NCC abolition to free P8.1B for direct credit

The Arroyo administration is reviving its plan to abolish the National Credit Council (NCC) to free up P8.1 billion in direct credit programs that could be given to borrowers at government-subsidized rates.

Following the uproar over the proposed lifting of Executive Order 138, Cabinet sources said the government is looking into other credit programs that could be used to provide subsidized credit to small borrowers.

EO 138 outlined the government’s policy of requiring all government lending programs to use market-driven interest rates to prevent dole-out programs that have cost billions and repeatedly failed with no measurable impact in the past.

However, rural banks and cooperatives have been lobbying for the Arroyo administration to abolish the order, saying that government programs were competing with private initiatives.

Sources said that since the government met even stronger opposition to the lifting of EO 138, it was instead considering the possibility of abolishing the NCC, an act that would open at least P8.1 billion worth of direct credit programs.

The NCC is a tripartite council that supervises and determines the lending policy for various direct credit programs that remained from the time when government was heavily involved in direct lending.

These direct credit programs were specific programs enacted by Congress that get annual funding either from the General Appropriations Act or whatever special funding mechanism might be provided by law.

Sources said that once the NCC is abolished, these direct credit programs could be converted into ostensibly pro-poor lending programs at less than market interest rates.

The plan of the Arroyo administration would reverse years of effort to wean small borrowers from government doleouts after it pulled out of direct lending. Since the mid—1980s, it has been forced to write off billions of pesos worth of loans due to defaults.

The Aquino administration at the time decided that rather than doling out subsidized credit to small borrowers, it made more sense to instill borrower discipline and creditworthiness so ensure repayment of loans even at market rates.

According to sources, however, the Arroyo administration was deadset on resuming not only direct lending but outright subsidy on lending rates, especially to small borrowers.