D E PA R T M E N T O F F I N A N C E
BUREAU OF LOCAL GOVERNMENT FINANCE
Understanding LGU
Credit Financing and
Debt Management
Legal Framework of Credit Financing
• Sec. 296 (b): Credit lines from
government or private banks and
lending institutions for the
purpose of stabilizing local
finances
Legal Framework of Credit Financing
• Sec. 297 (a): Contract loans, credits, and other
forms of indebtedness with any government or
domestic private bank and other lending
institutions to finance the construction,
installation, improvement, expansion, operation,
or maintenance of public facilities, infrastructure
facilities, housing projects, the acquisition of real
property, and the implementation of other capital
investment projects.
Legal Framework of Credit Financing
• Sec. 297 (b): Short, Medium and Long
term loans and advances from any
government bank and lending institution
against security of real estate or other
acceptable assets for the establishment,
development, or expansion of agricultural,
industrial, commercial house financing and
livelihood projects, and other economic
enterprises.
Legal Framework of Credit Financing
• Sec. 298: Deferred-payment and
other financial schemes- Acquire
property, plant, machinery, equipment
and such necessary accessories
under a supplier’s credit, deferred
payment plan, or other financial
scheme. (except for the barangays)
Legal Framework of Credit Financing
• Sec. 299: Bonds and Other LongTerm Securities- Authorized to issue
bonds,
debentures,
securities,
collaterals,
notes
and
other
obligations to finance self-liquidating,
income production development or
livelihood projects. (except for the
barangays)
Legal Framework of Credit Financing
• Sec. 300: Inter-Local Government
Loans, grants and subsidies – Extend
loans, grants, or subsidies to other
LGUs; (except barangays)
• Sec 300: LGUs to jointly or severally
contract loans, credits, and other
forms of indebtedness
Legal Framework of Credit Financing
• Sec 301 (a): Loans from funds
secured by the national government
from foreign sources.
• Sec 302: Financing, construction,
maintenance,
operation,
and
management
of
infrastructure
projects by the private sector, subject
to provisions of R.A. No. 6957
Legal Framework of Credit Financing
• Executive Order (EO) No. 809:
Implementing
the
Financing
Policy Framework for Local
Government Units by Identifying
New Sources of Funding for First
Tier Local Government Units
under Republic Act No. 7160
Executive Order (EO) No. 809
• Who are eligible to avail of funds under
EO 809?
First-Tier LGUs or provinces, cities or municipalities
with a minimum of 60% of its Average Regular Income
(ARI*) and has sustained this level of revenue
(income) mix for three-year period prior to MFI
borrowing
*ARI refers to the Average of three-year Regular Locally-Sourced Income to Total
Regular Income of LGUs
Executive Order (EO) No. 809
• How can a project qualify under EO 809?
 The project should be developmental in nature in accordance
with approved local development plans and public investment
programs.
 The project to be financed by the MFI should be included in the
Annual Investment Plan of the LGU.
 The projects to be finance should not be projects that the
domestic private sector can easily support. They can be
projects that require huge investments or long repayment
periods. They can be projects that have high social and
environmental benefits but whose economic benefits cannot be
realized in the short to medium term or are not yet assured.
Executive Order (EO) No. 809
• What are the mandatory terms/ financing
policies of the loan?
 The loan shall be in Philippine Pesos only and the
repayment of loans shall not be denominated in any
other foreign currency;
 The shall be on a stand-alone basis without any
direct or indirect National Government guarantee;
 The terms of the loans agreement shall be marketbased and subject to commercial terms;
 The First-Tier LGU shall not be allowed to use its IRA
as security for the loan
Executive Order (EO) No. 809
• What are the mandatory terms/ financing
policies of the loan?
 The loan agreement and security documents shall entered in to
directly by the First-Tier LGU through its duly authorize
representative, nominee, subsidiary, or instrumentality; and
 The proceeds of the loan shall accrue directly and exclusively to
the First-Tier LGU;
 The loan agreements contracted by the First-Tier LGUs with the
FIs shall comply with all applicable laws, rules and regulations,
orders and issuances, framework, E.O. 809, including the rules
and regulations of the BSP and DOF.
Inventory of Alternative Financing Modalities
Table 1: Alternative Non-Traditional Financing Modalities for LGUs
Financing Alternatives
Modalities
Borrowings
i. Direct Loans
 Government Financial Institution
 Other Government Lending Windows
 Private and International Financial
Institutions
ii. Bond Issuance
Private Sector Tie-Ups
i. BOT and its variants
ii. Supplier’s/Contractor’s Credit
iii. Leasing
Credit Financing – Government Banks
 BSP Circular Letter dated 14 March 2006.
 DOF Department Order No. 27-05 dated 9 December
2005.
