Philippines - Small Farmer Development - Land Bank - Project

Dotmmt of The World Bank FbR OFFICLAL USE ONLY MICROFICHE COPY Repot No. 10349 Report No. 10349-PH Type: (PCR) RICE, E.B./ X31755 / T9-059/ OEDD1 PROJECT COMPLETION REPORT PHILIPPINES SMALL FARMER DEVELOPMENT PROJECT (LOAN 1646-PH) FEBRUARY 21, 1992 Agriculture Operations Division Country Department I East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Cur.rncy Unit - Prno (P) Rat. of Exchanae (Average for Year) Appraisal May/JunLe 1978 - US$1.00 - P 7.25 1979 - US$1.00 - P 7.38 1980 - US$1.00 - P 7.51 1981 - US$1.00 - P 7.90 1982 - US$1.00 - P 8.54 1983 - US$1.00 - P 11.11 1984 - US$1.00 - P 16.70 1985 - US$1.00 - P 18.61 ABBREVIATIONS CB - Central Bank of the Philippines CIDARE - Comiittee on Infrastructure Development in Agrarian Reform Areas EDCs - Estate Development Coordinators EMO1 - Estate Management Groups IEDP - Integrated Estate Development Program LBP - Land Bank of the Philippines MAR - Ministry of Agrarian Reform MCC - Multi-Agency Coordinating Committee MOA - Ministry of Agriculture PCR - Project Completion Report PICs - Provincial Infrastructure Committees SFDP - Small Farmer Development Project GOVERNMENT OF THE PHILIPPINES FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES ha - hectare (2.47 acres) mt - metric ton (2,204 pounds)  THE WORLD BANK FOR OMCIAL USE ONLY Washington, D.C. 20433 U.S.A. Offce of ODirVo@CIOGIIWAl Opuiatim. E'aiualuir February 21, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Compietion Report on PHILIPPINES - Small Farmer Development Prolect (Loan 1646-PH) Attached, for information, is a copy of a report entitled "Project Completion Report on the Philippines: Small Farmer Development Project (Loan 1646-PH)" prepared by the East Asia and Pacific Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties.' Its contents may not otherwise be disclosed without World Bankt authorization.  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT PHILIPPINES SMALL FA MER DEVELOPMENT PROJECT (LOAN 1646-PH) Table of Contents Page No. Preface . . . . . . . . . . . . . . . . . . . . . . . . . . .i Evaluation Summary . . . . ............ ..... iii PART I PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . . .1 1. Project Identity . ...... . . ....... . . . 2. Background . . . . . . . . . . . . . . . . . . . . . .1 3. Project Objective and Description . . . . . . . . . . 2 4. Project Design and Organization . . . . . . . . . . . 3 5. Project Implementation . ... . . . . . . . . . . . . . 3 6. Project Results . . . . . . . . . . . . . . . . . . . 5 7. Project Sustainability . . . . . . . . . . . . . . . . 9 . Bank Performance . . . . . . . . . . . . . . . . . . . 9 9. Borrower's Performance . . . . . . . . . . . . . . . . 9 10. Project Relationships. 10 11. Consulting Services . . . . . . . . . . . . . . . . . 10 12. Project Documentation and Data . . . . . . . . . . . . 10 PART II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . . . . . . 11 PART III STATISTICAL INFORMATION . ..13 1. Related Bank L oans ..13 2. Project Timetable . . . . . . . . . . . . . . . . . . 14 3. Loan Disbursements ..15 4. Project Implementation . . . . . . . . . . . . . . . . 16 5. Project Costs and Financing . . . . . . . . . . . . . 17 A. Project Costs . . . . . . . . . . . . . . . . . . 17 B. Project Financing . . . . . . . . . . . . . . . . 19 6. Project Results .. 20 A. Direct Benefits ..20 B. Economic Impact . . . . . . . . . . . . . . . . . 21 C. Financial Impact . . . . . . . . . . . . . . . . . 21 D. Studies .. . 24 7. Status of Covenants. . 25 8. Use of Bank Resources . . . . . . . . . . . . . . . . 26 A. Staff Inputs ..26 B. Missions ..27 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Page No. Annexes 1. Conversion Factors Used in Estimation of Economic Rates of Return . . . . . . . . . . . . . . I . . 29 2. Credit Sub-projects - Financial and Economic Results . 30 3. Performance of Credit Component - Tables 1-3 . . . . . 31 4. Cash Flows - Tables 1-10 (available in Regional Files) Map - IBRD No. 22431  PROJECT COMPLETION REPORT PHILIPPINES SMALL FARMER DEVELOPMENT PROJECT (LOAN 1646-PH) PREFACE This is the Project Completion Report (PCR) for the Small Farmer Development Project in the Philippines, for which Loan 1646-PH in the amount of US$16.5 million was approved on December 21, 1978. The loan was closed on June 30, 1985 after two extensions of one year each. An undisbursed balance of US$835,244.49 was canceled. Parts I and III of the PCR were prepared by the East Asia and Pacific Regional Office; Part II includes comments on Parts I and III provided by the Land Bank of the Philippines, the main executing agency for the project. The PCR is based, inter alia, on the findings of an FAO/World Bank Cooperative Program completion mission which visited the Philippines in late 1988; the Staff Appraisal Report; the Loan and Project Agreements; Supervision Reports; correspondence between the Bank and the Borrower or LBP; and internal Bank memoranda. The Bank wishes to thank the FAO/World Bank Cooperative Program, the Land Bank of the Philippines and other agencies of the Philippines Government for their assistance in preparing this PCR.  - iii - PROJECT COMPLETION REPORT PHILIPPINES SMALL FARMER DEVELOPMENT PROJECT (LOAN 1646-PH) EVALUATION SUMMARY Obiectives 1. The main objective of the Small Farmer Development Project was to increase rural incomes by enhancing agricultural productivity and expanding rural employment opportunities among smallscale farmers, most of whom were beneficiaries of Government's agrarian reform program. This was to be achieved through the coordinated delivery of technical assistance, improved infrastructure and the provision of credit by che Land Bank of the Philippines (LBP) to beneficiaries in land reform areas. Assistance was also to be provided to LBP to improve the performance of its field support services. Total project costs were estimated at US$37 million, against which a Bank loan of US$16.5 million was provided. It was expected that the three-year project would be completed by June 30, 1982, and the loan would be closed on June 30, 1983. Implementation Experience 2. A number of problems became apparent soon after project start-up. LBP began to face a series of issues which had their origin in the inherent conflict between its mandate to operate as a banking institution and its social responsibilities as an agent of the Government's agrarian reform program. Management of th_ Integrated Estate Development Programs (IEDPs) was not entirely successful, mainly due to limited technical expertise. Although a national Committee on Infrastructure Development in Agrarian Reform Areas (CIDARE) was formed, coordination and monitoring of infrastructure works remained poor. The project was completed in June 1985, about three years behind schedule. 3. Credit Component. Bank loan disbursements were slower than expected for term credit, with only about 70 parcent of the targeted amount disbursed by the end of the original three year implementation period. The main constraints were the poor credit standing of the agrarian reform beneficiaries (ARBs) and slow progress in expanding LBP's field services. However, by the end of the project, total term credit disbursement (F367 million) was broadly in line with appraisal expectations (F360 million in 1985 prices), and seasonal credit (not included for Bank reimbursement at appraisal) of P135 million in 1985 exceeded the appraisal target of P124 million (in 1985 prices). At project completion, term credit was only 38 percent of total project costs (54 percent expected at appraisal) and seasonal credit 46 percent (24 percent expected at appraisal).  - iv - Only 7,000 'n- s (or 5.5 percent of the total 127,000 loans made under the project) wer- r term credit. 4. Init.-ally, LBP concentrated on providing credit to priority target groups, that is, ARBs, but to overcome slow credit delivery LBP increasingly promoted lending to second priority borrowers, including farmer groups, for integrated livestock projects, fish farwing and sugarcane development. These sub-projects were not generally successful and many were discontinued when the anticipated benefits did not materiali2e. 5. LBP's collection performance on term loans was poor at 43 percent; the arrears ratio (past due loans to amount due) was as high as 60 percent. Although precise figures were not available, it was estimated that about 70 percent of the loans granted by LBP's field offices were more than three years overdue. Short term credit collection was comparatively better at 62 percent. Collection performance problems reflected the cumulative impact of inadequste professional field staff, poor supervision and appraisal standard, and the deteriorating economic conditions prevailing during the early 1980.. The latter was probably a substantial reason for the poor collection rate. The sub-borrowers' perception that land amortization loans were Government grants also carried over, affecting attitudes towards repayment of other categories of LBP's loans. A limiting factor was the inability (by law) of LBP to impose sanctions against the security of the land for recovery of loans. LBP's net losses under the project were approximately 15 percent of the outstanding loans during 1985. These losses were covered by LBP's profits from its commercial credit and other banking activities. 6. Minor Infrastructure. To improve production in IEDP areas, the project was to support minor and scattered infrastructure works such as feeder roads, irrigation canals, and flood control dikes. To oversee implementation, CIDARE was set up at the national level, with counterpart executing committees (PICs) at provincial level. The main constraints were the lack of authority given to the CIDARE/PICs to control counterpart funds, poor inter-agency cooperation, and lack of technical competence. Poor sub-component definition in the SAR caused considerable confusion in the selection of sub-projects for Bank reimbursement. This was resolved in 1981 when, by amendment to the project documents, it was agreed that all sub-projects completed after January 1979 on landed estates could be reimbursed. At project completion, 64 minor infrastructure projects had been carried out. Some of these were of poor construction standard, raising doubts about the extent and sustainability of the benefits of this project component. 