Implementing Rules and Regulations of E.O. No. 176, S. 2003

July 31, 2003

DTI DEPARTMENT ADMINISTRATIVE ORDER NO. 03-04, S. 2003

IMPLEMENTING RULES AND REGULATIONS OF EXECUTIVE ORDER NO. 176, SERIES OF 2003, ENTITLED "INSTITUTIONALIZING THE "ISANG BAYAN, ISANG PRODUKTO, ISANG MILYONG PISO" PROGRAM TO STIMULATE LOCAL ECONOMIC ACTIVITY"

Pursuant to Section 8 of Executive Order No. 176 series of 2003, entitled "Institutionalizing the "Isang Bayan, Isang Produkto, Isang Milyong Piso" Program to Stimulate Local Economic Activity," ("EO No. 176") the following rules and regulations governing the implementation of the Program are hereby prescribed for information, guidance and compliance of all concerned departments, offices, agencies, government financial institutions (GFIs), and stakeholders:

SECTION 1. Institutionalization and Objectives of the Program. — There is hereby institutionalized the "Isang Bayan, Isang Produkto, Isang Milyong Piso" Program, hereinafter referred to as the "Program", with the objectives of stimulating local economic activity and small and medium enterprise (SME) growth, generating jobs, developing the countryside, and sustaining the anti-poverty thrust of the government through countrywide lending to SMEs.

SECTION 2. Program Features.

a. The Program shall provide financing of One Million Pesos (P1,000,000.00) to cover one product or service cluster identified for one city or municipality. Projects that are related or allied to the main product or service as part of the backward and forward linkages of the particular product or service are also qualified. For this purpose, the Department of Trade and Industry (DTI), in consultation with the Local Government Units (LGUs), among others, shall identify the priority product or service for the city or municipality.

b. The One Million Pesos (P1,000,000.00) shall be in the form of a loan with a maximum effective interest rate of ten percent (10%) per annum for all funds coming from any government Funding Source. The amount of One Million Pesos (P1,000,000.00) allocated for each city or municipality may be availed of by several borrowers/SMEs and broken down into several loan amounts. A Conduit may be engaged to be the re-lender of the loan, provided that it applies a maximum effective spread of 5% per annum.

For the purpose of EO No. 176 and these Implementing Rules and Regulations (IRR), a Conduit is defined as a financial institution accredited and engaged by the GFI and allowed by its internal guidelines to serve as a re-lender of the loan. LGUs may also function as conduits.

c. The projects that are eligible for financing under the Program should meet the following criteria:

1. The enterprise undertaking the project must be an SME. For purposes of EO No. 176 and as provided under the Magna Carta for Small Enterprises (Republic Act No. 6977, as amended by Republic Act No. 8289), as amended by the Small and Medium Enterprise Development Council (SMEDC) through SMEDC Resolution No. 1, Series of 2003, in accordance with law, SME shall refer to any business activity or enterprise engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative, partnership or corporation whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity's office, plant and equipment are situated, have a value falling under the following categories:

Micro	:	not more than		P3,000,000
Small	:	P3,000,001	—	P15,000,000
Medium	:	P15,000,001	—	P100,000,000

2. The enterprise must be involved in an income-generating project, which means it must generate net cash flows or profits from its core business to sustain operations and repay its creditors and loan obligations. aADSIc

3. The enterprise must have a ready market and must use proven technology.

4. For an existing enterprise, it must have generated a positive net income for the past year. If the past year's income is negative, the average income of the past two (2) or three (3) years should be positive.

5. The financial statements of the enterprise must comply with a debt to equity ratio of at most 80:20 after the loan. The twenty percent (20%) equity must be in the form of tangible assets such as cash and other valued assets directly employed or to be employed in the enterprise.

6. The enterprise must be located within the recipient city or municipality.

d. The Program shall be subject to the following:

1. Loan Purpose

 The loan under the Program may be used for the following purposes:

For Long-Term Loans:

 Purchase of Equipment/Machinery

 Building Construction (applicable only as part of the enterprise utilized in the business as in a factory building, warehouse, rice mill, etc.)

