Friday, July 26, 2013


(Note:  We are reprinting excerpts from the Keynote Address by COOP NATCCO Party List Rep. Cresentee C. Paez, during the July 19, 2013 4th PICPA COOPERATIVE DAY, held at Hotel Intercontinental Manila, in Makati City.

In time with PNoy's SONA, and in the absence of a similar one from the co-op regulator, I dare say that this could have been a "State of Cooperative Movement Address."

 This speech becomes of more relevance, since Rep. Paez had been chosen as the Chairman of the House Committee on Cooperatives recently. )



     "....The good news is that our sector keeps growing, registering a growth rate 19.22% in membership which is now 11.6 million; a growth rate of 22.38% in assets, which is now P263.42 billion; and a growth rate of 25.25% in volume of business which is P459.24 billion.

     With all these figures, however, the question is:

     How stable are we financially?
     How competitive we are in the marketplace?
     How good we are in servicing our members?
     More importantly, have we accomplished our mission 
     in helping eradicate poverty?


     Now, I challenge the CDA to give us data and the information to answer those questions.  I also challenge the federations to gather data from your primaries and tell us how strong we are? 

     How credible we are with reference to the overall performance of the cooperative sector, particularly its contribution to the GDP.  For example, the BSP as regulator of banks, is always up-to-date in informing the public on the status of the banking industry.


     As we all know, there are 22,555 cooperatives as of December 31, 2012.  These cooperatives must be audited annually by accredited CPAs to be compliant per provision of the cooperative law.  But the question is do we have enough accredited CPAs to conduct regular audits?

     Also, there are provinces where you have only 1 or 2 accredited CPAs who are supposed to audit 100 to 200 cooperatives existing in a particular province.  Cooperatives in these provinces like Mindoro Occidental, Mindoro Oriental and Marinduque, to mention a few, have to hire auditors based in Lucena City or Batangas City.  This situation would make audit costly and scarcely.

     What we should do with the cooperatives which cannot afford to pay the cost of external audit?  Of the 22,555 cooperatives, I guess, the 78.5% classified by CDA as micro and small, are those which cannot afford to pay the external auditors.  That is why, my office has been receiving requests for a subsidy.


     We have many cooperative, but are weak.  It is better to have a few cooperatives but stronger and better with large resources and more numbers.  Can government, through CDA, provide incentives to cooperatives which are consolidating and merging, similar to the strengthening program of BSP for cooperative banks?

     I would like to see cooperative consolidating - reducing the number from 22,555 cooperatives to perhaps to 10,000 but increasing membership from 11 million to 22 million in the next 3 years.  Let's revolutionize cooperatives by putting up more branches rather than creating more cooperatives.


     What is the general perception of the public on the cooperative sector?  Are our cooperatives credible and successful business model in our country?  The answer is Yes and No.  Yes, because we have 356 large cooperatives of over P100 million assets with combined resources of P168.28 billion.

     No, because we have 17,243 micro and weak cooperatives who are still struggling for survival.  This is the headache of the CDA because these cooperatives are under-capitalized and poorly governed.  The strategy must be to collectivize their businesses or allow themselves to be absorbed by bigger ones.


     Our credit cooperatives, particularly the big ones, are getting more credible as depository of time deposits of members who need a higher return of their money compared to the banks.  But we are less credible as to public perception because our deposits are not secured and because we are not under the supervision of the Bangko Sentral ng Pilipinas.

     Our CDA is viewed as weak.  I filed a bill to strengthen the regulatory power of the CDA and reconfigure its organization structure to make it more focused, more specialized and more cost-efficient.


     To improve the credibility of cooperative engaged in deposit-taking and credit-granting with full banking functions which will be allowed by BSP, I am exploring the idea of crafting a separate law for savings and credit cooperatives.

     Basically, the idea is that this type of cooperatives will be operating at the same level of functions with the banks.  This is similar to the credit unions  in the US, Canada, Australia and Europe.

     Cooperatives with assets of more than P100 million are mostly engaged in savings and credit operations.  These cooperatives, numbering 400, are the financial backbone of the cooperative sector, and they are very successful, gaining trust and confidence of the communities and the general public where they are operating.  In fact, many of these cooperatives are bigger than rural banks.


     It is my view that these cooperatives should be subjected to rigorous supervision and inspection by CDA than other types of cooperatives.  There must be a separate and highly-skilled supervision and inspection unit within CDA structure.

     If we have BSP examiners for banks, then we should have CDA examiners for credit cooperatives.  Since CDA is understaffed, there is need to accredit federations to conduct supervision and inspection of their affiliates with strict monitoring by CDA.


     As financial institutions, credit cooperatives manage substantial funds belonging to others, namely their members.  This fiduciary responsibility requires credit cooperatives to be supervised by a knowledgeable external agency.