 BSP Limitations specifies that:
 All Provincial, City, and Municipal Treasurer,
Commissioner of BIR and BOC, Heads of attached
agencies of the DOF and Heads of all GOCCs shall
deposit their funds and maintain depository accounts
with
A. LBP
B. DBP
Credit Financing – Municipal Development
Fund Office
The Municipal Development Fund, a revolving fund
created under PD 1914, and capitalized and funded
from proceeds of foreign loans, assistance or grants
made available to LGUs for specific purposes,
projects components and activities as stated in
international agreements from foreign governments
and/ or international organizations, was reorganised
under EO 41 as an Office under the DOF and
renamed the MDFO.
MUNICIPAL DEVELOPMENT FUND OFFICE
Financing windows
Eligible Borrowers
Resource Administration and Modernization
Project (RAMP)
All LGUs nationwide
Municipal Development Fund Project (MDFP)
All LGUs nationwide
Millennium Development Goals Fund (MDGF)
All 4th-6th Income class Municipal LGUs
Disaster Management Assistance Fund (DMAF)
All LGUs nationwide except for cities applying
for disaster prevention and mitigation
Mindanao Basic Urban Services Sector Project
(MBUSSP)
All LGUs in Region IX, X, XI, XII, CARAGA,
ARMM
Program Lending (PROLEND)
All Provincial Government
Project Technical Assistance Contingency Fund
(PTACF)
All LGUs except highly urbanized cities in NCR
Refinancing Facility
All LGUs nationwide
Municipio Fund
All 1st – 6th Income Class municipalities
Philippine Water Revolving Fund- Standby
Credit
All LGUs nationwide
Credit Financing – Legal Limits
The BSP directive effectively limits the participation of
private commercial banks in the LGU deposit business
Consequently limiting the participation of private
commercial banks in the LGU lending business since the
IRA account maintained by the LGUs with the government
depository banks provide security to the credit
accommodation.
Nonetheless, the credit market is currently witnessing the
entry of private financing institutions in the LGU lending
business given the right credit mechanisms and revenue
benefits.
PUBLIC-PRIVATE PARTNERSHIP
• Definition:
LGU P4 is defined in two levels:
1. Policy Level is a developmental, innovative,
change and partnership strategy aimed at
promoting the general welfare, inclusive growth and
better quality of life of filipinos
PUBLIC-PRIVATE PARTNERSHIP
2. Project Level – LGU P4 is a contractual
arrangement between the LGU and the private
sector to deliver public infrastructure and/or public
services where each party assumes specified
functions,
bears
certain
risks,
provides
contribution, performs particular obligations and
earns benefits and revenues
PUBLIC-PRIVATE PARTNERSHIP
DILG Guidelines for the Implementation of PPP for the People Initiative
for Local Governments (LGU P4)(DILG Memorandum Circular No. 2016120)
DILG MC 2016-120 provides for the different modalities under LGU P4
that LGUs may adopt in undertaking P4 projects:
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Build-and-Transfer (BT);
Build-Lease-and-Transfer (BLT);
Build-Operate-and-Transfer (BOT);
Build-Own-and-Operate (BOO);
Build-Transfer-and-Operate (BTO);
Contract-Add-and-Operate (CAO);
Develop-Operate-and-Transfer (DOT);
Rehabilitate-Operate-and-Transfer (ROT);
Rehabilitate-Own-and-Operate (ROO);
Rehabilitate-Lease-and-Transfer (RLT);
Rehabilitate-and-Transfer (RT);
PUBLIC-PRIVATE PARTNERSHIP
(cont’)
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Rehabilitate-Transfer-and-Operate (RTO);
Concession;
Joint Venture (JV);
Lease or Affermage;
Management Contract using LGU funds;
Management Contract without using LGU funds;
Service Contract using LGU funds;
Service Contract without using LGU funds;
Divestment or Disposition;
Corporatizations;
Incorporation of a Subsidiary with private sector equity;
Onerous Donations;
Gratuitous Donations; and
Any other modality akin to any of the above, or features thereof, that
falls under the definition of a PPP.
DOF Policies on LGU Loan Certification
• Local Finance Circular (LFC) No. 1-2000, dated 19
January 2000: issued to enhance the access of all
LGUs to credits and other forms of indebtedness.
• LFC No. 01-2012: Amended the previous LFC, and
released on 16 April 2012, to ensure a more accurate
and appropriate evaluation of the maximum borrowing
and debt servicing capacities of all LGUs.
