By David Cagahastian
The Cooperative Development Authority (CDA) and the Bangko Sentral ng Pilipinas (BSP) are jointly crafting the implementing rules and regulations (IRR) for the new Credit Surety Fund Cooperative Act of 2015, which that will provide collateral for loans contracted by cooperatives to increase their productivity.
CDA Chairman Orlando Ravanera told the BusinessMirror the IRR will be finished in two months. This will allow cooperatives to borrow capital from the formal banking system with the fund acting as a surety to ensure payment to the creditor banks in case of default by the debtor-cooperative.
Ravanera said the committee drafting the IRR is looking at a “limitless” maximum amount that a cooperative may borrow from the formal banking system, since the BSP itself is backing up the creation of these Credit Surety Funds (CSF) and is committed to realize what these CSF are supposed to do—to provide credit to cooperatives with the surety fund as the sole collateral.
At the very least, Ravanera said, the maximum amount that a cooperative should be able to borrow from a bank with a CSF as a collateral should be equal to the total amount of the credit surety fund, although the law itself provides for a limit regarding how much a cooperative should be allowed to borrow from a bank.
According to Republic Act 10744, the maximum amount that a cooperative can borrow shall not exceed 10 times its contributions to the credit surety fund used as collateral.
“There should be more leniency when it comes to lending to cooperatives, because their products are already linked to the market. With the Credit Surety Fund as the collateral, that will provide extra security. But even without it, the banks are secure because the products of the cooperatives have an assured market,” he said.
Under the law, the CDA shall regulate CSF Cooperatives that will be created under the new law and will be governed by a board of directors composed of the representatives of its member cooperatives, government financial institutions contributing to the fund, and the local government representative.
The CSF Cooperatives will pool the contributions from its member cooperatives, government financial institutions, like the Land Bank of the Philippines, and local government units that are mandated to contribute to such CSF Cooperatives.
The pooled contributions will be entrusted to a trustee bank authorized by the BSP to manage the fund for investment purposes in low-risk instruments, such as government securities.
Ravanera said there are currently 48 CSF throughout the country that serve as surety for loans contracted by cooperatives, but the new law will strengthen the agricultural sector, since there would be a legal framework on how cooperatives may be able to get credit from the formal banking sector while providing the creditor banks with enough security against default.
These 48 CSF have an aggregate amount of P390 million, serving as collateral for about P1.9 billion worth of loans, P1.7 billion of which had already been released to more than 14,000 micro-, small- and medium-sized enterprises during the period of August 2008 to August 2015.
Meanwhile, in his speech at the 30th anniversary of the Center for Agriculture and Rural Development Mutually Reinforcing Institutions, President Aquino cited the Credit Surety Cooperative Fund Act as one of the efforts of his administration in achieving inclusive growth by providing capital to micro, small and medium enterprises, which, in 2013, comprised 99 percent of all business establishments in the Philippines and created 63.7 percent of the total new jobs generated for the year.
“The CSF Cooperative Act has been passed and this will help MSMEs, non-governmental organizations, and cooperatives to get loans, which they can use for capital. This fund will reduce the uncertainty of banks toward providing credit to our countrymen. And the good news is, because of these initiatives, the Economic Intelligence Unit has ranked the Philippines as No. 1 in Asia and third in the world when it comes to nurturing financial inclusion in 2014 and 2015,” Mr. Aquino said.