     There can be a different organizational arrangements for carrrying out these responsibilities.  In Germany, the cooperative banks are audited by their auditing federations with delegated authority from government.  Their federations' auditors are accountable to the Central Bank of Germany.


     We need to have own PDIC or deposit insurance for credit cooperatives. Of course, we have established CODIS Federation but it needs to be credible and fully supported by the cooperative sector.  If government is subsidizing PDIC, why not partly subsidize CODIS, in the meantime that we are initially consolidating our financial capacity/

     Credibility of cooperatives have improved with the issuance of quite a number of memos and circulars from the CDA to implement the provisions of the cooperative law to ensure that cooperatives are compliant.  

     These are the reportorial requirements, training compliance, social audit, performance audit, and instituting the discipline of good governance and performance standards.


     The spirit of transparency in the cooperatives is best expressed in Article 83 of RA 9520 which grants the right of members to examine the records required to be kept by the cooperative under Article 52 of the said law.

     Every cooperative shall have the records ready and accessible to its members and the representatives of the CDA.  This is to ensure good governance.  After all, disclosure is built into the cooperative structure.

     Cooperative business is more transparent, better than transparency in the corporate business, without even mentioning the fact that many business establishments maintain two books of accounts:  one for internal use of the owners and the other one for the BIR examiners.


     Why do we believe in the transparency in the cooperative  business?  It is because we benefit from different eyes looking at the information - be they the eyes of the members, examiners, the media, analysts, or the community at large.  Cooperatives will benefit from the multiple perspectives of the many stakeholders affected by their successes and shortcomings.

     When any of us, the officer, responsible person in the cooperative system or government regulator hides behind the veil of secrecy, it puts the entire cooperative system's soundness at risk.

    In fact, any officer of the cooperative who shall refuse to allow any member of the cooperative to examine the records of the cooperative shall be guilty of an offense which shall be punishable under Article 140 of our cooperative law.


     Our members are our owners.  We recognize that our strength as a cooperative depends largely on the solidarity and quality of the relationship we have with our members.  That is why the governance helps strengthen both internal structures and accountability to the members and stakeholders.

     No policies crafted by the board should be designed to benefit the officers themselves, otherwise, it is a conflict of interest.  This is bad governance.  Officers who receive honorarium and allowances even the when the cooperative is losing is bad governance.  Officers who continue to occupy their positions when they are delinquent of their loans is bad governance.

     And elected officers who are designated to perform executive functions and receive relatively significant allowances is bad practice.  Given the situation, voluntarism of the elected officials is lost.


     I have to tell you that the present leadership of the DOF and BIR do not like RA 9520 because cooperatives are tax exempt.  Sooner or later, there will be legislative effort to pass a bill to tax cooperatives with mandate from the DOF.

     My worry is when Pres. Aquino listens to Sec. Purisima and Commissioner Kim Henares.  These people are credible to the President because they are good tax collectors.

     The message is now clear that cooperatives should not enjoy tax privileges.  That's why BIR insists on a lot of requirements and impose rigid guidelines for cooperatives applying for Certificate of Tax Exemption.


     Most countries follow the practice of exempting cooperatives from all taxation, except possibly taxes on real property.  The tax immunity of cooperatives is based on their being a unique form of enterprise.  As long as I am your congressman representing the cooperative sector, I pledge to oppose any legislative attempts to tax cooperatives.

     Cooperative should not be taxed because they produce tax payers.  Cooperatives as a business model are not for profit - they are for service.  If there are net surplus, these are given bank to the members.  When these members become successful in their economic undertaking as result of the services provided by their cooperatives, they become good tax payers.  This means that cooperatives contribute to the revenues of the government through their members paying their individual income taxes.


     To my mind, cooperatives, whose reason for being is to serve the poor - the ordinary people, and engage them not only as workers, producers, suppliers and clients, but also to develop them as owners and partners in their own poverty reduction, are effective instruments to democratize wealth.

     We all know that wealth created by the national economy largely go to a handful of private corporations with households getting less share over time.  According to studies conducted by scholars and our own National Statistics Coordinating Board, in 2006 alone, more than P3 trillion of the country's total income went to private corporations, compared to around P2.4 trillion going to households in the same year.

     By 2009, private corporations made P3.9 trillion, while households made P3.04 trillion.  It is no wonder why more than a dozen Filipino businessmen have made it to the Forbes list of billionaires last year compared to only 4 a few years ago.


    The situation is bound to worsen if we as a nation do not get our act together to find innovative solution to these age-old problems of poverty and inequality.  Then, I have to say that cooperatives all over the world have proven themselves to have been very successful in the battleground fighting against poverty.

     Again, congratulations and Mabuhay ang PICPA!

     Maraming Salamat."  (END).   


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