Cooperative Finance System and Scope
- Cooperative Finance System designed to lend and invest CMP funds effectively to creditworthy cooperatives.
- Governs lending and investment through Cooperative Finance Group (CFG) at CDA.
- Focuses on loans via banks, primarily Cooperative Banks.
Definitions of Key Terms
- Cooperative: Registered association with common interests, equitable capital contribution, and cooperative principles.
- Cooperative Bank: Bank owned and controlled by cooperatives, including Cooperative Rural Banks.
- Loan Fund: Portion of funds designated for lending.
- Trust Fund: Portion of funds for expanding equity base of cooperatives.
- Guarantee Fund: Covers losses from uncollected loans beyond collateral recovery.
- Cooperative Finance Group (CFG): Unit at CDA managing loans.
- Debt Equity Ratio: Ratio of term liabilities to net worth of cooperative.
- Special Time Deposit: Funds available to Cooperative Banks to finance loans.
- Disposable Earnings: Net income balance after deducting non-cash expenses and mandatory appropriations.
- Risk Asset Ratio: Bank’s net worth relative to risk assets.
General Credit Policies
- Credit extension must adhere to sound lending and business principles.
- Loans granted based on sound credit evaluation, sufficient in amount, and with reasonable terms to ensure repayment.
- Debt-equity ratio capped at 2:1.
- Financing package integrates term, seasonal, and capital assistance components.
- Borrowers must invest in Guarantee Fund (5% for term loans, 3.75% for seasonal loans) up to 10% of loan outstanding.
- Losses from uncollected loans are shared mostly by Guarantee Fund and partly by Cooperative Banks.
Types of Financing
- Seasonal Loans: Short-term for operating capital or commodity inventories (up to 12 months).
- Term Loans: Long-term capital for facilities or assets (more than 1 year, up to 10 years).
- Joint/Split Financing: Coordinated loans with other lenders subject to satisfactory arrangements.
- Trust Fund Investments: Preferred stock investments in cooperatives up to 100% paid-up capital or P1,000,000, retireable within 10 years.
Authorized Lenders
- Cooperative Banks/Banks must be certified and compliant with Central Bank rules.
- Must maintain past due loans not exceeding 50%.
- Risk asset ratio must be at least 10% post-loan.
- Must be current with payments to CDA.
Eligible Borrowers
- Cooperatives registered with CDA under RA 6938.
- Engage primarily in supply of farm inputs, marketing or processing members’ produce, or similar economic services.
- At least 50% of business with members.
- Maintain adequate accounting records and submit financial statements.
- Share capital and interest rates must be approved by CDA.
Credit Requirements
- Comprehensive credit analysis involving:
- Management competence.
- Clear loan purpose and proper terms.
- Repayment ability based on cash flows and working capital.
- Sound financial condition and operations.
- Favorable economic and competitive environment.
Loan Amount Determination
- Based on cooperative’s feasibility study, adherence to debt-equity ratio, repayment capacity, and collateral value.
Loan Terms
- Seasonal loans: max 1 year.
- Term and special term loans: max 10 years.
- Restructuring possible with CDA approval in cases of force majeure or justifiable cause.
Collateral Security and Loan Value
- Collateral required as protection but not sole basis for credit.
- Types:
- Warehouse receipts and receivables for seasonal commodity loans.
- Chattel mortgage, revolving receivables for seasonal operating loans.
- Real estate and fixtures for term loans.
- Loan to value ratios:
- Real estate: max 70% of appraised value plus insured improvements.
- Chattels: max 50% of appraised cost.
- Agricultural products with effective control: 60-70% of market value.
- Assigned receivables: max 70%.
Interest Rates
- Borrowers: 10% per annum on seasonal loans, 9% on term loans.
- Cooperative Banks: 5% on seasonal loans, 6% on term loans (special time deposits).
- No advance interest or service charges allowed.
- CDA may set long-term rates considering costs and sound business principles.
Loan Repayment Schedule
- Equal installments of principal and interest monthly, quarterly, or semi-annually.
- Payment plans may reflect borrower’s income cycles.
Lending Procedures
- Application must include:
- Completed forms, project feasibility, financial statements, certificate of incumbency, board resolutions, CDA endorsement.
- Cooperative Bank files Special Time Deposit (STD) application with CDA after positive evaluation.
- CFG conducts field investigation and submits recommendations to CDA.
- CDA approves and prescribes loan terms.
- Loan proceeds released to Cooperative Banks and placed in special accounts for borrower use.
Use of Funds and Diversion
- Borrowed funds must be used strictly for intended purposes.
- Unauthorized use cancels loan agreement; immediate repayment demanded and possible criminal prosecution.
Payment Application and Remittance to CDA
- Payments applied first to interest, then to principal.
- Collections must be remitted to CDA within 5 days.
- Failure to remit on time incurs 1% monthly liquidated damages in addition to interest.
Default and Foreclosure
- Lender and CDA shall take timely action upon default.
- Right to foreclose on secured assets arises at default or breach of loan conditions.