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Definition of a Cooperative

The constitution provides a concrete definition for cooperatives, and Republic Acts No. 9520 (Philippine Cooperative Code of 2008) and 6939 elaborate on that definition and how cooperatives are regulated. A cooperative, by definition, is an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, economic and cultural needs and aspirations (that is, a lawful common end) by making equitable contributions to the capital required, patronizing their products and services and accepting a fair share of risks and benefits of the undertaking in accordance with the universally accepted cooperative principles.

Objectives and Goals

The primary objective of every cooperative is to help improve the quality of life of its members; specifically, to serve the economic, social, cultural and spiritual development of its members. Towards this end, the cooperative shall aim to: (a) Provide goods and services to its members to enable them to attain increased income, savings, investments, productivity, and purchasing power, and promote among themselves equitable distribution of net surplus through maximum utilization of economies of scale, cost-sharing and risk-sharing; (b) Provide optimum social and economic benefits to its members; (c) Teach them efficient ways of doing things in a cooperative manner; (d) Propagate cooperative practices and new ideas in business and management; (e) Allow the lower income and less privileged groups to increase their ownership in the wealth of the nation; and, (f) Cooperate with the government, other cooperatives and people-oriented organizations to further the attainment of any of the foregoing objectives.

Categories or Kinds

A cooperative shall be categorized according to membership nature and territorial consideration. In terms of membership, cooperatives shall be categorized or classified either as (into): a.) Primary, wherein the members are natural persons of legal age; b.) Secondary, the members of which are primaries; and, c.) Tertiary, the member of which are secondaries upward to one or more apex organizations. Thus, those with cooperative memberships are considered federations or unions, as the case may be. In terms of territory, cooperatives shall be categorized according to areas of operation which may or may not coincide with the political subdivisions of the country. Those organized by minors shall be considered a laboratory cooperative which is governed by special guidelines promulgated by CDA and must be affiliated with a registered cooperative. In terms of the sector of economic activity, there are total of twenty (20) distinct legally recognized classifications. In terms of assets, for Micro cooperative is PhP3 Million or less; Small is more than P3 Million but less than P15 Million; Medium is more than P15 Million but less than P100 Million; Large is P100 Million or more, respectively.

Types of Cooperatives

The types of cooperatives as defined in the Joint Rules and Regulations for the taxation of cooperatives, issued pursuant to the Philippine Cooperative Code of 2008 (R.A. 9520) may fall under any of the following:

1. Credit Cooperative – is one that promotes thrift and undertakes savings and lending services among its members. It generates a common pool of funds in order to provide financial assistance and other related financial services to its members for productive and provident purposes;
2. Consumer’s Cooperative – is one the primary purpose of which is to procure and distribute commodities to members and non-members;
3. Producer’s Cooperative – is one that undertakes a joint production whether agricultural or industrial. It is formed and operated by its members to undertake the production and processing of raw materials or goods produced by its members into finished or processed products for sale by the cooperative to its members and non-members. Any end product or its derivative arising from the raw materials produced by its members, sold in the name and for the account of the cooperative, shall be deemed a product of the cooperative and its members;
4. Marketing Cooperative – is one which engages in the supply of production inputs to members and markets their products;
5. Service Cooperative – is one which engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication, professional and other services;
6. Multi-purpose Cooperative – is one which combines two or more of the business activities of these different types of cooperatives;
7. Multi-purpose Cooperative – is a primary cooperative which promotes and advocates cooperativism among its members and the public through socially-oriented projects, education and training, research and communication, and other similar activities to reach out to its intended beneficiaries;
8. Advocacy Cooperative – is a primary cooperative which promotes and advocates cooperativism among its members and the public through socially-oriented projects, education and training, research and communication, and other similar activities to reach out to its intended beneficiaries;
9. Agrarian Reform Cooperative – is one organized by marginal farmers majority of which are agrarian reform beneficiaries for the purpose of developing an appropriate system of land tenure, land development, land consolidation or land management in areas covered by agrarian reform;
10. Cooperative Bank – is one organized for the primary purpose of providing a wide range of financial services to cooperatives and their members;
11. Dairy Cooperative – is one whose members are engaged in the production of fresh milk which may be processed and/or marketed as dairy products;
12. Education Cooperative – is one organized for the primary purpose of owning and operating licensed educational institutions, notwithstanding the provisions of Republic Act No. 9155, otherwise known as the Governance of Basic Education Act of 2001;
13. Electric Cooperative – is one organized for the primary purpose of undertaking power generation, utilizing renewable energy sources, including hybrid systems, acquisition and operation of sub-transmission or distribution to its household members;
14. Financial Service Cooperative – is one organized for the primary purpose of engaging in savings and credit services and other financial services;
15. Fishermen Cooperative – is one organized by marginalized fishermen in localities whose products are marketed either as fresh or processed products;
16. Health Services Cooperative – is one organized for the primary purpose of providing medical, dental and other health services;
17. Housing Cooperative – is one organized to assist or provide, access to housing for the benefit of its regular members who actively participate in the savings program for housing. It is co-owned and controlled by its members;
18. Insurance Cooperative – is one engaged in the business of insuring life and property of cooperatives and their members;
19. Transport Cooperative – is one which includes land and sea transportation, limited to small vessels, as defined or classified under the Philippine maritime laws, organized under the provisions of R.A. 9520.
20. Water Service Cooperative – is one organized to own, operate and manage water systems for the provision and distribution of potable water for its members and their households;
21. Worker’s Cooperative – is one organized by workers, including the self-employed, who are at the same time the members and owners of the enterprise. Its principal purpose is to provide employment and business opportunities to its members and manage it in accordance with cooperative principles; and
22. Other types of cooperative as may be determined by the CDA.

