DA-QUEDANCOR-SRA AGRIKULTURANG MAKAMASA SUGAR FARM MODERNIZATION

The following guidelines shall govern the implementation of
AGRIKULTURANG MakaMASA — Sugar Farm Modernization, which is a joint
program of the Department of Agriculture, Quedan and Rural Credit
Guarantee Corporation (Quedancor) and the Sugar Regulatory
Administration.

1.         RATIONALE

The past decade has been a decadent period for the Sugar
Industry. During this time, crop production consistently declined
culminating in crop year 1997-1998 where sugar production dropped to
1.74MMT. At this level, the Industry could hardly meet local demand and
the country’s export commitment.

One of the factors, that brought about the sorry state of the
Industry was inaccessibility to credit. During this period,
institutional credit to the Sugar Industry was almost nil. Interest
rates, when credit was available, were prohibitive and unconscionable.

Under the present dispensation where Food Security is the
priority concern, the Agrikulturang Makamasa for Sugar Farm
Modernization Program has been launched to frogleap the Sugar Industry
towards modernization to regain its position as a major employment
generator and export earner.

2.         OBJECTIVES

1.    To revitalize the Sugar Industry through mechanized farming.
2.    To promote the bankability and access of sugar farmers/planters with formal credit institutions.
3.    To facilitate the flow of credit from the banking system to the Sugar Industry.
4.    To promote the acceptance of sugar farms as collateral for credit capital.

3.         LEGAL BASES

3.1           RA 7393, dated 13 April 1992, which mandated
Quedancor to establish a credit support mechanism and guarantee system
for the benefit of farmers, fisherfolk and other agricultural
enterprises.

3.2           RA 8435, dated February 9, 1998, which mandated
Quedancor to be the credit guarantee institution for the Agri-fishery
sector.

3.3           Memorandum of Agreement, dated 14 April 1999,
between the Department of Agriculture and Quedan and Rural Credit
Guarantee Corporation (Quedancor) and the Sugar Regulatory
Administration (SRA).

4.         DEFINITION OF TERMS

4.1           Sugar Production — refers to the cultivation, growing or tending of sugarcane in the open field.

4.2           Sugar Farmer/Planter — any natural person whose
primary livelihood is cultivation of land for sugarcane production,
either by himself or primarily with the assistance of his immediate farm
household or worker, whether the land is owned by him or another person
under a leasehold tenancy agreement or arrangement with the owner
thereof.

4.3           Cooperative — a group of farmers who voluntarily
form themselves into a business enterprise to promote their common needs
through mutual action, democratic control and sharing of economic
benefits on the basis of the patronage of members.

4.4           Sole Proprietor — a natural person owning a business enterprise or engaged in commercial activity.

4.5           Partnership — an entity of two or more persons who
bind themselves to contribute money, property or industry to a common
fund with the intention of dividing profits among themselves.

4.6           Quedan Operations Officer (QOO) — Quedancor’s
field personnel duly authorized to implement the Agrikulturang MakaMASA
for Sugar Farm Modernization Program.

4.7           Corporation — a juridical person, created by
operation of law, having the right of succession and the powers,
attributes and properties expressly authorized by law or incidental to
its existence.

4.8           Lending Bank (LB) — any banking institution
organized and existing under the laws of the Philippines and duly
accredited by Quedancor to participate under the SGM of AGRIKULTURANG
MakaMASA – SFM.

4.9           Sole Guarantee Mode (SGM) — a mode of lending to
service the credit guarantee of farmers sole, proprietorships,
cooperatives, partnerships or corporations wherein Quedancor provides
guarantee cover on the loan fully funded by LB.

5.         SCOPE

Farmers, sole proprietors, cooperatives, partnerships or
corporations, intending to purchase tractor/implements for the
production of sugarcane.

6.         STATEMENT OF POLICIES

6.1  Purpose of Loan

To finance the purchase of tractors/implements.

6.2  Eligibility Requirements

6.2.1        Must be indorsed by SRA.
6.2.2        Must be duly Accredited with Quedancor
6.2.3        Must be able to put up 20% as down payment for tractor/implements.

6.3  Loaning Mode

Mode shall be SGM only.

6.4  Loanable Amount

The loanable amount shall be 80% of the total cost of tractor/implement.

6.5  Interest Rate

The interest rate shall be at the discretion of the Lending Bank
which has been observed to be lower than the prevailing commercial
rates.