7. Field Support Services. The requirements for LBP field support services to facilitate the coordinated delivery of technical assistance to ARBs were seriously underestimated at appraisal. A total of about 50 Estate Development Coordinations (EDCs) and a similar number of subordinate field staff were to have been employed by the end of project implementation, with an EDC: farmer ratio of 1:300. By the end of 1985, however, about 70 EDCs and 510 other field staff had been employed with an EDC: farmer ratio of about 1:700. Only about 64,000 farmers (50.4 percent of the 127,000 farmer borrowers) were visited during 1985. Cooperation with and technical assistance provided by the staff of the Ministry of Agriculture was below expectations, partly because of budgetary  - v - constrainta. The increase in LBE's field staff and the extended project implementation period raised the costs of projbct serv.ces about five tim -s above those expected at appraisal. Proiect Re-sults 8. Overall, the projoct was unsatisfactory. Although most quantitative targ te were met and some exceeded, due to a much longer implementation period than envisaged at appraisal, the project impact in terms of production and farm incomes has been much lower than expected. Available data are insufficient to allow calculation of a project economic rate of return but they show that investments in farm mechanization, post-harvest facilities, farm support and development, and poultry (200 layers) yield very low or negative rates of return. These investments accounted for over 50% of the term credit provided under the p.oject. Data relating to the impact of the short-term credit on beneficiaries' income are not available. The impact of the project on LBP's profitability was negative. LBP's loan collection performance was unsatisfactory. The interest rate of 12% on term loans was, on the average, negative in real terms due to unexpectedly high inflation rates in 1984 and 1985. The results of the infrastructure component are also not very satisfactory (para. 6). However, the project made a partial contribution to LBP's institutional strengthening. This was the first Bank loan to LBP and it assisted LBP in strengthening its rural banking operations. Sustainabilitv 9. Overall, the sustainability of the project, particularly that of the term credit and support services for agrarian reform beneficiaries provided under the project, is, at best, uncertain. However, the project has facilitated a sustainable LBP presence in the land reform areas which should be of increasing value in the future. LBP's performance, particularly in agricultural lending, has improved significantly during the late 1980s/early 1990s. Findin2s and Lesson Learned 10. The following are the main lessons to be drawn from implementing this project: (a) specific criteria for selecting, evaluating, and supervising sub- projects should be laid down to ensure the financing of viable activities (PCR, para. 9.1); (b) continuous training of field staff covering sub-project appraisal, borrowers' repayment capacity and cash-flow, loan administration and collections is required (PCR, para 9.1); (c) a stronger market research on agricultural investment and an improved management information system are important elements for ensuring project success (PCR para 9.1); and  - vi - (d) interest rate for agricultural lending should be adjusted to better reflect market rates and to fully cover costs and margins (PCR, para 9.1).  PROJECT COMPLETION REPORT PHILIPPINES SMALL FARMER DEVELOPMENT PROJECT (LOAN 1646-PH) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity Project Name : Small Farmer Development Project Loan No. : 1646-PH RVP Unit : East Asia and Pacific Region Country : Philippines Sector : Agriculture Subsector : Agrarian Reform/Rural Credit Borrower : Republic of the Philippines 2. Background 2.1 General. In 1977, at the time of project appraisal, agriculture accounted for about half of total employment and over 50 percent of foreign exchange earnings in the Philippines. Three-qurters of the land under cultivation was devoted to grain production, mainly rice and corn. About 70 percent of the population (total 42.5 million in 1977) lived in rural areas, with 60 percent depending directly on agriculture. Structurally, Philippine agriculture was dominated by small-scale farmers with a national average land holding of about 3.6 ha. Prior to the land reform initiated in the early 1970s, a large proportion of rice and corn farmers had worked as sharecroppers on privately owned estates. Most arable lands had already been brought under cultivation, making the Government's declared policy of sustained self- sufficiency in food grains critically dependent on increased productivity of already occupied lands. Improved technology for irrigated rice cultivation did exist and was belng successfully introduced, but there was no comparable technical base fo' pland crops, amongst which corn was the most important. 