Systemic Constraints: Why Lot Owners Find it Difficult to Access Credit

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For almost a year now we have been working on enhancing access to credit by land owners. The first question we asked ourselves, land owners, and banks was, “what systemic factors (policies, procedures, etc) prevents land owners from accessing credit?”
Answer Number One: most land owners do not have titles to their lands. Many occupants of land have all the prerequisites to legally claim ownership - to get Titles to their land - but have not been able to do so. Many lot owners, local government officials, people’s organizations still do not know about new laws (e.g. RA 10023) and procedures (systematic adjudication, public land titling partnerships between DENR and LGUs) and have not taken advantage of faster, cheaper ways to get titles. Some LGUs that have been introduced to systematic adjudication in the context of LGU-DENR partnership have not continued with their efforts, for a variety of reasons. And even those that have sustained their efforts are now facing a new challenge: delays in getting new Residential Free Patents registered by the ROD and the LRA.

Lot owners who still haven’t acquired titles to their lands may, when applying for loans, submit their Tax Declarations. But most banks do not accept Tax Declarations as security, so even when Tax Decs are accepted as part of the loan application’s supporting papers, the loans that are given out are still unsecured loans.

A second constraint is insufficient knowledge about titles, particularly the Residential Free Patent, on the part of both some banks and many title holders. Many bank officials are familiar with the Agricultural Free Patent and its five-year contestability period. Most of them think the Residential Free Patent has a similar encumbrance (it does not). So when a Residential Free Patent is presented as security, they decline to accept it, or don’t know what to do with it.

Many RFP holders think their title only serves to give them security of tenure. They are not aware that these can also be offered as collateral.

Third constraint: some banks report substantial delays in having titles annotated as collateral. When a title is presented as collateral, it has to be annotated as such with the ROD/LRA. The process can take so much time that some banks refrain from going through the process at all - by refusing to accept titles as collateral.

Fourth constraint: procedures and requirements for bank loans can be so complicated that loan applicants would prefer to go to other sources of credit. This explains why “finance investment” companies and even the neighborhood “five-six” are still popular sources of loans.

Having seen these systemic constraints (so far), the next challenge for our team - and our bank, LGU and other partners - is to explore development reforms to address these constrains. I will report on our progress as we go along.


Got any ideas we should try? Perhaps you have been involved in, or have heard of, similar studies or projects that you think could be relevant; please feel free to share.

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