Revised IRR of Agricultural Guarantee Fund Pool

Legal basis and predecessor issuances

Administrative Order No. 225-A is the presidential basis for directing the DA, in coordination with LANDBANK, to set mechanics and implementing guidelines for the AGFP.
Republic Act No. 10000 (the Agri-Agra Reform Act of 2009) establishes that 90% of the penalties collected due to non-compliance are allocated between the AGFP and the Philippine Crop Insurance Corporation (PCIC).
Department of Agriculture Administrative Order (DA-AO) No. 23, s. 2008 and amendments thereto govern prior DA-LANDBANK mechanics and administrative arrangements for the AGFP.
DA-AO No. 23-A, s. 2008, DA-AO No. 23, s. 2009, DA-AO No. 24, s. 2013, and DA-AO No. 11, s. 2015 amend the prior DA-AO 23 framework.
Administrative Order No. 225-A and DA-AO No. 23, as amended by DA-AO No. 23-A, are incorporated by reference to answer or partially answer items not provided in these IRR.

Policy purpose and program design

The AGFP requires Government Financial Institutions (GFIs) and Government Owned and Controlled Corporations (GOCCs) to allocate and contribute five percent (5%) of their 2007 surplus for projects in palay and food production as a contribution to the AGFP.
The AGFP mitigates risks in agricultural lending to facilitate credit to the agri-agra sector.
The AGFP encourages partner lending institutions (PLIs) to lend to small farmers and fisherfolk (SFF) or their organizations by providing guarantee coverage to unsecured loans for agricultural food commodity production.
The IRR expands coverage to include livestock, fisheries, and other food crops as defined under the IRR’s definitions of agricultural credit and agricultural food commodity production.

Core definitions and covered concepts

“Agriculture and Agrarian Reform Credit” refers to loans for: (i) agriculture and fisheries production including processing of fisheries and agri-based products and farm inputs; (ii) acquisition of work animals, farm and fishery equipment and machinery; (iii) acquisition of seeds, fertilizers, poultry, livestock, feeds and other similar items; and (iv) rehabilitation of farms resulting from natural calamities.
“Agricultural Food Commodity Production” covers agricultural and fish production including processing of agri- and aqua-based products, farm inputs, and/or processes across the food commodity value chain.
“Amount to be guaranteed” means eighty five percent (85%) of the principal loan disbursed to the borrowers by the PLI as indicated in the promissory note (PN).
“Collection Agreement” binds the PLI (or other collecting agents) to collect from borrowers on behalf of the AGFP.
“Guarantee Agreement” is an agreement where: the AGFP pays the borrower’s loan obligation to the PLI if the borrower fails to pay after maturity; the PLI transfer/subrogates its rights of claims to the AGFP; and the PLI is bound to collect on behalf of the AGFP.
“Guarantee Fee” is the amount paid by the PLI to AGFP to enroll loans to SFF (or their organizations) for guarantee coverage.
“Partner Lending Institutions (PLIs)” are Banks, Cooperatives, Corporations, Micro-Finance Institutions (MFIs), Non-Government Organizations (NGOs), or Farmers/Fisherfolk Organizations (FOs) with juridical personality, whose loans to SFF (or their organizations) are guaranteed by AGFP.
“Program Institutional Manager” refers to LANDBANK.
“Seed Fund” refers to total contributions to AGFP from GOCCs and GFIs (AO No. 225-A), the National Government, and share in penalties for non-compliance by banks under Republic Act No. 10000.
“Unsecured Loan” refers to the amount not covered by Real Estate Mortgage (REM), chattel mortgage, and/or deposit hold-out.
“Past Due Ratio, net” means total uncollected principal loan amount after loan maturity net of valuation reserve, divided by the total loan portfolio of the PLI net of valuation reserve.
“Related Interests” includes: (i) stockholdings of family groups or related interests within the fourth degree of consanguinity or affinity, per Circular 332 s. 2002; (ii) two or more corporations owned or controlled by the same family group or same group of persons per Circular 332 s. 2002; and (iii) related NGOs/foundations incorporated by PLI stockholders/directors/officers per Circular 725 s. 2011.
“Small Farmers” are defined as: (i) small crop growers who till not more than five (5) hectares under RA 6657; and (ii) small poultry and livestock raisers within specified maximum inventories at the time of PLI accreditation (including 2,000 layers or 5,000 broilers, 10 sows or 50 fatteners, up to 50 goat/sheep heads, 10 fatteners or 5 breeders for cattle, and 10 milking cows/carabaos for dairy).
“Small Fisherfolk” includes coastal fishermen with boats of not more than three (3) gross tons and fishing within fifteen (15) kilometers from the shoreline; fishpond operators with fishpond(s) of not more than five (5) hectares (including those under fishpond lease agreements); fishcage operators with total area of not more than 400 square meters; and aquaculture participants raising/culturing fish/shellfish/seaweed/other fishery species in brackish and marine areas of not more than five (5) hectares.

