lecture on cooperative banks in the philippines

1. Presented by Victor Carlo M. Resano, MBA major in Organizational
Development, St. Paul University Manila, MA in Theology, Adamson
University - St. Vincent School of Theology

2. What is Co-operative Banking
 Cooperative banking is retail and commercial banking
organized on a cooperative basis. Cooperative banking
institutions take deposits and lend money in most parts
of the world.
 Cooperative banking, as discussed here, includes retail
banking carried out by credit unions, mutual savings
banks, building societies and cooperatives , as well as
commercial banking services provided by mutual
organizations (such as cooperative federations) to
cooperative businesses.

3. What are Financing Institutions Operating Within a Co-operative Bank?
 Credit unions - Credit unions have the purpose of promoting thrift, providing credit at
reasonable rates, and providing other financial services to its members. Its members are
usually required to share a common bond, such as locality, employer, religion or profession,
and credit unions are usually funded entirely by member deposits, and avoid outside
borrowing. They are typically (though not exclusively) the smaller form of cooperative
banking institution.
 Cooperative banks- Like credit unions, cooperative banks are owned by their customers
and follow the cooperative principle of one person, one vote. Unlike credit unions, however,
cooperative banks are often regulated under both banking and cooperative legislation. They
provide services such as savings and loans to non-members as well as to members, and
some participate in the wholesale markets for bonds, money and even equities
 Cooperative banking systems are also usually more integrated than credit union systems.
Local branches of cooperative banks select their own boards of directors and manage their
own operations, but most strategic decisions require approval from a central office.

4. What are Financing Institutions Operating Within a Co-operative Bank?
Cont.
 Land Development Banks – The Rural Credit Law bill was ably presented and passed
into law on February 11, 1914 and became Republic Act 2508. When this Act was
finally made into law, Gov. Sandiko earned the title of Father of Cooperation in this
country.The first rural credit association in the Philippines that was organized under this
Law was the Agricultural Credit Cooperative Association of Cabanatuan, Nueva Ecija. It
was formed on October 18,1916. With this initial organization, farmers in the different
provinces were organized. At the end of 1926 there were 544 rural credit cooperatives
organized in the 42 provinces and by 1930 there were 571 associations formed all over
the country.
Other Financial Institutions
 Mutual savings banks and mutual savings and loan associations were very common in
the 19th and 20th centuries, but declined in number and market share in the late 20th
century, becoming globally less significant than cooperative banks, building societies
and credit unions.
 Trustee savings banks are similar to other savings banks, but they are not
cooperatives, as they are controlled by trustees, rather than their depositors.

5. Other related financing models
 Microcredit and microfinance - The more recent
phenomena of microcredit and microfinance are often
based on a cooperative model. These focus on small
business lending. In 2006, Muhammad Yunus, founder
of the Grameen Bank in Bangladesh, won the Nobel
Peace Prize for his ideas regarding development and
his pursuit of the microcredit concept.

6. THRIFT BANKING SYSTEM
• Thrift banking system is composed of savings and mortgage
banks, private development banks, stock savings and loan
associations and microfinance thrift banks.
• Accumulates the savings of its depositors and invests it. Most
thrift banks are known to provide short-term working capital, and
medium- and long-term financing to businesses engaged in
agriculture, services, industry, housing and allied services,
especially to small and medium enterprises.

7. RURAL & COOPERATIVE BANKS
Rural and cooperative banks are the more popular type of banks in the rural
communities. Their role is to promote and expand the rural economy in an orderly
and effective manner by providing the people in the rural communities with basic
financial services.
Rural banks and cooperative banks are differentiated from each other by ownership.
While rural banks are privately owned and managed, cooperative banks are
organized/owned by cooperatives or federation of cooperatives.

8. Examples of Rural and Cooperative Banks

9. STRENGTH OF THE CO-OPERATIVE
BANKING MOVEMENT.
1) SOCIAL PRINCIPLES :
The Co-operative movement had emerged as an alternative to other forms of business organisations to
safeguard the interest of the weaker section of the society. Improving the economic conditions of the
members is the primary objective of the co-operatives. The principles of co-operation and the values of
co-operation guide the co-operatives in the right direction.
2) WIDE NETWORK:
The Cooperative movement in the Philippines covers all the three main islands of Luzon, Visayas and
Mindanao. With this wide network, the co-operatives are able to contribute much to the national
economy.
3) DEMOCRATIC CONTROL
The members of the co-operative societies enjoy equal rights of voting and participation in the
administration of the society. The general body of members, which is the supreme authority, elects the
Board of management on the basis of democracy. Elected boards should legitimately manage co-
operatives without slightest interference from external forces.

10. STRENGTH OF THE CO-OPERATIVE
BANKING MOVEMENT. CONT.
4) MUTUALITY:
" Each for all and all for each" is the essence of co-
operation. Through mutual help, the common goal is achieved.
5) PEOPLE'S SUPPORT:
The success of any business depends on the customers'
support. In co-operatives the members are the
beneficiaries. They support the co-operatives, in turn the co-
operatives support them.