• LFC No. 01-2014: Issued on April 22, 2014 for 171
LGUs affected by Typhoon Yolanda, from 12 to 4
requirements, and extending the validity by 1 year
Latest DOF Policy on LGU Loan Certification
DOF Department Order
No. 54-2016 dated 25
October 2016:
• Streamlining the
Certification of Net Debt
Service Ceiling and
Borrowing Capacity of LGUs
• From 12 to 4 documentary
requirements
• Defined parameters in
computation
• Improved process/ faster
certification
LGU Loan Application Process
Local Government Unit (LGU)
Local Council, through a
Resolution/Ordinance,
authorizes the Local Chief
Executive to negotiate and
contract loans and other
forms of indebtedness
Lending Institution
Bureau of Local Government Finance (BLGF)
Pre-Evaluation/Setting of
Terms and Conditions
BLGF-RO
BLGF-CO
Evaluate LGU request
and supporting
documentary
requirements
Final computation and
issuance of certificate
of NDSCBC
Submit Letter of Intent and negotiate
with the lending institution
No
Submit to BLGF a written request for
certification of LGU Net Debt Service
Ceiling and Borrowing Capacity, with
complete supporting documents pursuant
to DOF Department Order 054.2016
Documents
Complete/
Compliant?
Bangko Sentral ng Pilipinas
Evaluate LGU request
and supporting
documentary
requirements
Monetary Board renders
Opinion on the Monetary
Balance and Payments
implications of the proposed
LGU borrowing, per BSP
Circular No.926 s. 2016
Yes
Evaluate financial reports
of the LGU
Submit the required
additional documents
Compute preliminarily
LGU Net Debt Service
Ceiling and Borrowing
Capacity (NDSCBC)
Re-negotiate with the lending
institution for lower interest
rate, longer tenor, or consider
other lending institutions, then
re-submit to BLGF
Submit to BLGF-CO all documentary
requirements and the preliminary
computation for the issuance of
certificate of NDSCBC
Yes
Proposed Loan
Higher than BLGF
Certification?
No
Submit to BSP a written request for
Monetary Board Opinion
Submit to the Lending Institutions
the BLGF Certification, MB Opinion
and Other Requirements
Approval and Signing of
Loan Agreement with the
LGU
Record receipt of Loan Proceeds
and prepare borrowing reports for
submission to BLGF-RO and BSP
Release of Loan
Receive LGU Post Borrowing
Report
Receive LGU Post Borrowing
Report
Streamlined Documentary
Requirements for Certification
1. Letter request from the Local Chief Executive indicating:
• The lending institution where to apply for a loan;
• Terms and condition of the proposed loan; and
• The purpose of the loan.
2. Certification of existing of loan/s duly certified by the Local
Treasurer with the following details:
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Types of loans & other obligations contracted;
Purpose of the loans & other obligations contracted;
Name of the lending institutions;
Date of approval & maturity;
Terms & conditions (interest rate & number of years to pay);
Remaining balances of loans and other obligations; and
Annual amortization schedules (segregating the principal from the
interest) issued by the lending institution.
Streamlined Documentary
Requirements for Certification
3. COA Annual Audit Certificate for the most recent year, which shall be
supported by the year-end financial reports for the past 3 years:
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Pre-closing trial balance (general fund);
Detailed Statement of Financial Performance
An Agency Action Plan and Status of Implementation (AAPSI) report on
COA recommendations shall be required if the LGU has adverse findings;
and
4. Certification issued by the lending institution stating that it shall not
require LGU deposits as compensating balance for the loan if such lending
institution is not (1) not an authorized government depository bank or (2) an authorized
government bank required to obtain the prior approval of the Department of Finance as
provided under the DOF Department Order No. 27-05 (Banks other than LBP, DBP and
MDFO);
Streamlined Documentary Requirements for Certification
LGUs affected by Natural and/or Man Made Disaster
valid for one (1) year
1. Letter request from the Local Chief Executive indicating:
- The lending institution where to apply for a loan;
- Terms and condition of the proposed loan; and
- The purpose of the loan.
2. Certification of existing of loan/s by the Local Treasurer
• Types of loans & other obligations contracted;
• Purpose of the loans & other obligations contracted;
• Name of the lending institutions;
• Date of approval & maturity;
• Terms & conditions (interest rate & number of years to pay);
• Remaining balances of loans and other obligations; and
• Annual amortization schedules (segregating the principal from the
interest) issued by the lending institution.
3. Certified true copy of declaration of state of calamity.
Features of the Certificate
• Certifies the amounts pertaining to:
• Net Debt Service Ceiling (NDSC)
• Borrowing Capacity (BC)
• Terms of the loan (period, interest, grace period, etc.)
• Name of lending institution
• Purpose of the loan
• Certificate number and date issued
• Notes on the certificate
Features of the Certificate
Features of the Certificate
Computing the NDSC and BC
• Debt Service Ceiling (DSC)
• 20% x Annual Regular Income (ARI)
• Where ARI is the average previous 3-year locally
sourced income + other shares from national taxes
based on COA data, + actual annual IRA based on
DBM data
• Net DSC (NDSC)
• DSC – All amortizations payable during the year
• Borrowing Capacity (BC)
• NDSC x Annuity Factor
Bureau of Local Government Finance
www.blgf.gov.ph