 Purchase of Lot (applicable only as project site)

 Purchase of Inventories-Permanent Working Capital

For Short-Term Loans:

 Export Financing (Export Packing Credit)

 Credit Line (Temporary Working Capital)

2. Repayment Term

For long-term loans, the maximum repayment term shall be five (5) years, inclusive of a maximum one (1) year grace period for payment of the principal.

For short-term loans, the maximum repayment term is one (1) year.

Repayment amortization shall either be monthly or quarterly, to coincide with project cash inflows.

For loans, of which the repayment is from the Internal Revenue Allotment (IRA), the repayment term must follow the IRA remittance schedule.

3. Maximum Financing

For long-term loans, maximum financing shall be eighty percent (80%) of incremental project cost but not to exceed One Million Pesos (P1,000,000.00).

For short-term loans, maximum financing shall be seventy percent (70%) of working capital requirements but not to exceed One Million Pesos (P1,000,000.00).

e. SMEs/Conduits could avail of the loan in any of the following manner:

1. The LGU will borrow directly from a GFI to engage in a business enterprise.

2. The Conduit will borrow from a GFI for re-lending to SMEs.

3. The SME will borrow from a GFI or any of its accredited Conduits.

The borrower, if an LGU, shall secure approval from the Sangguniang Bayan or Sangguniang Panlalawigan, as the case may be, to borrow and engage in an enterprise or to re-lend under the Program, and that an annual appropriation be provided for the payment of the loan amortization of the project under the Program. The LGU shall likewise issue a Deed of Assignment and Authority to Debit for the applicable portion of the Internal Revenue Allotment (IRA).

If the borrower is a corporation or any eligible juridical entity, it must secure a board resolution to borrow and engage in an enterprise under the Program.

f. Collateral or guarantees, when deemed required, shall be provided by the borrower. The following, aside from the mortgage of assets acquired from the proceeds of the loan, may be used as collateral or loan security:

1. Real estate mortgage (real property not acquired from loan proceeds)

2. Chattel mortgage (assets not acquired from loan proceeds)

3. IRA of the LGU

4. Assignment of receivables

5. Credit guarantees from a credible financial institution

6. Other securities acceptable to the GFI

g. All releases of funds under the Program shall be supported by a business plan and other documents supporting the viability of the enterprise to be funded as evaluated by the Funding Source or the GFI/Conduit.

h. Technical and technological support (marketing, product development and skills training) shall be provided to SMEs to be funded under the Program. The following government agencies shall provide technical and/or technological assistance, as may be needed:

1. DTI

2. Department of Agrarian Reform (DAR)

3. Department of Agriculture (DA)

4. Technology and Livelihood Resource Center (TLRC)

5. Department of Science and Technology (DOST)

6. Technical Education and Skills Development Authority (TESDA)

The agencies that provide support under the Program shall submit regular reports to "Isang Bayan" Committee, as set forth in Section 7 hereof, specifying in the report the assistance provided.

SECTION 3. Program Fund.

a. Funding Sources for loans under the Program shall come from various participating GFIs, Government-Owned and Controlled Corporations (GOCCs) and other program funds whose respective mandates are aligned with the stimulation of SME growth, job generation, poverty alleviation, and countryside development.

b. Primary funding for the Program shall come from the National Livelihood Support Fund (NLSF) which shall allocate for the Program a maximum of Nine Hundred Million Pesos (P900,000,000.00) out of its capital fund.

c. Other Funding Sources with the respective amount of contribution to the Program are as follows:

1. Land Bank of the Philippines — Six Hundred Million Pesos (P600,000,000.00)

2. Development Bank of the Philippines — Five Hundred Million Pesos (P500,000,000.00)

3. TLRC — Seventy Million Pesos (P70,000,000.00)

4. Small Business Guarantee and Finance Corporation — Fifty Million Pesos (P50,000,000.00)

d. Previous loans which have been bridge-financed under the Program by other Funding Sources prior to the issuance of this IRR shall be taken out by GFI/GOCC Funding Sources mentioned in subsections (b) and (c) of this Section, upon compliance with their respective loan requirements. Should the said loans be unable to meet the loan requirements set by the GFI/GOCC Funding Sources, they may be funded from other Funding Sources subject to the approval of the Office of the President. These other Funding Sources are those that primarily fund projects supportive of SMEs, including support services, which are developmental in nature but not necessarily income generating.