11. STRENGTH OF THE CO-OPERATIVE
BANKING MOVEMENT. CONT.
6. RURAL ACCESSIBILITY:
Rural Penetration is an important strength. Private sector and multinational companies
do not have the accessibility to the extent the co-operatives have in the areas we
serve. The Co-operative credit institutions will offer more accessibility in rural areas.
7. LOCAL GOVERNMENT SUPPORT
The government, through the Department of Finance, CDA, and LGU’s have been
extending support to the cooperative movement in many ways. Enacting laws for co-
operatives, framing policy on cooperatives, allocation of funds, appointing committees
and commissions on cooperation, maintaining separate departments for co-operation,
participation in the share capital are some of the steps taken by the government. The
state's support has contributed much to the development of co-operative banks.

12. STRENGTH OF THE CO-OPERATIVE
BANKING MOVEMENT. CONT.
8. INTEGRATION :
The current banking system in the Philippines provides for the integration of
cooperatives from primary to apex or national level. The primary level institutions
are affiliated to the next higher-level institution. This is known as vertical
integration. Cooperatives at the same level cooperate with each other. This is
known as horizontal integration. Cooperation among cooperatives results in
integration.
9. LEADERSHIP
In cooperatives the leaders emerge from among the members with leadership
qualities. They guide the societies in right path in the fulfillment of the objectives.

13. TOTAL NUMBER OF REGISTERED COOPERATIVES by
Region, by Type | January 1 to December 31, 2013

14. WEAKNESSES OF THE BANKING
COOPERATIVE MOVEMENT
 1) LACK OF AUTONOMY
Now a days banking cooperatives suffer from lack of autonomy. State
partnership in cooperatives caused the introduction of many restrictive
provisions in various state cooperative societies acts. The restrictive provisions
eroded the autonomy and independence of cooperatives. Likewise, service
providers often exercise full control of the management of these movements.
 2. DEPENDENCY ON SERVICE PROVIDERS:
The banking cooperative is unable to generate resources internally. We
recommend encouraging active participation in running their own businessess
and promote in the sharing of capital of the cooperatives to strengthen their
owned funds for increasing their borrowing power. The cooperatives have been
depending heavily on government and other agencies for finance.

15. WEAKNESSES OF THE BANKING
COOPERATIVE MOVEMENT
3. POLITICAL AND EXTERNAL INTERFERENCE FROM SERVICE
PROVIDERS
Dedicated leaders are a prerequisite for the success of banking
cooperatives. Now a day's most of the societies do not have such leaders. The
politicians and service provider management, in the name of leaders, interfere
in the affairs of the banking cooperatives. This affects the movement very
much.
4. ABSENCE OF PROFESSIONALISM
Cooperatives also suffer from the absence of professionalism. Knowledge and
skills are required to manage new challenges due to changes in the market
economy. The quality of human resource is important for the success of
cooperatives in the competitive world. Further, the cooperatives do not follow
scientific method of selection and they do not pay remunerative salaries.

16. WEAKNESSES OF THE BANKING
COOPERATIVE MOVEMENT
5. DUALITY OF CONTROL
The cooperative banks are coming under the control of
external forces. This dual control hampers the efficient
working of the cooperative banks. The department control
is not necessary in the case of cooperative banks.
6. HIGH ESTABLISHMENT COSTS:
Many cooperatives spend more for their establishment and
contingencies. This results in declining profitability. They
have to restrict establishment and computerise the work to
the extent possible.

17. OPPORTUNITES FOR THE
COOPERATIVE BANKS
1. PROFESSIONAL MANAGEMENT:
Human Resource Development is needed to meet the challenges before cooperatives. The need
for improving professional competence of the employees of the cooperatives has been
stressed. The cooperatives can appoint persons with professional skill for the efficient
management of cooperatives. We have got a network of Cooperative Training Institutions, which
can fulfill the needs of cooperatives.
2. DIVERSIFICATION OF ACTIVITIES: The cooperatives can diversify their activities, their
products and the services. Diversification of activities helps for survival and growth.
3. EXPANSION OF BUSINESS: Under the free market economy, the agricultural produce,
manufactured goods and processed food can be sent to any country with limited import duty. The
agricultural cooperatives can exploit this opportunity for exporting fruits, pulses, spices etc, in a
larger scale. The weavers cooperatives can make use of this opportunity for exporting their
products.

18. THREATS TO THE COOPERATIVE
BANKS
1. COMPETITION
Cooperatives face tough competition from the private sector. The farming community and agro based
industrial units may face stiff competition in the sale of their products. The private sector banks provide
better service than the service provided by cooperative barks. The cooperatives are not able to meet
the expected standards and quality of products and services.
2. DISLOYALTY OF MEMBERS:
The success of cooperatives depends upon the loyalty of their members. Now a days the members are
not loyal to their organization. They do not respect their agreements. In credit cooperatives, members
do not repay their loans promptly and due to this attitude the amounts of Non- Performing Assets are
increasing. This makes the credit institutions ineligible to finance.
3. INCREASING TREND OF CORRUPTIVE PRACTICES
Corruptive practices in cooperative institutions are increasing day by day. Constant vigilance and
supervision can prevent such malpractices.

19. Conclusion
Cooperative movement plays a significant role in the economy
of our country by giving great strength to the economic
progress. The Governments, both central and states, shall
continue to help the cooperatives, but they shall not interfere in
the functions of cooperative. Likewise, service providers and
NGO’s who assist livelihood and cooperative bank movements
must allow for more autonomy in those helped and restrictive
provisions in the existing cooperative laws must be eliminated
by making amendments in the lines of Republic Act 6938
known as Cooperative Code of the Philippines. Greater fiscal
autonomy must be extended with a measure of prudence and
trust.