Operating Guidelines of E.O. no. 138, (n.d.).

Retrieved on January 26, 2011

from http://www.dof.gov.ph/htm/op_guide.asp

OPERATING GUIDELINES OF EO 138

(Directing Government Entities involved in the implementation of Credit Programs to adopt the Credit
Policy Guidelines Formulated by the National Credit Council)
Pursuant to Section 4 of Executive Order No. 138 dated 10 August 1999, the following operating
guidelines are hereby promulgated to implement the credit policy guidelines adopted by the National
Credit Council (NCC):

1. Rationale
This Executive Order implements current government policy to pursue a liberalized and market-
oriented economy where the private sector plays a major role and the government provides the
enabling environment for the efficient functioning of markets and the participation of the private sector.
This EO also implements government's derivative under AO 86 issued in 1994 to rationalize directed
credit programs in all sectors of the economy. The AO created and mandated the National Credit
Council (NCC), an inter-agency body, to implement the directive.

In 1997, Congress likewise formulated measures that support the implementation of this policy - the
Agriculture and Fisheries Modernization Act (AFMA) and Social Reform and Poverty Alleviation Act.
These laws espoused the implementation of market-based financial and credit policies and the
establishment of a viable and sustainable financial market. The AFMA in particular provides for the
phase-out of directed credit programs in the agriculture sector over a four-year period.

2. Basic Policy Principles

2.1 Greater role of the private sector in the provision of financial services to the basic sector, as
defined under RA 8425, the Anti-Poverty and Social Reform Act;
2.2 Adoption of market-oriented financial and credit policies, (e.g market-oriented interest rates on
loans and deposits) by leveling the plating field to encourage a competitive credit environment;
2.3 Government to provide an enabling policy environment, critical support services and capability-
building services that will facilitate he increased participation of the private sector in the delivery of
credit services;
2.4 Non-participation of Government Non-Financial Agencies (GNFAs) and Government Owned and
Controlled Corporations (GOCCs) n the implementation of credit programs.

3. Definition of Terms

3.1 Government non-financial agencies (GNFAs) - these refer to all government departments and line
agencies involved in the delivery of basic support and infrastructure services to clients of specific
sectors (e.g. Department of Agriculture, Department of Trade and Industry etc.).

3.2 Government financial institutions (GFIs) - are those financial institution in which the government
directly or indirectly own majority of the capital stock and which are either registered with or directly
supervised by the Bangko Sentral ng Pilipinas.

3.3 Government-owned and controlled corporations (GOCCs) - these are corporations, which are
created by special law or organized under the corporation code in which the government, directly or
indirectly, has majority ownership of the capital stock.
3.4 Private Financial Institutions (PFIs) - include all private entities engaged in the delivery of financial
services to the basic sector. These include rural banks, thrift banks, micro-credit NGOs, credit
cooperatives, multi-purpose cooperatives with lending operations, people's organization and other
private banks.

3.5 Directed credit Programs (DCPs) - as defined in Executive Order No. 138, directed credit
programs refer to those programs implemented by the government which are funded out of budgetary
allocation, special funds from the government, loans or grants from donor agencies, and are lent out at
subsidized interest rates.

3.6 Market-oriented interest rates - this is defined as the prevailing 91-day Treasury Bill weighted
average interest rate. Financial institutions engaged in lending should consider recovery of financial
and operational costs of wholesale/retail lending in interest rate setting. The 91-day Treasury Bill will
be used as the benchmark rate in determining the market interest rates.

4. Coverage of the Executive Order

These guidelines shall cover all directed credit programs (DCPs) implemented by he government non-
financial agencies (GNFAs), government financial institutions (GFIs) and government-owned and
controlled corporations (GOCCs). In the case of agri-related credit programs, the design of the
Agriculture Modernization Credit and Financing Program (AMCFP) jointly formulated and approved by
the Agricultural Credit and Policy Council (ACPC) and the National Credit Council (NCC) and the
operating guidelines approved by the ACPC shall apply. Said guideline should adopt the policy
principles espoused in the Agriculture Fisheries and Modernization Act (AFMA).

