Position Paper on Section 3.01 of the IRR of RA 11469 Section 4 (aa)
The COVID-19 pandemic continues to pose serious threats to health and has already disrupted the economy. This prompted the government to enact Republic Act No. 11469 otherwise known as the “Bayanihan to Heal As One Act,” declaring a state of national emergency in order respond to the urgent needs of the people.
It is in response to this urgent need and call that the Ateneo-SEDPI Microfinance Capacity Building Program (Ateneo-SEDPI MCBP) recognizes our role in aiding government to promote and protect the interests of the Filipino people, especially low income groups, in these challenging times. For the past 14 years, Ateneo-SEDPI MCBP provided training, research and consulting services to more than 2,000 microfinance institutions in the Philippines with a combined outreach of 10 million low income households.
SEDPI invests in 15 cooperatives and microfinance NGOs nationwide. It also directly provides financial services to more than 8,000 low income households in Mindanao. SEDPI works in partnership with Pag-IBIG, Social Security System, Land Bank of the Philippines and Development Bank of the Philippines to bring social protection and welfare services closer to low income groups.
Remaining true to our vision and mission, we commit to do our moral and lawful duty to provide a “grace period” for the loans of our microfinance clients.
In Section 4 (aa) of RA 11469, the law directs:
“ . . . all banks, quasi-banks, financing companies, lending companies, and other financial institutions, public and private, including the Government Service Insurance System, Social Security System and Pag-IBIG Fund, to implement a minimum of a thirty (30)-day grace period for the payment of all loans, including but not limited to salary, personal, housing, and motor vehicle loans, as well as credit card payments, falling due within the period of the enhanced Community Quarantine without incurring interests, penalties, fees, or other charges. Persons with multiple loans shall likewise be given the minimum thirty (30)-day grace period for every loan . . . ”
However, we noticed an inconsistency with the implementing rules and regulation (IRR) of RA 11469. In Section 3.01 of the IRR of RA 11469 where “Mandatory Grace Period” was discussed, it states that:
“ . . All Covered Institutions shall implement a 30-day grace period for all loans with principal and/or interest falling due within the ECQ Period without incurring interest on interest, penalties, fees and other charges. The initial 30-day grace period shall automatically be extended if the ECQ period is extended by the President of the Republic of the Philippines pursuant to his emergency powers under the Bayanihan to Heal as One Act . . . [emphasis added]”
The text of RA 11469 clearly provides in Section 4 (aa) that all loans falling due within the period of the enhanced community quarantine shall not incur interests, penalties, fees, or other charges. This provision of the law was not adhered to by the IRR when it said that “ . . . All Covered Institutions shall implement a 30-day grace period for all loans with principal and/or interest falling due within the ECQ Period without incurring interest on interest, penalties, fees and other charges . . .” [emphasis added]
Prohibiting financial institutions to impose “interest on interest” is far different from prohibiting them to impose “interest” on loans. The IRR provides that financial institutions are only mandated to cancel the additional interest that may be imposed due to late payment of the loan. This is different from what the law really provides which mandates financial institutions to totally cancel the interest of the loan for the duration of the quarantine period.
Many of our clients who have loans (microcredit) with us used this to finance their livelihood. In a community assessment we conducted on March 31, 2020, 40% of our members completely stopped their lovelihoods and another 40% reported weakened livelihoods. We were not able to reach the remaining 20% because they live in places where cellphone signal could not reach them.
This is why we, in the microfinance industry, applaud RA 11469 for canceling the interest of loans during the duration of the quarantine. In fact, as early as March 15, 2020 we already declared a moratorium on loan repayments to our clients. This means that interest on these loans for the quarantine period will not be charged.
However, if the IRR will be implemented, only “interest on interest” will be canceled and not the whole “interest” of loans during the quarantine period. This will create a huge problem for MFIs since most access loans through commercial banks. If the IRR will be implemented, MFIs will still have to pay the interest on loans from commercial banks even if MFIs already canceled the interest on the loans of our clients.
With the current IRR, MFIs will bear the brunt of the cost of interest which may endanger their financial sustainability. There is also a good chance that this interest will be passed on eventually to microfinance clients who are already bearing the biggest impact of the pandemic.
With this, we strongly urge the concerned agencies of our government – Bangko Sentral ng Pilipinas, Department of Finance and Securities and Exchange Commission – to review the IRR of RA 11469. We would like to the IRR to follow the spirit of RA 11469. Hence, we call for the revision of Section 3.01 of the IRR of RA 11469 for it to remain true to the provision of Section 4 (aa) of RA 11469.
We hope that this matter will be resolved soon. The spirit and purpose of the Bayanihan to Heal as One Act must be genuinely upheld. We call for the government to completely prohibit interest charging on loans during the enhanced community quarantine.
It is our fervent hope that this crisis will be put to an end soon. MFIs will remain a partner of the Filipino people in securing their livelihood, health, and safety all throughout this challenging times until we are able stand up again as a strong and progressive nation.
Thank you very much and may God bless our country.
In the spirit of Bayanihan and in service of the Filipino people.