Roles of Cooperatives

The declared purpose of the law governing cooperatives is to foster the creation and growth of cooperatives as a practical vehicle for promoting self-reliance and harnessing people power towards the attainment of economic development and social justice. The cooperative has been the policy instrument of the government in promoting social justice and economic development. The policy is well spelled out in the Philippine Constitution of 1987 and in the enabling laws passed by Philippine legislature at the turn of the century. In particular, cooperatives are expected to provide a significant contribution in the objectives of creating a.) rapid, inclusive and sustained economic growth, b.) financial inclusion, and c.) reduction of poverty. As a help-help organization, with proper monitoring and support of the government, cooperatives can contribute to rapid economic growth because of the power of cooperatives to mobilize savings and capital which can serve as inputs in the production of goods and services of the less privileged members of the society. Cooperatives which are engaged in deposit mobilization and capital formation have been proven potent grassroots organizations in providing micro entrepreneurs, who are most often denied by formal financial institutions, access to capital. The development of micro and small entrepreneurs which accessed financial services from cooperatives create a rapid, inclusive and sustained economic growth, particularly in rural and agricultural areas. The active participation of the medium and large cooperatives which comprise 9% of the total registered cooperatives in the country in the strengthening of the financial sector. The provision of technical, financial, and institutional development assistances to micro and small cooperative, on which a large portion is composed of agriculture and agrarian reform cooperatives, are projected to contribute to the creation of rural and agricultural enterprises that will reduce extreme poverty in the rural and far flung areas.

Privileges of a Cooperative

Cooperative registered under R.A. 9520 can enjoy the following privileges:

• Cooperatives shall enjoy the privilege of depositing their sealed cash boxes or containers, documents or any valuable papers in the safes of the municipal or city treasurers and other government offices free of charge, and the custodian of such articles shall issue a receipt acknowledging the articles received duly witnessed by another person;
• Cooperatives organized among government employees, notwithstanding any law or regulation to the contrary, shall enjoy the free use of any available space in their agency, whether owned or rented by the Government;
• Cooperatives rendering special types of services and facilities such as cold storage, ice plant, electricity, transportation, and similar services and facilities shall secure a franchise therefor, and such cooperatives shall open their membership to all persons qualified in their areas of operation;
• In areas where appropriate cooperatives exist the preferential right to supply government institutions and agencies rice, corn and other grains, fish and other marine products meat, eggs, milk, vegetables, tobacco and other agricultural commodities produced by their members shall be granted to the cooperatives concerned;
• Preferential treatment in the allocation of fertilizers and in rice distribution shall be granted to cooperatives by the appropriate government agencies;
• Preferential and equitable treatment in the allocation or control of bottomries of commercial shipping vessels in connection with the shipment of goods and products of cooperatives;
• Cooperatives and their federations, such as market vendor cooperatives, shall have preferential rights in management of public markets and/or lease of public market facilities, stall or spaces;
• Credit cooperatives and/or federations shall be entitled to loans, credit lines, rediscounting of their loan notes, and other eligible papers with the Development Bank of the Philippines, the Philippine National Bank, the Land Bank of the Philippines and other financial institutions except the Central Bank of the Philippines;
• Cooperatives transacting business with the Government of the Philippines or any of its political subdivisions or any of its agencies or instrumentalities, including government-owned and controlled corporations shall be exempt from pre-qualification bidding requirements; and
• Cooperatives shall enjoy the privilege of being represented by the provincial or city fiscal or the Office of the Solicitor General, free of charge, except when the adverse party is the Republic of the Philippines.
• Cooperatives shall enjoy the privilege of being represented by the provincial or city fiscal or the Office of the Solicitor General, free of charge, except when the adverse party is the Republic of the Philippines;
• shall have the preferential right in the management of the canteen and other services related to the operation of the educational institution where they are employed: Cooperatives organized by faculty members and employees of educational institutions Provided, That such services are operated within the premises of the said educational institution; and,
• The appropriate housing agencies and government financial institutions shall create a special window for financing housing projects undertaken by cooperatives, with interest rates and terms equal to, or better than those given for socialized housing projects. This financing shall be in the form of blanket loans to qualified cooperatives, without need for individual processing.