5. DCP Rationalization Program

5.1 The DCP rationalization program mentioned in section 3.a.4 of the Executive Order refers to the
phase-out of GNFA involvement in the delivery of credit services and the transfer of this function to
GFIs. This program shall follow the DCP phase-out period (up to end February 2002) in the Agriculture
sector as mandated under the Agriculture and Fisheries Modernization Act (AFMA).
5.2 GNFAs and GOCCs will no longer initiate new DCPs starting year 2000. Should there be any, on-
going DCPs implemented by GNFAs and GOCCs will be phased out by February 2002. GOCCs that
are authorized by their own charters to undertake lending activities, can continue heir lending
programs/projects, provided that such are funded from their internally generated funds. Such lending
programs/projects should neither draw funding from national government appropriations nor from loan
guarantees by the national government.
5.3 Funds of existing DCPs being implemented by the GNFAs and GOCCs will be transferred to the
GFIs of their choice. The implementation of credit programs is described in section 7.0 below.
5.4 The shift towards market rates will be done upon transfer of DCPs from GNFAs to GFIs. Terms
and conditions of individual loan contracts between the borrowers and GNFAs/GOCCs concerned,
prior to the transfer, shall prevail until loan maturity.

6. Mechanics for the phase-out of credit programs from line agencies

6.1 All credit programs covered by the Executive Order will be audited to determine the loans
outstanding and the remaining balances of each of the credit programs. The DOF/NCC in coordination
with the Department of Budget and Management (DBM) and the Commission on Audit (COA), shall
take all the necessary appropriate measures to implement this provision immediately upon approval of
these guidelines.
6.2 Auditing and accounting of funds will include but no be limited to the following:
6.2.1 Total amount of funding for the DCP (initial fund and additional allocation)
6.2.2 Outstanding Fund Balances
6.2.3 Fund balance placements or status
 6.2.4 Status or loan receivables
6.2.5 Total loan portfolio
6.3 After due accounting and audit, remaining balances of credit programs implemented by GNFAs
and GOCCs will be transferred to GFIs in the form of special time deposits and/or trust funds. The
funds will bear special time deposit rates. Interest earnings will form part of the general fund.
6.4 Outstanding loans of phase0out DCPs, shall likewise, be transferred to GFIs but will be treated as
off balance sheet accounts. Collections on outstanding loans shall form part of the GNFA/GOCC
account with the GFI.
6.5 Collection of all outstanding loans of phased-out DCPs shall be covered by a collection and
servicing agreement between GNFA/GOCC and GFI thereby the main responsibility of the GFI to
which the credit funds have been transferred. An administrative fee representing a cetin percentage of
the actual collection of these accounts may be paid to the GFI.
6.6 The Department of Finance and the National Credit Council, in coordination with concerned
government agencies and in consultation with the stakeholders, will identify
interventions/programs/projects by June 2001, which will address the capability building and social
preparation needs of private financial services.
6.7 The phase-out and transfer process will be implemented in three stages:
6.7.1 Stage I - this will cover DCPs funded out of the national budget. The NCC in
coordination with DBM and COA will work out the smooth transfer of funds from
concerned GNFAs to GFIs.
6.7.1.1 GNFAs and GOCCs shall transfer their DCPs to GFIs of their
choice within the same period stipulated in the AFMA (i.e. by
February 2002).
6.7.1.2 GOCCs authorized to undertake lending operations shall be
allowed to continue the implementation of credit programs funded out
of their own corporate funds, provided, however, that the terms and
conditions shall be consistent with the credit policy guidelines
mandated under EO 138.
6.7.1.3 Except for those credit programs mandated by law, there will
be no new or additional budgetary allocation for credit programs of
line agencies/GOCCs effective year 2001.
6.7.1.4 Under special agreements to be arranged by and between the
concerned GNFAs/GOCCs and the GFI, the GFI will implement the
credit program and make the credit decisions. Setting of general
policy direction (e.g. general target clientele and purpose of the
lending facility) should be done by the GNFA or GOCC concerned in
coordination with the GFI. Interest rates will be market-oriented as
provided for in EO 138.
6.7.2 Stage II - this will cover DCPs that are foreign funded. The NCC in coordination
with the DFA, DOF International Finance Group (IFG), DOF Corporate Affairs Group
(CAG), NEDA and the concerned GNFA/GOCC, will renegotiate with the concerned
donors to make the loan agreements and/or memorandum of agreements covering
the DCPs consistent with the provisions of EO 138 and AFMA and their respective
operating guidelines.
6.7.2.1 On-going foreign-assisted credit programs that are terminating
on or before end-February 2002 shall continue to be implemented by