Governance and implementing structure

The Department of Agriculture (DA), through a Governing Board, directs and supervises implementation and adapts strategies to ensure AGFP sustainability.
The AGFP Governing Board (GB) is chaired by the DA Undersecretary.
The GB includes designated representatives (with specified minimum ranks) from DAR, DOF, NAPC, LANDBANK, ACPC, Academe, and a Partner Lending Institution (PLI); a Program Executive Director (Ex-Officio, Non-voting) serves as well.
Members from government agencies are officially designated by their respective heads; Academe and PLI representatives are appointed by the Secretary of Agriculture; and GB members appoint their respective technical assistants.
The GB sets policy directions and oversees implementation, including:
- exercising authority and supervision over the Program Management Office (PMO) through the Program Executive Director;
- approving the PMO organizational structure and staffing complement;
- setting and approving policies, programs, and procedural guidelines;
- defining approving authorities for guarantee lines and guarantee claim payments;
- approving the AGFP Annual Work and Financial Plan;
- setting guarantee line limits, guarantee fees, and credit ceilings per hectare/commodity;
- overseeing utilization and investment of AGFP funds;
- submitting annual reports to the DA Secretary;
- authorizing the Institutional Manager or Program Executive Director to enter into contracts necessary for program operations;
- creating committee(s) and working group(s) as needed;
- delegating approving authority for guarantee lines and/or guarantee claims to the Program Management Committee (PMC)/PMO;
- confirming approvals by delegated authorities; and
- approving guarantee lines and claims beyond delegated approving limits.
The GB creates an Internal Audit Committee (IAC) composed of the IAC Chair and two (2) other members, appointed by the GB Chair from among GB members.
The IAC reviews reports of the Internal Audit Division (IAD) of the PMO and reports results to the GB regularly.
LANDBANK acts as Program Institutional Manager (PIM) for all AGFP guarantees, administering the PMO, providing office space and required facilities, booking and disbursing operational expenses based on GB-approved work and financial plans/resolutions, entering agreements approved by the GB, and issuing instructions for withdrawals from AGFP accounts.
If LANDBANK is itself the institution being guaranteed, the LANDBANK Representative in the GB inhibits from discussion, deliberation, and approval.
The Program Management Committee (PMC) assists the GB and is chaired by the Program Institutional Manager; it includes DA and LANDBANK representatives plus a DAR representative.
The PMO provides technical and administrative support to the GB, processes and validates guarantee enrollments/claims, prepares plans and reports, promotes program awareness, manages the guarantee portfolio, and supports meetings and training; the PMO is headed by a Program Executive Director (PED) and includes four (4) divisions: Marketing and Accounts Management, Claims and Recovery, Finance and Administration, and Internal Audit Division (with GB supervision over the IAD).

