Legal basis and funding framework
- The circular is issued pursuant to Republic Act No. 7368.
- Republic Act No. 7368 provides for the establishment of the Countrywide Industrialization Fund (CIF) as a source of financial assistance for countrywide industrialization projects.
- The CIF is funded through the national budget and supplemented from bilateral and multilateral sources.
- Republic Act No. 7368 authorizes appropriation of the fund for a period of five (5) years.
- The CIF supports lending to qualified proponents for projects that accelerate industrialization through manufacturing, processing, and related industries in every town and city, with project size described in relation to the circular’s rationale (not exceeding P30M and P40M for manufacturing and processing/related industries as stated in the rationale).
Policy objective for CIF use
- The CIF shall be used for projects and enterprises engaged in manufacturing, processing, and related industries that:
- add value to domestic resources and farm products;
- create employment and livelihood opportunities;
- enhance the well-being of rural areas;
- hasten the formation and integration of intra-provincial and regional trade and industry linkages; and
- sustain national economic growth.
Key definitions and defined entities
- The Countrywide Industrialization Fund (CIF) means the appropriations in the General Appropriations Act that serve as the source of financial assistance for countrywide industrialization projects (3.1).
- A Qualified Enterprise is an enterprise in manufacturing, processing, and related industries located in a municipality or city endorsed/approved by the Local Countrywide Industrialization Board (LCIB) of the respective municipality or city in accordance with criteria and guidelines under Section 7 and 9 of Republic Act No. 7368 and the Countrywide Industrialization Office-Management Board Implementing Rules and Regulations (3.2).
- Qualified Proponents are applicants/borrowers whose enterprise satisfies the seven (7) eligibility requirements described under Section 3.2 of this circular (3.3).
- A Conduit Bank is one of the following:
- Land Bank of the Philippines;
- Development Bank of the Philippines; or
- Philippine National Bank,
and is responsible, among others, for releasing the financial assistance to qualified proponents as authorized by the Countrywide Industrialization Office (CIO) (3.4).
- Value of Real Physical Assets means the assessed value of existing tangible assets of the project and assets to be acquired/constructed using proposed financial assistance, covering land, building and improvements, and machineries and equipment (3.5).
Who gets assistance and how much
- Financial assistance shall be awarded to a Qualified Enterprise in a total amount not exceeding eighty five percent (85%) of the value of real physical assets of the project (4.2).
- The total assistance must follow the maximum proportion to real physical assets as follows (4.2):
- ten percent (10%) as grants (maximum) for:
- pre-operating expenses;
- technical assistance;
- feasibility studies;
- post-production marketing assistance;
- training; and
- institution-building (4.2(a)).
- twenty percent (20%) as an investment in equity by the CIF in the enterprise, subject to:
- a stock purchase agreement within a ten-year period at book value;
- priority buyers being the project owners; and
- release in accordance with implementing rules and guidelines to be issued by DTI-CIO (4.2(b)).
- fifty five percent (55%) as soft or concessional loans (4.2(c)).
- ten percent (10%) as grants (maximum) for:
- The project sponsor must invest at least fifteen percent (15%) of the real assets of the project as equity (4.2).
Loan terms and limits
- Interest on soft or concessional loans shall not be more than:
- eleven percent (11%) per annum, or
- seven percent (7%) above the CIF’s or the National Government’s actual borrowing rate from bilateral or multilateral lenders,
whichever is lower (4.3).
Fund release and award mechanics
- Fund release to DTI-CIO shall be based on the list of projects duly approved by LCIBs/DTI-CIO (4.4).
- The financial assistance shall be released directly by the conduit bank to the qualified proponent after receiving written instruction from DTI-CIO (4.5).
- A grant agreement and/or loan contract shall be entered into between the beneficiary and DTI-CIO for each approved project (4.8).
Local approval, project endorsement, and DBM releases
- The LCIBs evaluate and approve or disapprove all project proposals for CIF financial assistance (5.1).