GNFAs and GOCCs until project completion, after which these shall
be transferred to GFIs.
6.7.2.2 On-going foreign-assisted credit programs implemented by
GNFAs and/or GOCCs that are terminating beyond end-February
2002 shall immediately be renegotiated with the creditors/donors with
 the objective of transferring the credit program to GFIs on or before
end-February 2002.
6.7.2.3 There will be no new approvals for future foreign funding of
credit programs directly implemented by GNFAs and GOCCs.
6.7.3 Stage III - There will cover DCPs that are covered by special
laws. The NCC will take initiative in proposing congressional action
on these programs. The NCC may call on the concerned government
agency/department of assistance, e.g. information on the credit
program, advocacy with Congress, etc.
7. Implementation of directed credit programs by GFIs
7.1 GFIs will be the main vehicle for the delivery of wholesale funds to private financial institutions
engaged in retail lending. Qualified private financial institutions may, however, be allowed as
wholesalers provided appropriate safeguards are put in place. PFIs which choose and qualify as
wholesalers shall not be allowed to engage in retail
lending to avoid unfair competition with other PFIs. The provisions embodied in BSP No. Circular 110
Series of 1996 will be used in accreditation of PFIs as wholesalers (see attached CB Circular).
7.2 Directed credit programs to be implemented by GFIs including those programs that will be phased-
out, shall be on-lent wholesale to participating financial institutions (including but not limited to rural
banks, cooperative banks, credit cooperatives, non-governmental organizations and people's
organizations). Retail lending of GFIs shall only be allowed in areas where there is no operating
accredited financial conduit. In such areas, the GFI should exert all efforts in developing and
strengthening its linkages with potential private sector financial conduits.
7.2.1 For credit programs to be transferred to the GFIs, the GNFA/GOCC concerned
and the GFI will execute a memorandum of agreement indicating the purpose and
broad target clientele for which the money deposited by the agency will be used.
Whenever possible, the transferred credit programs shall be folded in existing credit
programs of the GFI with similar purpose and target clientele.
7.2.2 For the balance of the funds and new funds and DCPs to be transferred, GFIs
shall develop appropriate accreditation and screening criteria for participating financial
instructions.
7.2.3 GFIs will coordinate with the GNFAs in designing credit programs for specific
clientele. GNFAs will provide the necessary support and infrastructure services (e.g.
rural roads, irrigation services, post-harvest facilities, capability- building and social
preparation assistance) to the targeted clientele to strengthen their viability and
ensure their bankability.
7.2.4 Loans of GFIs to participating FIs shall be lent at rates not lower than market-
based interest rates which is defined as the prevailing 91-day Treasury Bill weighted
average interest rate (WAIR) at the time of disbursement of the loan and availment by
the PFI.
7.3 Credit programs that are foreign funded
7.3.1 GFIs borrowings from foreign sources for on-lending purposes may be allowed if
the terms and conditions of the funding shall conform to the credit policy of EO 138
and its operating guidelines.
7.3.2 The NEDA Investment Coordination Committee (NEDA-ICC) shall require prior
endorsement of the National Credit Council before any proposed credit program or
projects with credit components funded by foreign loans and/or grants shall be
deliberated upon and approved by the Committee prior to negotiations. Any deviation
from the preliminary terms and conditions set by the ICC and the NCC and agreed
upon during negotiations shall require NCC prior clearance for ICC notation before
any final approval can be granted by the ICC and the BSP Monetary Board, as the
case may be.
 7.3.3 Grants from donor agencies shall be used by GNFAs/GOCCs to finance
capability-building and support system that will improve the viability and bankability of
the GFI-implemented credit program's targeted clientele.
7.3.4 Grant funds for on-lending may be allowed for as long as the relending terms
and conditions of the funds shall conform to the basic credit policy principles of EO
138 and its operating guidelines.
7.4 In the Case of the Agriculture Modernization Credit and Financing Program (AMCFP), the
Agricultural Credit Policy Council (ACPC) shall have oversight function over the AMCFP. The ACPC
Secretariat shall monitor and evaluate the program.
8. In coordination with the NCC, DBM and COA and the concerned wholesalers, each of the
GNFAs currently implementing DCPs will formulate a DCP phase-out plan following these
guidelines.

Approved by the National Credit Council Executive Committee on 29th day of March 2000.

(Original Signed)   (Original Signed)

JOSE T. PARDO FLORIDO P. CASUELA
Secretary, Department of Finance and Chairman,   President, Land Bank of the Philippines and Co-
National Credit Council Chairman, National Credit Council