Guarantee coverage rules and eligible transactions

The guarantee cover is up to 85% of the principal balance at the time of claim and must not exceed the amount of the credit ceiling per commodity.
Credit ceilings per commodity/activity type are based on the average cost of production used by LANDBANK in credit evaluation or as set by the GB.
Eligible borrowers are SFF or farmer/fisherfolk organizations whose majority of members are SFF.
Eligible accounts must meet all key conditions:
- they are unsecured loans/accounts of eligible borrowers not covered by REM, chattel mortgage, and/or deposit hold-out; if partly secured by REM/CM in favor of the PLI, only the unsecured portion is eligible and must be not less than 50% of the loan;
- the loan purpose finances palay and other food crops/commodities production, including agriculture and fisheries production including processing and farm inputs, plus related listed activities such as acquisition of work animals and machinery, seeds, fertilizers, poultry, livestock, feeds, and rehabilitation of farms from natural calamities;
- the accounts are released by the PLIs to borrowers not more than sixty (60) calendar days prior to enrolment, provided there is no damage to the crop and object of financing at enrolment.
The PLI pays the guarantee fee based on the PN loan amount and the guarantee fee rate of the crop/commodity.
The GB may review/adjust rates, loan ceiling, and guarantee period from time to time.
Guarantee coverage validity conditions require all of the following:
- the guarantee fee is paid within the sixty (60) day period;
- there is no damage to the crop/commodity/object of financing at enrolment;
- the masterlist of eligible accounts for guarantee is submitted.
Failure to submit the masterlist of eligible accounts makes the coverage null and void.
The PLI pays the guarantee fee at two percent (2%) per annum, based on the production cycle of the crop/commodity; the GB may review/adjust rates, loan ceiling, and guarantee period per crop/commodity from time to time.
For long-term exposures related to agricultural food commodity production, guarantee coverage is subject to guidelines set by the GB.
The AGFP may cancel guarantee coverage of accounts/loans enrolled due to non-compliance with eligibility requirements.

Eligible PLIs and guarantee lines

Eligible PLIs include cooperative banks, thrift banks, cooperatives, corporations that lend to SFF, NGOs, and farmers/fisherfolk organizations.
Banks must satisfy:
- satisfactory credit standing with creditors, if any;
- CAMELS Rating of at least 3;
- past due ratio net of valuation reserve of not more than 15%;
- at least two-year track record in lending;
- capital adequacy ratio of at least 10%;
- adequate reserve requirements;
- profitability in the year preceding the application and as of time of application for guarantee line.
Cooperatives must satisfy:
- registration with CDA;
- satisfactory credit standing with creditors, if any;
- past due ratio net of valuation reserve of not more than 25%;
- at least two-year track record in lending;
- risk asset ratio (for credit cooperative) of not less than 10%;
- complete core management team;
- profitability in the year preceding application and as of time of application for guarantee line.
Corporations that lend to SFF must satisfy:
- registration with the SEC;
- authority to engage in lending activity from appropriate government authority;
- Certificate of No Derogatory Record from SEC;
- no ownership and/or labor dispute for the past three (3) years;
- past due ratio net of valuation reserve of not more than 15%;
- satisfactory credit standing with creditors, if any;
- profitability in the year preceding application and as of time of application for guarantee line;
- at least 60% Filipino-owned;
- debt-equity ratio of not more than 80:20;
- at least two-year track record in lending.
NGOs must satisfy:
- registration with SEC;
- past due ratio net of valuation reserve of not more than 25%;
- satisfactory credit standing with creditors, if any;
- complete core management team;
- net surplus on the year preceding application and as of time of application for guarantee line;
- at least two-year track record in lending.
Farmers/fisherfolk organizations other than cooperatives must satisfy:
- registration with a registering entity (e.g., SEC, NIA, etc.);
- operational status and satisfactory credit standing with creditors, if any, or supervising government agencies/entities such as NIA, DOLE, DAR, etc.;
- functioning Board of Directors or equivalent and presence of core management team (e.g., manager, bookkeeper and treasurer or officially designated officers to manage lending program);
- positive net worth on the year preceding application and as of time of application for guarantee line;
- lending policies and guidelines and basic recording system (e.g., loan disbursement and collection systems);
- at least two-year track record in lending;
- past due ratio net of valuation reserve of not more than 25%.
A guarantee line is established for an eligible PLI subject to AGFP approving authorities and sets the maximum amount of guarantee cover the PLI may extend at any time.
A guarantee line is valid for one year or as set by the GB.
The Single Guarantee Limit (SGL) is 25% of the seed fund, and a PLI and its related interests may not exceed the SGL.
Approving authority for guarantee lines of PLIs with related interests depends on the aggregate amount of the guarantee line of the related group.
Renewal of guarantee lines is subject to satisfactory performance based on GB criteria.
PLIs with approved guarantee lines must execute a guarantee agreement with AGFP.
AGFP may terminate or revoke a PLI’s guarantee line due to fraud or willful misrepresentation in guarantee coverage and/or guarantee claims.
A revoked PLI may apply for reinstatement only after one (1) year from revocation, subject to regular documentation and processing; for banks, CAMELS is based on BSP audit conducted after revocation.
Reinstatement for meritorious reasons is subject to GB evaluation and approval regardless of amount.
A PLI may terminate its guarantee line for any justifiable cause by serving notice to AGFP at least 15 days prior in writing, regardless of provisions in pertinent GB orders.

