underprivileged

Thirteen years after the passage of RA 657 and the launching of numerous programs,
projects, incentives and facilities for the realization of the objective of this Law, it has been
observed however, that holders of Certificate of Land Ownership Award have not been freed
from the bondage of poverty and dependence on government subsidies.

Financial institutions accept only Certificate of Land Titles as collateral for loans. The
Certificate of Land Ownership Awards given by the Department of Agrarian Reform to
amortizing farmers are proofs that they-are beneficiaries under the Comprehensive Agrarian
Reform Programs but are not yet Certificates of Land Titles. Financial institutions are reluctant
to grant beneficiaries of land the loanable amount needed for reasons that they are perceive as
risky borrowers.

This bill therefore, seeks to authorize financial institutions to accept Certificates of Land
ownership Award issued under the Comprehensive Agrarian Reform Program as collateral for
loans by amending Republic Act No.6657.

Since poverty incidence is higher in agriculture than any sector of the economy, farmers’
access to financial institutions will surely promote an increase in agricultural production, resulting

in increase of income vis-a-vis quality of life.

In view of the foregoing, immediate approval of this bill is enjoined.

JQSE C. DE VENECIA, JR.


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

THIRTEENTH CONGRESS
First Regular Session
279

House Bill No.

Introduced by HONORABLE JOSE C. DE VENECIA, JR.

AN ACT PROVIDING MEASURES TO ENHANCE THE ACCEPTABILITY
OF AGRICULTURAL LANDS AS SECURITY FOR LOANS OBTAINED FROM
LENDERS, BANKS AND OTHER FINANCIAL INSTITUTIONS THEREBY
PROMOTING ACCESS TO RURAL CREDIT, 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. Short Title. -This Act shall be known as the “Enhanced Collateral
Value of Farm Lands Act of 2004”.

SEC. 2. Declaration of Policy - It is hereby declared the policy of the State to
promote a more equitable distribution of opportunities, income and wealth; a sustained increase
in the amount of goods and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all, especially the
underprivileged. Towards this end, the State shall ensure that the agrarian reform beneficiaries
and other rural and agricultural sectors of the economy shall be given optimum opportunity to
develop in order to promote the welfare of the agriculture and rural population by increasing
their income. To maximize productivity, promote efficiency and equity, provide infrastructure
network and accelerate the modernization of the rural and agricultural sectors of the country,
ctedit shall be directed to the said sectors.

SEC. 3. Coverage. - This Act shall apply to the following categories of Agricultural
Lands devoted to agricultural activity as defined in Republic Act No. 6657 (Comprehensive
Agrarian Reform Law of 1988) as amended:

G.1) Lands not yet covered by any Agrarian Reform Program;

(3.2) Lands with agricultural lessees, whether or not it has been the subject of the
landowner’s priot exercise of Retention Rights granted by law, without prejudice
to the rights of the agricultural lessee;

G.3) Lands covered and fully paid under Presidential Dectee No. 27, or Republic Act
No. 6657 and beyond the 10-year prohibition period;



3.4) Lands covered by homestead grants and free patents;

3.5) Lands covered by Republic Act No. 6657 but not yet fully paid neither within nor
beyond the 10-year prohibition period; and

(3.6) Lands covered and fully paid under Republic Act No. 6657 but still within the
10-year prohibition period.

SEC. 4. Acceptability as Loan Collateral - All agricultural lands
enumerated under Section 3 of this Act shall be accepted as collateral by any lender, bank
and other financial institution to secure loans of the registered owners as appeating in the
Emancipation Patent, Homestead Patent, Free Patent, Certificate of Land Ownership
Award, Original Certificate of Title or Transfer Certificate of Title. The proceeds of the
Joan obtained herein shall be used exclusively for agricultural activity such as agricultural
production, land development, post-harvest facilities, shallow tube well and pump
irrigation, distribution and marketing, livelihood or related activities. When feasibility or
investment studies are required by the lender, bank or financial institution, the
Department of Agrarian Reform (DAR) and Department of Agriculture (DA) shall
provide technical assistance in the preparation of such documents.