2.2 Land Tenure and Agrarian Reform. About 30 percent of all farms were operated by tenants, with a further 12 percent being lands under Government ownership (1971 Agricultural census). Landlords with cash rental or share- cropping arrangements were the main providers of credit, inputs and, in certain cases, marketing assistance. In 1972, aiming to promote family-owned smallholdings as the foundation of Philippine agriculture, GOP declared all tenanted rice and corn farms as land reform areas, under Presidential Decree No. 27. Operation Land Transfer (OLT) was applicable to all farms ("Estates") above 7 ha and a Leasehold Enforcement Program applied to all those below 7 ha. The Ministry of Agrarian Reform (MAR) was responsible for overall administration of the program, and the Land Bank of the Philippines (LBP) was to handle the  financing of land acquiaition under OLT. After some initial progress, problems associated with poor survey standards and an inadequate institutional framework greatly slowed implementation of the agrarian reform. Nonetheless, by March 1978, some 227,000 farmers, cultivating about 445,000 ha, had been issued Certificates of Land Transfer (CLTs) and a smaller number (37,000) had already signed Farmers' Undertakings, committing them to repay LBP the value of the lands they had received. It was recognized that these farmers would require assistance to enable them to become self-sufficient after severance from their former landlords, upon whom they had depended for financing and a wide range of services. 2.3 The Small Farmer Development Project (SFDP) was designed to address the needs of low-income small farmers, particularly those participating under the agrarian reform program. It was complementary to several other Bank efforts in the Philippines in the mid-1970s, aimed at addressing the development needs of small farmers. The project was appraised in 1;-06, and an agreement for a loan of US$16.5 million was signed in January 1979. With a total estimated cost of US$37 million, the project was to be implemented in three years, with project completion planned for June 1982 and loan closing in June 1983. The loan became effective in April 1979 and was actually closed in June 1985, after two extensions of one year each. 3. Proiect Obiective and Description 3.1 The main objective of the project was to increase the incomes of agrarian reform beneficiaries by improving farm productivity and generating of f- farm employment activitiee. This was to be achieved through the coordinated delivery of technical assistance, improved infrastructure and the provision of seasonal and term credit by LBP to beneficiaries in land reform areas. Assistance was also to be provided to LBP to improve the performance of its field support services. The project was national in scope, with a main concentration in the rice growing lowlands of Central Luzo:. where proximity to existing or proposed LBP offices in declared agrarian reform areas was an important consideration in selecting beneficiaries. 3.2 Short-term credit was to be provided to meet the seasonal costs of production, mainly for rice, corn and vegetables, and the marketing requirements of Samahang Nayons (SN) and area marketing cooperatives. Medium-term credit was to be provided for livestock and poultry, farm mechanization and post-harvest facilities, as well as for the development of cottage industries. The World Bank loan financed only medium-term credit, leaving the seasonal credit entirely to the Government. A second major component for infrastructure im2rovement in selected project areas included construction of feeder roads, flood control and communal irrigation. Sub-components were to be executed by appropriate line agencies, following approval of development plans by the national Committee on Infrastructure Development in Agrarian Reform Areas (CIDARE), set up specifically for the project. Funds were also to be provided for the strengthening of LBP field offices and for socio-economic studies, including reviews of delivery mechanisms and means of promoting farmer participation. Of the total project cost, 21 percent was allocated to seasonal credit, 49 percent to term credit, 15  -3 percent to infrastructure, 4 percent to LBP field support services and studies, and the rest to physicel and price contingencies. 4. Prolect Detign -nd Organization 4.1 The project concept was based on the perceived needs of small farmers who hLad entered into Farmers' Undertakings to repay loans to LBP for the purchase of the lands they had previously tenanted. It was designed to promote their independence and to support the Government's policy of creating family-owned smallholdings. The implementation arrangements for the project appeared to include all necessary institutions, with the proposed interaction of LBP, MAR and CIDARE. 