Enabling Laws

The coordination between the government and the cooperative sector in its development is clearly stipulated in pertinent enabling laws and are operationalized through the issuance of E.O. 95. It is the objective of the government to harmoniously and effectively provide available government services to cooperative under the CDA, creating consultative mechanism that will promote proper interaction with all stakeholders. The Constitution (1987 Provision) provides, among others, a mandate to the legislature to create an agency that will use cooperatives as instruments of social justice and economic development (Article XII Section 15). Thus, the basic law of the land envisions the promotion of cooperatives in various sectors of the economy, the expansion of economic base and the mobilization of the less privilege members of the society to actively participate in nation-building. In response to the Constitutional mandate, Congress of the Philippines (legislature) passed the Cooperative Code (Republic Act 6938) and Cooperative Development Authority (CDA) Charter (R.A. 6939) on March 10, 1990. The Cooperative Code (R.A. 6938) provides for the general concepts and principles; organization and registration; membership; administration; dissolution; capital; recovery and funds; audit, inquiry and members right to examine; allocation and distribution of net surplus; and special provisions relating to agrarian reform cooperatives, public cooperatives, cooperative banks, credit cooperative and cooperative insurance societies, among others. R.A. 6939 created the CDA, the agency that promotes the viability and growth of cooperatives as instruments of equity, social justice and economic development. The law provides its powers, functions, and responsibilities; the governing body; budget and funds; and rule making power, among others. In 2008, R.A. 6938 was amended by R.A. 9520, with the inclusion of provision on representative assembly, subsidiary cooperative, financial service cooperative, to cite a few amendments, while keeping the provisions of R.A. 6938 basically intact. The policy of the state, as far as cooperative is concerned, is well-amplified in the Cooperative Code which states, “ to foster the creation and growth of cooperatives as practical vehicle for promoting self-reliance and harnessing people power towards the attainment of economic development and social justice. The State shall encourage the private sector to undertake the actual formation and organization of cooperatives and shall create an atmosphere that is conducive to the growth and development of these cooperatives.” To operationalize the policy, the government including all its branches, subdivisions, instrumentalities, and agencies are all called to “ensure the provision of technical guidance, financial assistance and other services to enable said cooperatives to develop into viable movement that is free from any conditions that may infringe upon the autonomy or organizational integrity of cooperatives.”

Regulatory Agency

The Cooperative Development Authority (CDA) governs the 20,000 registered cooperatives in the Philippines, and is the sole government agency in-charge of the registration and regulation of all types of cooperatives in the Philippines including a wide range of regulatory, promotional and developmental responsibilities related thereto. It is the key organization responsible for compiling statistics on cooperatives, where information on cooperatives in the country is centralized. CDA uses an internationally accepted definition of cooperatives based on ownership, governance and the distribution of profits. Its main office is located at 827 Aurora Boulevard, Immaculate Conception, Quezon City. For registration of primary cooperatives, this power has been delegated to the Regional or Extension Offices. Prospective cooperatives must submit their application to the CDA Extension Office where the principal office of the cooperative is located. Additionally, CDA keeps track of federations and unions of cooperatives. In the Philippines, cooperative federations are established to strengthen cooperative members’ activities through educational and operational means. Unions represent the interests of cooperatives locally, regionally and nationally.