SEC. 5. Land Bank Authorization of the Loan; Additional Requirements. -
For partially paid and unpaid lands, 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 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 lending institutions for the processing of loans as provided by pertinent
banking laws, rules and regulations.

SEC. 6. Valuation, - For those lands covered under Section 3, DAR and LBP
shall undertake measures to disseminate the valuation formula and provide technical
assistance to all other lending institutions, based on applicable laws, rules and regulations

SEC. 7 - Access to Guarantee. -  Farmer-Beneficiaries and owners of
encumbered or non-transferable lands classified under Sub-sections 3,4, 3.5 and 3.6 shall
be provided with credit guarantee by the Quedancor: Provided, finally, ‘That credit
guarantees shall be subject to prior approval by Quedancor.

SEC. 8. Event of Default and Foreclosure of Mortgage. - In the event of
default by the borrower under this Act, the lender, bank or financial institution may
proceed against the security for the loan in accordance with existing laws and subject to
the provisions of this Act: Provided, That in the case of encumbered or non-transferable
lands offered as security classified under Sub-sections 3.4, 3.5 and 3.6, the lender, bank
for financial institution shall be paid the guarantee only after assigning the mortgage
credit to Quedancor which in turn shall assign the same mortgage credit to LBP:
Provided, farther, That if the farmer-beneficiary has not yet fully paid the amortization
of the land awarded to him ot her under the Agrarian Reform Program, the agricultural



productivity loan shall be added to the total loans owed to the government. Provided,
finally, That in case the farmer-beneficiary has fully paid for the land awarded, the
agricultural productivity loan shall be secured by the awarded land.

Foreclosure of mortgages constituted over unencumbered and transferable lands
categorized under Sub-sections 3.1, 3.2, 3.3 and 3.4 shall be governed by existing laws
subject to Sections 71, 72(b) and 73-A of Republic Act No. 6657 as amended by
Republic Act No, 7881

LBP foreclosure of mortgages constituted over encumbered or non-transferable
lands categorized under Sub-sections 3.4, 3.5 and 3.6 shall be in accordance to Paragraph
Two (2) of Section 26 and Paragraph Four (4) of Section 27 of Republic Act No. 6657.
Provided, That foreclosure of lands categorized under Sub-section 3.6 shall be in
accordance to Section 27 of Republic Act No. 6657 with the terms and conditions to be
determined by LBP and DAR.

SEC. 9. Bidders in Auction Sale of Agricultural Land. - In all cases of
foreclosure of mortgages constituted over lands described in Section 3 of this Act,
whether by the LBP, bank, financial institution or any other lender, no person shall be
allowed to bid in the auction sale nor shall the agricultural land be sold to any person not
qualified to own agricultural lands as determined by DAR in accordance with Sections 6
and 70 of Republic Act No. 6657

SEC. 10, 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 theteon: Provided, That the entire
landholding must be redeemed: Provided, further, ‘That if there are more than one
redemptionist owner ot 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 3 hectares award limit. ‘The tight of redemption under this
section may be exercised within two (2) years from the date of registration of the sale,
and shall have priority over any other right of legal redemption.

SEC. 11. Monitoring of Loan and Bond Proceeds, - ‘The DAR shall be
responsible for the monitoring of the utilization of the loan proceeds of borrowers under
this Act Provided, That banks and financial institution 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 loan as
well as issues affecting the implementation of the agricultural activity project for the
latter government entities to submit policy corrective actions and/or recommendations:
Provided, further, That Quedancor shall provide quarterly reports on the status of the
utilization of bond proceeds to the Department of Finance (DOF) and BSP furnishing
copies to DAR and DA-ACPC.

