Multiplying opportunities in the countryside

Title

Creator

Espino, Jake T.

Language

English

Source

The Republic Volume I (Issue No.22) 1-31 December 1976

Subject

Industrial Guarantee Loan Fund

Industrial loan associations -- Philippines

Rights

In Copyright - Educational Use Permitted

Abstract

[The Industrial Guarantee Loan Fund (IGLF) was established in 1952. Its national policy is to lend on well-established companies—those that can put up acceptable collateral and were usually located in the cities. Thus, the IGLF has drastically altered its lending schemes to give priority to rural entrepreneurs. The strategy is to encourage the growth of small- and medium scale industries in the rural areas.]

Fulltext

THE REPUBLIC Rural Development 1-31 December 1976 11 PROGRESS REPORT □ Jake T. Espino Multiplying opportunities in the countryside CLOSELY identified with the govern ment effort to improve the living conditions in the countryside is the In dustrial Guarantee and Loan Fund (IGLF). And perhaps, this credit scheme best exemplifies the dramatic turnabout in state policy concerning the geograph ical allocation of resources in the coun try since the proclamation of authori tarian rule in 1972. Until a few years back, the IGLF concentrated its lending operations on well-established companies—those that can put up acceptable collateral. And these firms were usually located in the cities. This lending policy certainly is in accord with “sound banking” prin ciples. In terms of the national develop ment program, however, the agency fail ed to “deliver, the goods,” so to speak. While the well-off companies in the cities enjoyed more capital for expan sion, the rural population remained tied up to agricultural activities for their livelihood. There were very limited eco nomic activities, in short, in the coun tryside aside from farming and fishing. This situation was precisely what President Ferdinand E. Marcos sought to reform when he declared martial law four years ago. Thus, the state now rec ognizes that to uplift the welfare of the poor, the government must actively in vest resources in the countryside. In line with this national policy, the IGLF has drastically altered its lend ing schemes to give priority to rural en trepreneurs. The strategy is to encour age the growth of small- and medium scale industries in the rural areas. As activities are mainly labor-intensive, their ^establishment will surely spur the mul**Yiplication- Of eiirpRjJment opportuni ties for the rural population. Implementing the Strategy HOW to implement this strategy? Leonardo Mariano Jr., director, industry and utilities staff of the Na tional Economic and Development Au thority (NEDA) and concurrent chair man of the IGLF review committee re cently stressed that under the new finan cing scheme, prospective borrowers will no longer be required to submit “expen sive project studies” which are consider ed to be the bane of new entrepreneurs engaged or planning to engage in smalland medium-scale industries. Small en trepreneurs have complained that they could not afford the high cost of pre paring project studies. The relaxation of collateral requirements is another in centive in the revised lending program. Mariano said that the implementa tion of the new IGLF financing scheme would entail the selection of some 100 commercial, savings, development and rural banks and other financial inter mediaries throughout the country in tending to participate in the lending program as sponsoring banks. Govern ment financial institutions may also be come sponsoring banks. Under the revised IGLF policies, the maximum amount of a loan is P500.000 and the enterprises eligible for loans must have assets not exceed ing Pl million. These IGLF loans are obtainable from the sponsoring banks located in the area of the borrowers. The funds are made available to the sponsoring banks to enable them to ex tend loans without necessarily using their own resources. But these sponsor ing banks will evaluate the loan applica tions to the IGLF review committee which is composed of the NEDA, the Central Bank, the Board of Investments and the UP Institute of Small Scale In dustries. The review committee are given four weeks to decide on the applications. Proceeds of the loan may be used for the purchase of capital goods and working capital or a combination of both. Repayment is within a maximum period of three years for working capi tal loans and up to 10 years for fixed assets loans. There are at least two advantages of coursing loan applications to the spon soring banks. .First, the borrower will get longer maturity period for his working capital loan, the interest rate is much lower and can easily avail of the guarantee feature of the IGLF for the insufficiency of his collaterals. Second, the participation of the private banking system will encourage its greater involvement in promoting small-scale industries. As the administrator of the IGLF funds, the Central Bank (CB) recently released new rules on how the different banks and ncnbank financial interme diaries may be accredited to participate in the IGLF financing program. To be ac credited, the following CB requirements must be complied with: 1. Minimum paid-up capital. For rural banks, the paid-up capital should not be less than P500,000, exclusive of government counterpart capital (preferred shares); 2. Sound and efficient management and an adequate number of qualified staff to carry out the institution’s normal business; 3. Capability for satisfactory appraising of the technical, marketing and financial viability of small industry projects together with satisfactory sys tems and procedures for regularly fol lowing up project implementation and operations; 4. An over-all level of ar rearages of no more than 15 percent of the total outstanding loans of the insti tution; and 5. Non-arrearages with the CB or the IGLF. On