Membership Considerations

A cooperative has two kinds of members: regular members and associate members. A regular member is one who has complied with all the membership requirements and entitled to all the rights and privileges of membership as stated in the Cooperative Code and the cooperative by laws. An associate member has no right to vote and be voted upon and is entitled only to such rights and privileges provided by the cooperative's by laws. The law provides important benefits to the cooperative and its empowered members, under the following declared principles of “cooperativism”:

Open and Voluntary Membership. Membership in a cooperative is voluntary and available to all individuals regardless of their social, political, racial or religious background or beliefs.

Democratic Control. Cooperatives are democratic organizations. Their affairs are administered by persons elected or appointed in a manner agreed upon by the members. Members of primary cooperatives have equal voting rights on a one-member-one-vote principle.

Limited Interest in Capital. Share capital shall receive a strictly limited rate of interest.

Division of Net Surplus. Net surplus arising out of the operations of a cooperative belongs to its members and shall be equitably distributed for cooperative development common services, indivisible reserve fund, and for limited interest on capital and/or patronage refund in the manner provided by law.

Cooperative Education. All cooperatives shall make provision for the education of their members, officers and employees and of the general public based on the principles of cooperation.

Cooperation among Cooperatives. All cooperatives, in order to best serve the interest of their members and communities, shall actively cooperate with other cooperatives at local, national, and international levels.

*Patronage Refund. The patronage refund is another unique benefit offered by cooperatives. A patronage refund is the amount returned to individual members in proportion to their individual patronage of the cooperative’s products and services, based on the principle of equity, with equal rights of members to participate in the organization and to share in the benefits accruing. Under this principle, the net surplus is not understood as profit, but as excess payments made by members to the cooperative and which shall be returned to them. Of the net surplus earning of the cooperative,

• A minimum of 10% is kept for the reserve fund, this provides a buffer fund in case the cooperative suffers losses in its operations. This fund cannot be re-allocated to individual members in any form;
• A maximum of 10% of the net surplus is allocated for education and training purposes to ensure capability building of members, officers and staff through a continuous education program;
• A minimum of 3% is allocated for community development fund; and
• A maximum of 7% goes towards an optional development fund of the cooperative. This fund can be used for example for acquiring land and building as part of the asset of the cooperative.

The balance goes towards dividend and patronage refund. As a practice, cooperatives provide patronage refund for the members on the interest paid on the loan. If the member is delinquent, the patronage and dividend is first used to pay the overdue amount. In case the member is non-delinquent, the amount is credited to his savings account. Some cooperatives also provide patronage interest on the saving deposits.

Organizing a Cooperative

Organizing a cooperative can be complex and simple. It requires an understanding of the basic needs of the prospective cooperative members. It demands patience from the organizer who must make the cooperative's long-term goals and objectives, and its visions a real part of the members' lives. But it can be too easy because the Cooperative Code of the Philippines (R.A. 6938) has devised very clear-cut steps for the cooperative organizer and members.

Partnership Between Government and Stakeholders

The partnership between government and cooperative stakeholders is engrained in the democratic process in crafting rules on implementing programs affecting the cooperative sector. The mechanism of consultation with the cooperative sector by the government is provided for in the Cooperative Code and specified in particular, under Executive Order 95 Series of 1993 (E.O. 95). E.O. 95, among others, creates the National Coordinating Committee (NCC) composed of all government agencies with programs on cooperative to coordinate with CDA for harmonious and effective delivery of government services to cooperatives. It also calls for the formation of consultative mechanism the cooperative sector at various levels of bureaucracy from municipality, provincial, regional and national levels.

References

Republic Act No. 6938 (1990). An act to Ordain Cooperative Code of the Philippines, March 10, 1990, Philippines

Republic Act No. 6939 (1990), An Act Creating the Cooperative Development Authority, March 10, 1990, Philippines

Republic Act No. 9520 (2008). The Philippine Cooperative Code of 2008, Philippines

Executive Order No. 95 (1993). Designating the Cooperative Development Authority as the Lead Government Agency on Cooperative Promotion, Development, Regulation and Calling on all Government Agencies with Cooperative Programs to Coordinate these with Cooperative Development Authority and for Other Purposes, June 8, 1993, Philippines.