UTH CONGRESS OF THE REPUBLIC ) 
‘04 JUL -6 
1711 :a6 
OF THE PHILIPPINES 
) 
First Regular Session 
) 
S. BILL NO. 
Introduced by Senator Ralph G. Recto 
EXPLANATORY NOTE 
Mandated credit programs (MCPs) are legislation imposed programs on financial 
institutions as a means of allocating financial resources to target sector beneficiaries with the 
view that potential social benefits can be derived from the administration of such progams. 
Presently, there are two (2) laws mandating banks to set aside a portion of their loan 
portfolio to specific sectors. Presidential Decree No. 717, otherwise known as the “Agri- 
Agra Law”, requites banks to allocate at least 25% of their net incremental loanable funds 
for agricultural credit, of which 10% is for agrarian reform and 15% for agriculture-related 
loans. Republic Act No. 6977, as amended by R.A. 8289 mandates all lending institutions to 
allocate 6% of their total loan portfolio, for credit to small enterprises and 2% for medium 
enterprises. 
The above-stated laws provide financial institutions forms of alternative compliance. 
The Agri-Agra Law for instance, allows banks, in the absence of qualified borrowers, to 
invest any portion of their credit allocation in government securities declared eligible by the 
Central Bank. It also allows banks to rediscount with the Centd Bank eligible papers 
covering agrarian reform credits. In 1994, loans to other sectors were included for purposes 
of determining compliance to the Agri-Agra Law. Similarly, the IRR of the Magna Carta for 
Small and Medium Enterprises allowed the use of the allocated funds for alternative modes 
of compliance such as investments in instruments offered by the Small Business Guarantee 
and Finance Corporation (SBGFC) and cash holdings and placements in “due from” 
accounts, provided these are free, unencumbered and not utilized or earmarked for other 
purposes. 
Data on compliance of banks with PD 717 reveal that as of Sept. 30,2003, the total 
banking system provided a total of P268.0’79 Billion in credit to the agricultural and agrarian 
reform sectors. This figure is 26.4% of the P1.014.899 Trillion in total loanable funds 
generated. This amount is lgher than the minimum required credit allocation of P 253.724 
Billion or 25% of the total loanable funds. However, P 87.664 BLUion of the P 268.0’79 
Billion were obtained through alternative compliance and 180.415 Billion or only 17.8% of 
the total loanable funds were extended through direct compliance. Interpretation of the data 
would reveal that banks have found alternative ways of complying with the law due to the 
expanded list of allowable finds considered as compliance. 
A study owthe impact of mandated credit programs on financial institutions* further 
reveal that those who follow the theory and practice of financial markets generally view 
MCPs as inefficient ways of allocating scarce financial resources to specifically targeted 
sectors. 
The bank& sector has also expressed the opinion that MCPs have been 
’ Felipe M. Medalla and Johnny Noe E. Ravalo 


ineffective in practice because they have so many built-in incentive problems resulting in 
high monitoring cost or mere compulsory compliance with legal requirements. 
It is in this light that this bill proposes to remove existing forms of alternative 
compliance for banks with mandated credit programs and allow market-determined forms of 
compliance without creating distortions in the credit market. 
Additionally, this bill 
proposes a gradual reduction in the percentage allocation of the credit fund to allow banks a 
discretionary allocation of its resources to target beneficiaries without limiting credit to the 
agricultural and agrarian reform sectors and to small and medium enterprises. 
In view of the foregoing, the passage of t h ~ s  bill 1s earnestly sought. 
MRC/SB 2193 MCP.doc 
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UT' CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
) 
First Regular Session 
) 
'04 JUL -G 
A11 :@6 
Introduced by Senator Ralph G. Recto 
AN ACT 
RATIONALIZING EXISTING MANDATED CREDIT PROGRAMS (MCPs) 
IMPOSED ON GOVERNMENT AND PRIVATE FINANCIAL INSTITUTIONS 
AND FOR OTHER PURPOSES 
Be it enacted by the Senate and the House of Rpresentatlves oftbe Pbzhppznes zn Congress assembled. 
SECTION 1. Short Title. This Act shall be known as the Midated Credit Program 
Rationalization Act of 2004. 
SEC. 2. Declaration ofPolicy. It is the policy of the state to promote countryside 
development through the delivery of adequate 'and realistic credit and financing support to 
beneficiaries irrespective of the sector to which they belong, allow private .and government 
financial institutions to extend discretionary credit programs to target beneficiaries and 
authorize market-determined forms of compliance without creating distortions in the credit 
market thereby rationalizing the credit and financing system in the country. 
SEC. 3. Reduction in the Percentage Allocation ofMandated Credit Prograins. 
All mandated credit programs (MCPs) imposed by legislation on private and government 
financial institutions shall be allowed a gradual reduction in the prescribed percentage 
allocation of the credit fund until the percentage allocation reaches zero, for a period of five 
years from the effectivity of this Act: Pmtided, That at the end of the five-year period, the 
hancial institutions concerned, in consultation with the Bangko Sentral ng Pilipinas and 
appropriate government agencies, may extend discretionary credit programs to target 
beneficiaries. 


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SEC. 4. Alternative Forms of Compliance. The alternative forms of compliance 
provided for financial institutions mandated to extend credit and financing support shall be 
limited to the following: 
(4 
Financial institutions that exceed the mandated percentages should be able 
to market their excess to institutions that fall short on the compliance 
requirement and 
Financial Institutions may directly float instruments in the primary market 
and use the proceeds on loans to the target markets. 
@) 
SEC. 5. Implementing Rules and Regulations. -Within ninety (90) days from the 
effectivity of this Act, the Bangko SenbaL ng Pih@eax shall formulate the necessary rules and 
regulations to implement the provisions of h s  Act. 
The rules and regulations issued 
pursuant to this section shall take effect fifteen (15) days after its publication in a newspaper 
of general circulation 
SEC. 6. Separability Clause. - If any provision of this Act is held unconstitutional or 
invalid, all other provisions not affected thereby shall remain valid. 
SEC. 7. Repealing Clause. -All laws, decrees, executive orders, d e s  and regulations 
or parts thereof, which aTe inconsistent with this Act, are hereby repealed, amended or 
modified accordingly. 
SEC. 8. EffecMty. - This Act shall take effect fifteen (15) days following its 
publication in the Official Gazette or in two (2) newspapers of general circulation. 
Appmved, 
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