Background and Rationale
- The Municipal Development Fund (MDF) was established under Presidential Decree No. 1914, funded by foreign loans and grants for LGU projects.
- The MDF was reorganized as the Municipal Development Fund Office (MDFO) under the Department of Finance (DOF) to assist lower income LGUs and social/environmental projects with financing challenges.
- The 1991 Local Government Code increased decentralization, thereby heightening demand for accessible LGU funding for development.
- A corporate entity affiliated with a government financial institution is deemed more effective for managing and implementing MDF financing.
Transfer of Functions and Assets
- The DOF, through MDFO's Policy Governing Board, is instructed to transfer functions, properties, qualified personnel, assets, and undrawn foreign loans intended for LGU relending to the Municipal Finance Corporation (MFC).
- MFC is to be established as an affiliate of the Land Bank of the Philippines (LBP).
- Transfer will occur once MFC is fully organized and Board of Directors elected and qualified.
Continuity of Government Grants
- Loans to the National Government converted into grants or technical assistance for LGUs and implementing agencies as of transfer date remain payable by the National Government.
Governance of the Municipal Finance Corporation (MFC)
- MFC’s Articles of Incorporation and By-Laws must include:
- A Board of Directors comprising:
- Secretary of Finance (Chairman),
- Secretary of the Department of the Interior and Local Government (Vice-Chairman),
- Director-General of National Economic and Development Authority,
- Secretary of the Department of Budget and Management,
- President of Land Bank of the Philippines,
- President of MFC (or their representatives), and
- One LGU representative appointed by the President.
- Shares issued to the Republic of the Philippines corresponding to net asset value and undrawn foreign loans transferred.
- Voting power over these shares vested in the President of the Philippines or an ex-officio Board member.
- Provision that grants to LGUs are to be combined with loans, barring pure grants unless ICC approval is granted.
- A Board of Directors comprising:
Protection of Third Parties and Creditors
- Material organizational changes prejudicial to third parties must comply with notice and/or consultation requirements mandated by contracts with creditors before implementation.
- The Secretary of Finance or authorized official shall renegotiate loan/grant agreement provisions with foreign lenders/providers as necessary.
Severability Clause
- If any provision is declared unconstitutional, it will not invalidate the remaining provisions, provided they can independently subsist and be given effect in full.
Repeal of Inconsistent Issuances
- Existing rules, regulations, resolutions, or other issuances inconsistent with this Executive Order are repealed or amended accordingly.
Effectivity
- The Executive Order takes effect fifteen (15) days following its publication in a newspaper of general circulation.