4.2 Due credit must be given to LBP for having developed a number of innovative approaches to dealing with its agrarian reform mandate, including the implementation of Integrated Estate Development Programs (IEDPs) and the setting up of a subsidiary called Masaganang Sakaha Inc. (MSI) to finance and provide support services to small farmers. Unfortunately, results were less than satisfactory because of an overestimation of the capacity of LBP to expand field operations quickly and simultaneously throughout the country and still maintain adequate loan appraisal and collection standards; an unrealistically short implementation period; and some technical assumptions which proved to be over- optimistic in the absence of adequate extension services and replicable technologies. Another innovative effort was the financing of a warehousing scheme to assist in crop marketing, whereby storage facilities were to be provided against payment-in-kind (mainly palay) to amortize construction, with organized farmer groups taking over and managing these warehouses. However, apart from providing facilities for LBP field staff and drying floors for local farmers, the scheme was not successful because farmers did not use the storage facilities for fear of seizure against past due loans. 5. Proiect Implementation 5.1 General. Soon after the initiation of project implementation, LBP began to face a series of issues which had their origin in the inherent conflict between its mandate to operate as a banking institution and its social responsibilities as an agent of the Covernment's agrarian reform program. Management of the IEDPs was not entirely successful, mainly due to limited technical expertise. To help strengthen LBP, a number of local consultant groups were employed to train its staff, carry out studies, develop community organizations, and improve accounting procedures, with varying degrees of success. Although CIDARE was formed, coordination and monitoring of infrastructure works remained poor. 5.2 Two priority categories of borrowers were serviced under the project. The first included agrarian reform beneficiaries and the second was other farmers, including voluntary groupings involved mainly with integrated small livestock projects, and medium-scale commercial entrepreneurs.  - 4 - 5.3 Credit Component. Initial Bank loan disbursements for term credit, which was the main component, were slow, with only about 70 percent of the targeted amount disbursed by the end of the original three-year implementation period, although final disbursements for term credit were broadly in line with appraisal targets. The main difficulties were the poor credit standing of the agrarian reform beneficiaries and slow progress in expanding LBP's field services. The total amount of short-term credit advanced by the end of the project period substantially exceeded appraisal targets. For both seasonal and term credit, there were significant deviations from the distribution envisaged at appraisal (Table 1): Table 1: SEASONAL AND TERM CREDIT PERFORMANCE (P million) SAR Tarzet /a Achievement /b Category (in 1978 (in 1985 (in 1985 Current l________________________ prices) prices) prices) Prices Short-Term Credit Production credit 27.0 95.2 69.5 69.5 Marketing credit 8.1 28.6 65.5 65.5 Subtotal 35.1 123.8 135.0 135.0 Medium-Term Credit Livestock poultry 61.80 170.60 141.60 63.54 Farm mechanization 26.60 73.40 48.20 21.56 Post-harvest faci- 21.60 59.60 92.60 46.29 lities Cottage/agro- 20.30 56.10 50.10 24.42 industry Farm support and _ - 34.90 18.63 development Subtotal 130.30 359.70 367.40 174.44 /a Estimated at Year 3 in SAR. Lk Over 7 years' actual project implementation. Source: LBP. 5.4 Interest Rate. Under the project, loans to individual borrowers carried an interest rate of 12% p.a. This rate was, at the time of appraisal, comparable to rates charged on similar loans by other institutions in the country. The loan proceeds were onlent to LBP at Bank's rate of 7.35% leaving a spread of 4.65% to cover operating costs and expected loan losses. Foreign  exchange risk was assumed by the Government and no fee was charged against it. Inflation rate at appraisal was expected to be 6.0 to 7.5% p.a. for various cost items during the original project implementation period (1979-82), which made the lending rate of 12% positive in real terms. However, project implementation was extended for another three years, closing in mid 1985. The average inflation rate over this period (1979-85) was 18% p.a., resulting in a neg4tive real interest rate. 5.5 Minor Infrastructure. This component addressed minor infrastructure needs to improve production in IEDP areas. To oversee implementation, a policy making inter-agency Committee (CIDARE) was set up at the national level, with counterpart executing committees at provincial level (Provincial Infrastructure