- If approved, the LCIB endorses the project to the Management Board (MB) through DTI-CIO for final approval and funding (5.1).
- After MB approval, DTI-CIO submits a Special Budget to DBM using the format shown in Annex “A” and pursuant to Section 35, Chapter V, Book VI, of Executive Order No. 292 (Administrative Code of 1987) (5.2).
- DBM reviews the Special Budget request and issues the appropriate Special Allotment Release Order (SARO) to DTI-CIO in accordance with existing budgeting laws, rules, and regulations (5.3).
- Together with the initial issuance of the SARO for the year, DBM releases a Notice of Cash Allocation (NCA) equivalent to fifty percent (50%) of the SARO (5.3).
- Succeeding SARO requests must be supported by a new list of approved projects using Annex “A” (5.4).
- Replenishment of NCAs must be supported by a Quarterly Report of Actual Availment using the format in Annex “B” plus the Summary List of Checks Issued (SLCI) required under National Budget Circular No. 437 dated January 02, 1995 (5.4).
SARO utilization accounting and disbursement flow
- SARO releases shall be taken up in the books of DTI-Central Office (CO) under General Fund 101 as follows (5.5):
- For loans, funds are obligated based on approved projects and liquidated by DTI-CIO through issuance of MDS checks for deposit in the conduit bank’s account or in the DTI-CIO account (5.5.1).
- For grants, funds are obligated under the grant agreement between DTI-CIO and the proponent and liquidated through MDS checks issued to the proponent (5.5.2).
- The equity portion is released upon issuance of implementing rules and guidelines by DTI-CIO, and related entries for loans and equity investment are recorded by DTI-CO as long-term investment (5.5.3).
- DTI-CIO authorizes the conduit bank to disburse the approved financial assistance amount to the qualified proponent in accordance with the Memorandum of Agreement (MOA) between DTI and the conduit bank (5.6).
- The conduit bank releases loan assistance to qualified proponents based on approved projects supported by pertinent documents (5.7).
Service fees, borrower charges, and income remittance
- DTI-CIO establishes a uniform rate of service fees for all conduit banks (4.6).
- The proponent pays the application and processing fees to the conduit bank for credit investigation, collateral appraisal, and other related expenses (4.6.1).
- Service fees and bank charges related to the release of loan to individual proponents are charged against the borrower (4.6.2).
- Management fees for handling/managing the CIF are charged against the regular budget of DTI and are incorporated/stated in the MOA between DTI-CIO and the conduit bank (4.6.3).
- On a quarterly basis, the conduit bank furnishes DTI-CO a bank debit memo for service fees as basis for replenishment of fund (4.6.3).
- Loan repayments, including amortization of principal and interest, are collected and remitted by the conduit bank to the National Treasury as income of the General Fund, and are not available for relending (4.7).
- The conduit bank deposits remittances immediately to the National Treasury and forwards official receipts and validated remittance advices to DTI-CIO for recording in its books (5.8).
Foreclosure handling through conduit bank
- The conduit bank is responsible, if warranted, for the sale of foreclosed assets as may be agreed upon in the memorandum of agreement (5.9).
- Proceeds from sale of foreclosed assets are treated as income of the General Fund and deposited in the Bureau of the Treasury following the procedure in Section 5.8 of this circular (5.9).
- DTI-CIO adjusts its books of account to reduce the investment account corresponding to these proceeds (5.9).
Audit, accountability, and penalty for improper disbursement
- The Commission on Audit issues accounting guidelines and procedures to implement the provisions of this circular (6.0).
- Disbursement made against the CIF that is not in accordance with Republic Act No. 7368 and the procedures prescribed in this circular creates personal liability of the officers/employees found directly responsible (7.0).
Repeal and modifications
- Provisions of circulars, memoranda, and other issuances inconsistent with the circular’s provisions as they relate to the CIF are repealed and/or modified accordingly (8.0).