6.6  Term and Mode of Payment

The Lending Bank shall determine the term (ranging from one to
five years) and the Mode of Payment (monthly, quarterly, semi-annually,
annually) based on the project study submitted.

On a case to case basis, a grace period may be allowed.

6.7  Guarantee Fee

A guarantee fee of 2.5% per annum of the outstanding principal
shall be paid by the Lending Bank to support its application for
guarantee cover at the start of every annual anniversary of the loan.

6.8  Guarantee Coverage

Quedancor’s guarantee cover shall be 30%-100% of the outstanding
principal plus accrued interest up to maturity date or demand for full
payment, whichever comes first.

6.9  Leveraging Ratio

Quedancor’s total guarantee exposure on outstanding loans shall
not, at any given period, exceed five (5) times the amount of available
guarantee fund established therefor.

6.10         Compliance with Agri-Agra Law

Originating or secondary banks participating in the program may
be credited for compliance with the Agri-Agra law pursuant to Section 20
of RA No. 7393.

7.         MECHANICS OF IMPLEMENTATION

7.1  Program Promotion

Quedancor, with the issuance of the Department of Agriculture
and the Sugar Regulatory Administration, shall promote the program with
prospective banks and borrower-clients to orient them with AGRIKULTURANG
MakaMASA-SFM’s objectives, features and mechanics of implementation.

QOO shall promote through meetings and dialogues with
prospective clients and use of promotional materials such as posters and
brochures.

7.2  Lending Bank Accreditation

Banks intending to practice under AGRIKULTURANG MakaMASA – SFM
shall sign an Integrated or Supplemental Agreement with Quedancor, pay a
non-refundable accreditation fee and submit the following documents:

7.2.1 Board Resolution authorizing the bank to participate and
designating the officer(s) with specimen signatures who shall represent
the bank and sign all documents pertaining to its accreditation;

7.2.2 List of Key Lending Bank officers; and

7.2.3 Latest Audited Financial Statements.

7.3    Clientele Accreditation

Any farmer, sole proprietor, partnership, cooperative or
corporation, intending to apply for a loan under AGRIKULTURANG
MakaMASA-SFM shall submit an Application for Accreditation, pay a
non-refundable accreditation fee of P1,000.00 and submit the following:

7.3.1 General Requirements

a.      Duly accomplished Application for Accreditation;
b.      Two 2×2 photos of individual applicant or authorized representative(s); and
c.       Duly certified Financial Statements for the last two years.

7.3.2 Additional Requirements

For Cooperatives

a.      Certificate of Registration or Confirmation from CDA;
b.      Copy of Articles of Cooperation and By-Laws, and amendments, if any;
c.       Board Resolution and Secretary’s Certificate
authorizing the cooperative to participate in the specified program and
designating its authorized representative(s) thereof with specimen
signatures; and
d.      List of names and addresses of current key officials and members.

For Partnerships/Corporations

a.      Certificate of SEC Registration;
b.      Copy of Articles of Partnership/Incorporation and By-Laws, and amendments, if any;
c.       Board Resolution and Secretary’s Certificate
authorizing the firm to participate in the specified program and
designating its authorized representative(s) thereof with specimen
signatures; d.      List of names and addresses of current key
officials; and
e.      List of Stockholders with corresponding percentage of ownership, if a corporation.

The QOO shall conduct a background/credit investigation of the
applicant, accomplish the Evaluation Sheet and forward the application
together with the required documents to the Regional Assistant
VicePresident (RAVP) for review, approval and issuance of Certificate of
Accreditation.

7.4  Processing of Loan

7.4.1        Application for loan shall be submitted by
accredited applicants either to the QOO, SRA or through Lending Bank
together with the following requirements:

a.    Two copies of Project Proposal (PFS1 Format);
b.    Two photocopies of documents supporting the collateral offered for the loan, to wit:

Real Estate

—   Transfer Certificate of Title (TCT)
—   Tax Declaration
—   Official Receipts (OR) of latest realty tax payments for land and improvements, if any
—   Lot plan and vicinity map
—   Insurance cover on improvements, if any

Chattel

—   Certificate of Registration and/or substitute documents
—   OR of latest payment of registration fee
—   Insurance policy cover and OR of premium payment

Assignment

—   Government bonds/securities, commercial share of stocks or bank deposits/placements.