SEC. 12. Guarantee Fund. - There is hereby created a Guarantee Fund for
agricultural and agrarian borrowers with the amount of at least Five billion pesos
(P5,000,000.00). The Fund which shall be managed and administered by the Quedan and
Rural Credit Guarantee Corporation (QUEDANCOR) shall be funded from the
Proceeds of the Agri-Agra Reform Bonds to be issued by the DOF and guaranteed by
the Republic of the Philippines: Provided, That the DOF in coordination with the


DAR may increase ot decrease the amount of Guaranted 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 No. 717 (Agsi-
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
Bangko Sentral ng Pilipians (BSP) shall draft the incentive program to encourage all
public and private banking institutions to purchase such bonds.

SEC. 13. Assistance for Capacity building and Feasibility Studies. - The
DAR and DA shall provide technical assistance in capacity building and preparation of
feasibility or investment studies as may be required by the lender, bank or financial
institution, For this purpose, the Executive Department shall increase the
appropriations for Capacity Building and Feasibility Studies under the Program
Beneficiaries Development Component of the Comprehensive Agrarian Reform
Program (CARP) to support the farmers in this Act, the additional funding of which shall
be included in the General Appropriations Act of the year following its enactment into
law and thereafter.

SEC. 14. Compliance with the Agri-Agra Law (Presidential Decree No.
717) and Other Incentives. - The purchase of Quedancot Agti-Agra Reform Bonds
and loans granted under this Act shall form part of the compliance with Agri-Agra Law
(Presidential Decree 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 ot transfer thereof as provided for under Sections 66 and 67 of
Republic Act No. 6657.

SEC. 15. Penalties - For lands which has been already covered under Republic
Act No. 6657, Presidential Decree no. 27 of related agrarian law, violations and other
prohibited acts contrary to the exclusivity of loan purpose as defined under Section 4
hereof, such as misuse or diversion of financial and support services extended to agrarian
reform beneficiaries ot a deviation by the mortgagor in the use of loan proceeds, shall
result in the cancellation of Emancipation Patents/Certification of Land Ownership
Awards (EPs/CLOAs) ot perpetual disqualification to be agratian reform beneficiaries,
ot both: Provided, That if the offender is a public official or employee found to be in
collusion to defraud the farmer, lender, bank and other financial institutions or the
government, the penalty shall be imprisonment or prion mayor with absolute
disqualification as accessory penalty and a fine of not mote 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.

Loans secured by lands that are not yet covered under Republic Act No. 6657,
Presidential Dectee No. 27 ot related agrarian reform law, shall be governed by existing
administrative and penal sanctions under the pertinent banking laws and rules and
regulations of the Bangko Sentral ng Pilipina (BSP).


SEC. 16. Transitory Provision. - An independent review of the ten (10) year
petiod of prohibition on the sale, transfer or conveyance of lands acquired by
beneficiaries under the agrarian reform program shall immediately be undertaken by the
Presidential Agrarian Reform Council (PARC) upon the effectivity of this Act to
determine and recommend changes and other measures to induce the participation of the
private sector in lending to beneficiaries of the agrarian reform program.

The recommendations of the review shall be given to the appropriate
congressional committees within one (1) year from the date of effectivity of this Act for
possible legislative actions and to the executive branch for policy and program changes
immediately after submission,

SEC. 17, Implementing Rules and Regulations (IRR). - The DAR, DA,
LBP, DOF, QUEDANCOR and Cooperative Development Authority (CDA) in
consultation with concemed government agencies, farmers, cooperatives and the banking
and financial institution 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.

SEC. 18. 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,

SEC. 19. Repealing Clause. - All existing laws, executive orders, issuance,
rules and regulations, or parts thereof inconsistent with the provisions of this Act shall be
construed to amend existing policies, rules and regulations on collateral-free loans to
small farmers and other marginalized sectors by government financial institutions and
other institutions engaged in micro-finance activities.

SEC. 20. Effectivity Clause, - This Act shall take effect immediately after
publication either in the Oficial Gazette or in at least two (2) national newspaper of
general circulation.

Approved,