e. As part of the Program Funds delivery system, loan applications flow shall follow the procedure described below:

1. The borrower shall identify projects eligible for funding under these guidelines.

2. The DTI Provincial and/or Regional Office may assist the borrower in preparing the business plan and other documentary requirements of the Program. For this purpose, the Program shall use a unified set of application forms.

3. The borrower shall submit the project loan applications to the GFI and/or Conduit as the case may be. The borrower shall inform the DTI Provincial and/or Regional Office of the GFIs and/or Conduits that received the applications; and

4. The GFI shall receive loan applications and submit regular status reports to include the number of loan applications received, approved and released. In the interest of prompt processing of loan applications, the GFI shall be given thirty (30) days from receipt of complete documents within which to approve or deny an application and shall duly inform the borrower and the "Isang Bayan" Committee of the action taken on the application.

SECTION 4. Program Policy-Making and Implementation. — Policies of the Program shall be made under the directions, supervision and control of the Office of the President; as assisted by the Secretary of Trade and Industry.

SECTION 5. Department of Trade and Industry as Lead Agency. The DTI shall be the lead agency of the Program. As the lead agency of the Program, the DTI, through its Regional and/or Provincial Offices, shall undertake the following:

a. Coordinate with LGUs, Funding Sources and eligible SMEs to accomplish the objectives of the Program;

b. After a review of the economic factors in each city or municipality and in coordination with LGUs, identify a product or service for each city or municipality that an SME must provide to be eligible to avail of the loans under the Program;

c. Coordinate with and assist the local government of the city or municipality, as the case may be, in screening and identifying eligible SMEs, in accordance with Program guidelines;

d. In cooperation with the DAR, DA, DOST, TESDA and TLRC, provide technical and/or technological assistance to eligible SMEs in relation to project proposals, business plans and documentation required for application and availments of loans under the Program;

e. Monitor performance of SMEs who availed of loans under the Program; and

f. Submit an annual review and report on the progress and development of the Program to the President of the Philippines within thirty (30) days from the end of each calendar year. cTDaEH

SECTION 6. Creation of "Isang Bayan" Committee. — To ensure coordination among the various agencies, the "Isang Bayan" Committee, hereinafter referred to as the "IBC', is hereby created and shall be composed of the following offices as members:

Chair	:	Office of the Secretary, DTI
Members	:	Presidential Management Staff, Office of the President
	:	Regional Operations Group, DTI
	:	Bureau of SME Development, DTI
	:	Representatives of the Funding Sources

SECTION 7. Functions and Responsibilities of the IBC. — The IBC shall exercise the following functions and responsibilities:

a. The IBC shall be the recipient of all reports under the Program and shall keep track of all loan applications to GFIs.

b. The IBC shall ensure that there will be no double applications or availments.

c. The IBC shall keep a list of all loans submitted to the GFIs. Relative to this, the GFIs shall submit a monthly report of loan applications releases and denials to the IBC, as provided under Section 3 (e) (4) hereof.

d. The IBC shall recommend systems and procedures to simplify documentary requirements for the Program.

e. The IBC shall undertake a quarterly review of the policies and guidelines of the Program, and make the necessary recommendations to the President of the Philippines to enhance Program implementation.

f. The IBC shall perform all other functions and responsibilities as may be necessary, proper or incidental for the effective coordination and implementation of EO No. 176 and these IRR.

SECTION 8. Effectivity. — These IRR shall take effect fifteen (15) days after its publication in a newspaper of general circulation. DEcITS

Makati City, 2003.

(SGD.) MANUEL A. ROXAS IISecretary

Approved in the City of Manila, this 31st day of July, in the year of Our Lord, Two Thousand and Three.

By authority of the President:

(SGD.) ALBERTO G. ROMULOExecutive Secretary