Co Maker’s Statement

7.4.2 QOO shall authenticate photocopies of the above documents.

7.4.3 Inspection and appraisal of collateral,
background/credit investigation and project proposal evaluation shall be
conducted immediately by the QOO.

7.4.4 The QOO shall prepare the corresponding Credit
Evaluation Report (CER 1) and the Loan Proposal Memo (LPM) which shall
be reviewed by the respective RAVP.

          If the loan amount is not within the approving
authority of the RAVP, the LPM together with all the loan documents
should be forwarded to the AGRI-AQUA INVENTORY MANAGEMENT DIVISION,
Program Operations Department (AAD-POD) for further review, evaluation,
approval/disapproval. If the loan is beyond the approving authority of
the AVP of the AAD, he shall recommend approval/disapproval to higher
authorities in accordance with Circular No. 090-A on the Specifications
of Authority.

7.4.5 The Lending Bank shall review the Credit Evaluation
Report submitted by Quedancor or conduct its own investigation and
evaluation, if deemed necessary. Lending Bank has the final discretion
to approve/disapprove the loan application. It shall ensure that the
amount and term of loan do not exceed Quedancor’s recommendation and the
collateral provided are, likewise, as recommended.

Any loan not favorably recommended, or which exceeds the
amount or term of the loan recommended by the duly authorized
Quedancor’s representative, or is not covered by the recommended
collateral shall not be shared nor guaranteed by Quedancor.

7.5    Preparatory Clearance for Guarantee Coverage (PCGC)

Using the prescribed form (Exhibit 1 — 1A *), Lending Bank shall
secure a written clearance from QUEDANCOR Central Office either through
fax, telefax, radiogram, telegram or letter. This is to ensure that
QUEDANCOR maintains a total guarantee exposure on outstanding loans
under the program of not more than five (5) times the amount of
available guarantee fund. The loan shall be released within ten (10)
calendar days upon receipt of the PCGC.

7.6    Loan Release and Documentation

7.6.1 The loan proceeds shall be directly credited by Lending Bank to the borrower’s S.A.

7.6.2 Proper loan documentation shall be the sole
responsibility of Lending Bank. This shall cover the LAF, PN, duly
notarized REM/CM, as the case may be.

The Deed of REM and/or Deed of CM shall be duly registered with the Registry of Deeds.

In case of motor vehicles as collateral, Section 5 (e) of the
Revised Motor Vehicle Law requiring the recording of CM with the Land
Transportation Office must, likewise, be complied with.

7.6.3 Original copies of loan documents shall be retained by
Lending Bank. Quedancor shall receive two copies and the borrower, one
copy.

7.7    Amortization of Loan

The borrower shall remit the loan amortization directly to the
Lending Bank on the scheduled amortization dates as specified in the PN.

7.8  Project Monitoring

During the term of the loan, periodic inspection and reporting
shall be undertaken by the QOO to closely monitor the project. The QOO
shall submit to Quedancor C.O. a monthly Accounts Status Report.

Spot inspection shall be conducted at any time by Quedancor and/or Lending Bank personnel to check the project.

7.9  Certificate of Loan Settlement (CLS)

Upon full settlement of the Loan, LB shall submit to Quedancor
Head Office, at the soonest possible time, a CLS (Exhibit 2 *). Failure
or delay in submission of CLS will affect LB’s pending request for
guarantee cover.

7.10         Restructuring of Loans

Restructuring of loans shall be covered by Circular No. 014 on Remedial Account Management.

8.         APPLICATION FOR GUARANTEE COVERAGE

8.1           Nature of Guarantee Cover

Quedancor’s guarantee cover is on the loan per se.

8.2           Requirements/Procedure for Guarantee Coverage

8.2.1        The Lending Bank applying for guarantee coverage
must submit within thirty (30) days from the date of loan release, two
copies of the Request for Guarantee Coverage (RCG), Exhibit 3 *,
together with its guarantee fee payment.

The aforementioned requirements, shall be submitted directly
either to Quedancor Head Office Cashier or to the nearest Quedancor
District Office Cashier.

8.2.2   The date of acknowledgement by Quedancor Head
Office/District Office on the copies of the RGCM shall be considered as
the date of filing or submission.

8.3           Issuance of Guarantee Coverage

Issuance of Guarantee Coverage, duly signed by the authorized
Quedancor representative, shall be issued upon submission by LB of the
required documents pursuant to the procedures outlined in the preceding
paragraphs and shall last until the maturity date of the loan which in
no case be beyond Quedancor’s recommended loan term.