the other hand, the general procedures for participating institutions in the IGLF program are: 1. Banks and nonbank financial in termediaries should apply for accredita tion with the IGLF; 2. All applications for accreditation should be in the prescribed form and should be filed in quadruplicate with the CB department of loans and credit. This department will evaluate applications for accreditation in accordance with the established criteria; and 4. The CB will communicate to the applicant banks or nonbank financial intermediaries the action taken either by the CB governor or senior deputy governor on their applications for accre ditation, copy furnished NEDA. Under the accreditation scheme, the accredited bank evaluates and ap proves the loan to facilitate the process ing of loan applications. After the accredited institution has submitted all the required documents the CB will release an initial 50 per cent of the total amount for approved projects in the form of special time de posit for banks, and deposit substitutes (certificate of assignment with recourse) for nonbank financial intermediaries. The remaining 50 percent will be releas ed to the accredited institution after submitting evidence on the disbursement of the initial funding to the borrowers. The rules also stipulate that the CB will undertake the postaudit of IGLFassisted projects on a periodic basis and submit the corresponding reports to the IGLF review committee. For purposes of industry dispersal, accredited institutions will be required, for a six-month period, to channel to the rural areas a minimum of 60 percent of the total approved applications. Operating Guidelines THE IGLF, established in 1952, is a joint project of the governments of the Philippines and United States pur suant to Section I of Annex I of the economic and technical agreement be tween the two governments. Counter part funds were authorized under R.A. 604. The sum of P10 million was with drawn from the counterpart fund spe cial account as initial fund. In the said agreement, the CB was appointed agent for the purpose of administering the IGLF program for a period of ten years. The master agreement was renewed in 1965 and again in 1975 for another ten In the new IGLF policies, small industries get much-needed assistance. years to expire on January 22, 1985. The counterpart project agreement and the rules and regulations govern ing the operations of the IGLF were re vised on July 16, 1973. The revision of the two documents resulted in the fol lowing policy and operational changes: 1. Withdrawal of the United States As sistance for International Development (USAID) representation in the IGLF re view committee; 2. Representation of the Department of Industry and the UP4SS1 in the review committee; 3. Em phasis on the utilization of IGLF for small-scale and cottage-type industries; 4. Further relaxation of qualifications of participating rural banks; 5. Approv al of the participation of the investment houses and financial companies to ex pand the base of participation in the IGLF lending program. On April 5, 1975, a loan agreement was established between the Philippine government and the International Bank for Rural Development (IBRD) under which the IGLF’s share was $12 million. The term of the loan is 12 years includ ing a two-year grace period during which only interests will paid. With the entry of the World Bank into the IGLF pic ture, the lending policy was again chang ed, as follows: 1. The loan/equity pro portion in project financing was raised to 80-20 ratio which means that the IGLF will assume 80 percent of the in vestment while the borrower will put up the remaining 20 percent and; 2. The in crease in the lending rate from 10 to 12 percent on special time deposit loans. 3. Guarantee fee of 2 percent for auto matic 60 percent guarantee. As of June 30, 1976, total contribu tion to the fund amounted to P99.5 million, P50 million of which came from counterpart funds and the remaining from the loan accounts. During the same period, total assets of the fund amounted to Pl 12.25 million. The total liabilities stood at P46.93 million result ing in a net worth of P65.31 million. Outstanding special time deposits reached P82.03 million with unreleased commitments on approved loans amounting to Pl3.8 million. Available funds stood at Pl 1.4 million as against pending applications in the amount of P8.22 million, thereby reducing the amount available for new applications. Consistent with the government ob jective of dispersing small-scale industries in rural areas, more projects in the farflung areas of the country were extended IGLF assistance. Where before the Metro politan Manila region used to account for over 60 percent of IGLF financing, the trend under the revised lending scheme has been reversed. Less de veloped regions like Bicol and those in the Visayas arid Mindanao which were hardly reached before by the IGLF fi nancing, are now beginning to get the much-needed assistance for small, medium-and cottage industries. Of the 570 projects approved from July 1973 to June 30, 1976, 301 pro jects or 53 per cent of total projects financed by IGLF are within the P50,000 and below and Pl00,000 range. This in dicates that the IGLF is assisting mainly the small-scale industries. A study of loan disbursements and dispersal for those past years identifies two key imperatives for the program to maximize its contribution to the coun try and our economic development: 1. That more loans be extended to enterprises outside the Metro Manila; 2. That greater participation must come from the banking sector and that this sector be familiarized with the pro gram, so that a broader public may be reached by the IGLF. With wider participation, the IGLF foresees even better results may be at tained in the financing of the small-scale industries. □

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