Committees, PICs). Estate Development Coordinators (EDCs) identified infrastructure needs in IEDP areas and line agency field officers undertook feasibility studies. Works carried out included barangay roads and bridges, and communal irrigation projects. Flood control measures planned at appraisal were not undertaken. The main constraints were the lack of authority given to the CIDARE/PICs to control counterpart funds, poor inter-agency cooperation and lack of technical competence. Poor subcomponent definition in the SAR caused considerable confusion in the selection of subprojects for Bank reimbursement. This was resolved in 1981 when, by amendment to the project documents, it was agreed that all subprojects completed after January 1979 on landed estates could be presented for reimbursement. 5.6 Field Support Services. The coordinated delivery of technical assistance to beneficiaries of the agrarian reform program was to be a key feature of project design. In 1981, through a "Memorandum of Agreement", the LBP entered into an arrangement with the Ministry of Agriculture (MOA) and MAR to create a Multi-Agency Coordinating Committee (MCC) to assist with implementation of the IEDPs. The national MCC formulated policies and guidelines for provincial MCCs, which supervised execution through Estate Management Groups (EMGs). These groups included senior MOA representatives, the EDC (LBP), MOA technical personnel and representatives of infrastructure agencies working in the agrarian reform areas. After initial success, commitment waned and linkages weakened, creating a heavy workload for the EDCs, particularly as cooperation between the MOA technical bureaus and the EDCs was not successfully developed. LBP field operations were improved by the recruitment of about 580 EDCs and other field staff by 1985, but with an EDC to farmer ratio of about 1:660, this proved to be inadequate to service loans and provide the necessary technical assistance. 6. Prolect Results 6.1 Credit. Short-term credit was provided for farm inputs such as fertilizer, crop protection chemicals, seed and hired labor, and to finance the marketing needs of Samahang Nayons (SN) and cooperatives. Term credit was provided for individual and group activities, including backyard livestock development (poultry and duck raising, cattle fattening/breeding and pig raising), farm mechanization (hand tractors and power tillers), draft animals, irrigation pumps, rice threshers and other post-harvest facilities. The total number of loans made under the project is reported by LBP at about 127,000, of  -6- which some 7,000 were for term credit. Of the latter, agrarian reform beneficiaries accounted for 93 percent (6,522), but received only P 87.6 million or 50 percent of the total volume of term lending."' A large amount of term credit (P86.7 million) was distributed to some 300 second priority borrowers, the average size of their loan being about 20 times larger than that provided to agrarian reform beneficiaries and other small-scale farmers.21 The distribution of first and second priority borrowers is not available for seasonal credit, which was not included for reimbursement by the Bank at appraisal. 6.2 Initially, LBP concentrated on providing credit to priority target groups. However, at the end of the original three-year implementation period, to boost credit delivery, which had been constrained by sizeable arrearages in loans to agrarian reform farmers, LBP increasingly promoted lending to second priority borrowers, including farmer groups, for integrated livestock projects, fish farming and sugarcane development. These subprojects were not generally successful, and many were discontinued when the anticipated benefits did not materialize. 6.3 LBP's collection performance on term loans was poor at 43 percent (end- 1985); the past due and arrear ratios were as high as 40 percent and 60 percent respectively (Table 2). Although precise figures were not available, it was estimated that about 70 percent of loans granted by LBP's field offices were more than three years overdue. Short-term credit collection performance was comparatively better at 62 percent. Collection performance problems reflected the cumulative impact of inadequate field staff, weak collection strategies, poor supervisior. and appraisal standards, and the deteriorating economic conditions prevailing during the early 1980s. The last was probably a substantial reason for the poor collection rate. The subborrowers' perception that land amortization loans were Government grants also carried over, affecting attitudes towards repayment of other categories of LBP loans. LBP could not proceed against the security of land for the recovery of loans as, under Presidential Decree No. 27, lands allotted to agrarian reform beneficiaries were not alienable. LBP's net losses under the project were approximately 15 percent of the outstanding loans during 1985. These losses were covered by LBP's profits from its commercial credit and other banking business.