8.4           Lending Bank’s Option Against Borrowers

Whenever the loan is past due or in arrears for two (2)
amortizations, Lending Bank has the option in lieu of filing a guarantee
claim to foreclose the collateral or file a case against the
borrower/co-makers. Within fifteen (15) days from date of such action
taken, Lending Bank shall accordingly inform Quedancor in writing.

8.5           Claim for Guarantee Payment

8.5.1 Lending Bank may claim for guarantee payment in the
following cases after it has fully exhausted the remaining balance of
the borrower’s SA:

a.      When the loan account is in arrears; and
b.      When the loan account is not settled upon maturity date.

8.5.2 The following are documents required in filing a guarantee claim:

a.      Claim for Guarantee Payment – Exhibit 4 *;
b.      Affidavit of Non-Payment executed by the duly authorized Lending Bank Officer — Exhibit 5 *;
c.       Statement of Account;
d.      Certified copy of the bank’s loan ledger updated as of filing of guarantee claim; and
e.      Copy of duly received demand letter issued by the bank.

8.6    Processing of Guarantee Claim

Claim for guarantee payment shall be submitted by Lending Bank
to the QOO, who shall then verify its completeness. The District RAVP
shall review the guarantee claim and forward it to AAD for processing
and payment. An acknowledgement letter shall be sent by AAD to Lending
Bank. If defects/deficiencies are discovered in the claim documents
while being processed, Lending Bank shall accordingly be informed in
writing to make immediate correction/completion.

Quedancor shall pay the Lending Bank within sixty (60) days after having submitted/completed all proper documents.

8.7           Subrogation of Rights

Lending Bank shall, on the same day of receipt of guarantee
payment, surrender the original copy of the Certificate of Guarantee
Coverage and provide Quedancor with a subrogation receipt (Exhibit 6 *)
assigning and transferring to Quedancor the claim and demand against the
defaulting borrower arising from or connected with the said borrower’s
loan obligation. original copies of PN and documents listed in Paragraph
7.4.1 shall now be required for submission.

8.8  Recoveries

Recoveries refer to any amount collected from the date a guarantee claim is filed by Lending Bank with Quedancor.

Any amount collected from the borrower shall be remitted to Quedancor.

8.9  Grounds for Cancellation/Nullification of Guarantee Coverage

Any of the following shall be a ground for cancellation or
nullification of guarantee coverage and/or non-payment of guarantee
claim:

8.9.1 Collusion between and/or among the borrower, QOO and LB in
the extension of credit such as but not limited to the following:

a.      When the borrower and the officer(s) and/or employee(s)
of Quedancor/LB enter into an agreement for fraudulent purposes or
whenever said parties conspire to defraud Quedancor; and

b.      When LB officer/employee acquiesces, consents, or agrees with anyone to the granting of loan to unqualified borrower.

8.9.2 When any LB officer/employee fails to apply in payment of
the borrower’s loan any amount authorized to be deducted from a deposit
account and subsequently allows withdrawal by the borrower, without
payment of the loan to the prejudice of Quedancor;

8.9.3 When LB makes false statement, misrepresentation, omission
or concealment in the reports submitted and/or in the guarantee claim
filed with Quedancor;

8.9.4 When LB releases a loan that is not favorably recommended,
or exceeds the amount or term of loan recommended by the duly
authorized Quedancor representative, or has incomplete or defective
documentation and/or is not covered by the recommended collaterals; and

8.9.5 When LB holds-out any portion of the borrower’s loan.

Any aforementioned provisions shall not preclude Quedancor from
cancellation or nullifying its guarantee coverage for violation of this
Circular or for other causes involving fraud, bad faith or other
machinations.

9.         SPECIAL PROVISIONS

9.1           There shall be periodic consultation among the
officers of Quedancor, SRA, LB and clients for the purpose of enhancing
the effectiveness of the program.

9.2           The Quedancor reserves the right to promulgate
such rules and regulations (including exemption thereto) and adopt other
measures as may be incidental to, appropriate and necessary for the
attainment of the objectives of the AGRIKULTURANG makaMASA-SUGAR FARM
MODERNIZATION.

10.       EFFECTIVITY

This Circular shall take effect immediately.

Adopted: 01 June 1999

(SGD.) GALO B. GARCHITORENA
President & CEO