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February 05, 2000

KNOW ALL MEN BY THESE PRESENTS:

This agreement made and entered into this 5th day of February, 2000 at Mambajao, Camiguin, Philippines, by and between:

The SPANISH AGENCY FOR INTERNATIONAL COOPERATION, represented herein by its President and Secretary of State for International Cooperation and Iberoamerica, H.E. Fernando Villalonga, hereinafter referred to as AECI.

And

The SAIL-CAMIGUIN FOUNDATION, a duly registered Non-Government Organisation, created and operating pursuant to the provision of its constitution and by-laws per SEC (Securities and Exchange Commission) registration no. H199900463 dated August 31, 1999, with principal office at Mambajao, Camiguin Province, represented by the interim Chairman, Hon. Pedro P. Romualdo, hereinafter referred to as SCF;

WITNESSETH

WHEREAS, the Ad Hoc Joint Committee of the SAIL Program; (second phase) did identity the need of setting up a system to manage the Livelihood and Credit component through a financial intermediary for the sustainability of the program even after the phase-out of SAIL II;

WHEREAS, a study was conducted by an independent consultant to determine the most viable arrangement for managing the Livelihood and Credit component;

WHEREAS, following the recommendations of the above-mentioned study, the. Livelihood Micro-credit component of the SAIL is to be handled and supervised by the SCF and directly managed by the Development Bank of the Philippines (DBP);

WHEREAS, in order to implement the above-mentioned recommendations the Provincial Government of Camiguin is to turn over the SAIL micro-credit funds and responsibilities to the SCF and the DBP;

WHEREAS, in order to officially formalise the said turn-over, two MOAs were entered, one between the Spanish Agency for International Cooperation (AECI) and the Provincial Government of Camiguin to express the mutual agreement of the turn-over of funds and responsibilities from .the Provincial Government of Camiguin to the SCF, and the second between, the SCF and the DBP to set up the conditions under which the micro-credit funds are transferred to DBP for actual management;

WHEREAS, the sustainability of the SAIL micro-credit program depends greatly on the strengthening of the SCF management systems and activities, especially during its initial two years state of operations;

WHEREAS, a proposal has been submitted by the SCF to the AECI for .financial assistance to cover the capital outlay and the other major technical assistance items of .the SCF budget for the first two years of operations.

WHEREAS, the above mentioned proposal has been approved by the AECI as a path towards the sustainability of the SAIL Micro-credit program that begun in 1992;

NOW, THEREFORE, in consideration of the foregoing premises and their mutual covenants hereinafter set forth, the parties hereby agree;

FIRST. The Government of Spain through the AECI has allotted 15,000,000.00 Pts. (approximately US$ 100,000.00) to assist the SCF in its function of delivering support services to the beneficiaries of the SAIL micro-credit livelihood program during the first two years operations after the turn-over of firms and responsiblities by the Provincial Government.

SECOND. The SCF shall only use the funds granted by the AECI for the purpose of extending livelihood support services to the population intended as target beneficiaries by the SAIL:Micros-credit-Livelihood Program and in accordance with the strategies, objectives and activities set for the said program under the guidance and supervision of the SCF's Board of Trustees (BOT);

THIRD. The SCF shall perform the following functions:

a) accreditation of beneficiaries for the SAIL poverty alleviation micro-credit program,

b) evaluation of project proposals and endorsement: of qualified ones to the Development Bank of the Philippines,

c) monitoring of the projects undertaken by the beneficiaries of the program;

d) delivery of technical assistance and capability Wilding services to the beneficiaries tor the enhancement of the projects implementation,

e) enforcement ot the fulfilment of the terms and conditions of the Agreement signed by and between the SCF and the DBP, chosen as the financial institution which will directly administer the SATL Micro-credit Funds (PhP 8,000,000.00) shall mainly and among others:

- conduct the final evaluation of the target clientele after initial review of the SAIL-Camiguin Foundation,

- release the projects' loans once approved,

- carry out collection activities based, on the amortisation schedule agreed with the beneficiares,

- undertake the necessary loans restructuring and writing-off as well as legal action noon recommendation of the SCF.

FOURTH. The funds granted by the AECI to the SCF shall be used in accordance with the budget incorporated in the project document and approved by the AECI. The allocation of these funds shall follow a percentage guideline, to wit; 89% of the total funds to the "Personnel, Technical Assistance and Capability Building" budgetary item, a 5% to "Operational expenses and Equipment" and the remaining 6% to "Contingency"." The percentages expressed for each budgetary item will prevail in the allocation of funds Ranted unce transferred to the SCF in US Dollars currency.

FIFTH. No realignment of the utilisation of the funds as stipulated in the FOURTH clause of this Agreement shall be effected unless a recommendation is coursed through the SCF Board of Trustees to the AECI and duly approved by the latter.

SIXTH. The SCF shall be responsible for the hiring of technical assistance including the services of a Spanish consultant who shall continuously support and monitor the progress of the micro-credit program, regularly report to the Government of Spain through the AECI the development of the programmed activities and the financial status of the granted iunds .and sit as external assistant in the BOT meetings. This consultant might also be in charge of the follow-up and coordination with other on-going development projects of the AECI in Camiguin.

SEVENTH. The Board of Trustees (BOT) of the SCF shall incorporate the Representative of the AECI in the Philippines as one of its ordinary voting members with no other functions than advisory.

EIGHTH. The SCF shall open one special account under the name "AECI Support Project/SCF" to deposit the fund's granted by the AECI.

NINTH. The disbursement. of the granted operating funds shall be effected by the Coordinator/Liaison Officer (C/LO) of the SCF as signatory and the Treasurer as counter-signatory. In the absence of the Treasurer, the Vice-Chairman shall be the counter-signatory.

TENTH. All interest earnings generated by the deposited fuads shall be utilised for the SCF operations upon recommendation of the Board of Trustees and approval of the AECI.

ELEVENTH. All unused funds either because of non-implementation of the activities as programmed or an overestimate of the budgetary requirements shall be returned to Government of Spain through the AECI.

TWELFTH. The SCF shall facilitate all the information required by the Spanish Bureau of Auditing and fulfil the obligations stated in the article 81.4 of the revised General Budget Law ana its aeveioprneni norms.

THIRTEENTH, The timeframe for the use of the runds granted is two years, beginning the day of the signing of this Agreement (February, 2002). It is expected, therefore., that the SCF will have achieved, at the end of this period, a level of self-reliance as to continue, supporting the sustainability of the SAIL Micro-credit Program.

FOURTEENTH. The SCF shall justify the use of total funds granted by submitting quarterly progress and financial reports with all the necessary support documentation annexed as status of funds bank statements and copy of all liquidation attachments.

FIFTEEN. The SCF shail acknowledge the AECI's support by including, in a visible manner, the logo of the "Cooperacion Espanola" in any presentation of the project.

IN WITNESS WHEREOF, the SCF and the AECI, each one acting on behalf of their representatives, having read the document and expressed their agreement to it, hereby sign four copies of this Memorandum, two (2) copies in Spanish and two (2) copies in English, equally valid on the 5th day of February, 2000 in the Camiguin, Philippines.