Guarantee claims, approvals, payments, and default coverage

The IRR covers losses due to non-payment of loans, including those caused by:
- natural calamities (such as typhoons, floods, etc.);
- pests and diseases;
- market and aberrations.
Fraud or willful misrepresentation by the PLI in guarantee coverage and/or guarantee claims is not covered and may be used as basis for termination or revocation of guarantee line.
A PLI must file a guarantee claim with the AGFP PMO within sixty (60) calendars days after maturity of the PN.
Guarantee claim filings must include: (i) list of accounts being claimed; (ii) copies of duly accomplished PNs; (iii) copy of Disclosure Statement (for banks); (iv) PLI affidavit of non-payment; (v) duly received demand/collection letter issued to the borrower; (vi) borrower statement of account as of filing date; and (vii) reason for and proof of calamity/pest/disease occurrence, if applicable.
Guarantee claim payment follows these rules:
- Tranch payments:
  - If claims are for less than 300 borrowers: 80% after validation of enrolment and review of complete supporting documents; 20% final after field validation, net of recoveries and/or invalid claims.
  - If claims are for more than 300 borrowers: 50% after validation of enrolment; 30% net of invalid accounts after review of complete supporting documents; and 20% final net of recoveries and/or invalid claims after field validation.
- One-time payment of the guaranteed amount (85%):
  - after validation of coverage based on GB-approved sampling methodology; and
  - after validation of 20% of accounts being claimed when claims exceed 25% of matured coverage for the month.
- PMO validates at least 20% of total guarantee claims in a CLAIM batch.
- If invalid guarantee claims exceed 10% of claims being validated, all claims in the batch are considered valid.
- Payments are applied to the principal of the SFF’s loan.
- Claims found invalid become AGFP accounts receivable from the PLI.
- If a claim is invalid, the PLI must remit the corresponding amount to AGFP within thirty (30) working days from notice.
- Remittance becomes a pre-approval requirement for renewal of the guarantee line.
AGFP exercises the option to charge eighteen percent (18%) per annum penalty for late/non-remittance for guarantee claims fully (85%) paid by AGFP.

Post-payment collection and remittance duties

After AGFP pays a guarantee claim, the PLI/collecting agent must collect from borrowers for and on behalf of the AGFP.
For subrogated accounts, collections must remit 85% of any individual subrogated account collections to the AGFP until the borrower’s total obligation with the AGFP is fully settled.
Monthly remittances of those collections are due no later than the 15th day of the succeeding month from the date of collection.
AGFP may enter agreements with collecting agents for subrogated receivables in cases such as when a PLI ceased operations or is inactive.

Risk weighting, allocation, leveraging, and interpretation

Loans extended by partner-banks and guaranteed by AGFP must carry a risk weight under BSP guidelines.
The GB determines fund allocation between banks and non-banks, provided bank allocation conforms to BSP guidelines on risk-weighting of bank loans.
The allowable leveraging ratio is fixed at three (3) times the seed fund amount, and leveraging may be reviewed by the GB as necessary.
Administrative Order No. 225-A and DA-AO No. 23 (as amended by DA-AO No. 23-A) are incorporated by reference for items not covered in these IRR.

Separability, supersession, and durability

If any provision of these IRR or its application to a person or circumstance is declared invalid, the remainder of these IRR and its application to other persons or circumstances remain effective.
All previous issuances inconsistent with these IRR are revoked and superseded.