Policy, purposes, and intent
- The State recognizes the need to foster national development, promote inclusive growth, and reduce poverty by promoting micro, small and medium enterprises (MSMEs) that facilitate local job creation, production, and trade.
- The State affirms the policy to foster the creation and growth of cooperatives as a vehicle for self-reliance, attaining economic development and social justice.
- The State’s policy is to strengthen the cooperative movement by empowering the Cooperative Development Authority (CDA) with the necessary powers and resources to fulfill its mandate.
- The State encourages and assists in the creation and organization of Credit Surety Fund Cooperatives (CSF Cooperatives) to administer their respective Credit Surety Fund (CSF).
- The Act’s purposes include:
- (a) Encouraging and assisting in the creation and organization of CSF Cooperatives vested with juridical personality.
- (b) Enhancing the creditworthiness of MSMEs, cooperatives, and NGOs and broadening access to bank credit.
- (c) Sustaining continuous credit flow in the countryside through well and prudently managed CSFs serving as surety covers.
- (d) Building capability in credit evaluation, loan and risk management, and good governance.
- (e) Generating employment and contributing to poverty alleviation through increased investments and economic activities.
- (f) Strengthening the CDA to effectively regulate cooperatives, including CSF Cooperatives.
Core definitions and key concepts
- Articles of Cooperation means the articles of cooperation registered with the CDA, including any registered amendment thereof.
- Board of Directors means the governing body of the CSF Cooperative, entrusted with sound and prudent administration pursuant to the Act, implementing rules and regulations, articles of cooperation, and bylaws.
- Bylaws means the bylaws registered with the CDA, including any registered amendment thereof.
- Contributions mean investments or grants.
- Cooperative means an autonomous and duly registered association of persons with a common bond of interest that voluntarily joined to achieve social, economic, and cultural needs and aspirations through equitable contributions, patronizing products and services, and accepting a fair share of risks and benefits under universally accepted cooperative principles; it may be Primary (natural persons), Secondary (primary cooperatives), or Tertiary (secondary cooperatives).
- Cooperative Development Authority (CDA) is the lead government agency implementing the Act, responsible for registration, regulation, monitoring, and supervision of CSF Cooperatives.
- Credit Surety Fund (CSF) is a fund generated from contributions of well-capitalized and well-managed member-cooperatives/NGOs, LGUs, GFIs, and other institutions/government agencies, which serves as security in lieu of hard collaterals through a surety cover issued by the Board of Directors of the CSF Cooperative.
- Credit Surety Fund Cooperative (CSF Cooperative) is an LGU-partnered cooperative comprised of well-capitalized and well-managed member-cooperatives/NGOs that meet CDA/LGU/GFI and other institutional criteria, which shall contribute to the CSF; it is established for the primary and exclusive purpose of administering the CSF under the Act and implementing rules and regulations.
- Endorsers are member-cooperatives/NGOs that attest to the CSF Cooperative the creditworthiness of member-borrowers and bind themselves jointly and severally with the borrower in case of default.
- Government Financial Institutions (GFIs) are financial institutions or corporations where government directly or indirectly owns majority of capital stock, registered with or directly supervised by the BSP, including Development Bank of the Philippines, Land Bank of the Philippines, and Industrial Guarantee and Loan Fund (IGLF); GFIs may contribute as investment or contribution and are considered members of the CSF Cooperative.
- Lending bank means any authorized banking institution with a rediscounting line with the BSP and other banking institutions.
- Local government unit (LGU) means a provincial or city government authorized to contribute to the CSF established by the CSF Cooperative in their locality as investment or contribution in an amount at least equal to the total contribution of member-cooperatives/NGOs, and a municipality may also contribute to a CSF administered by a provincial CSF Cooperative, where such contribution is deemed part of the province’s contribution.
- Members of the CSF Coop are cooperatives, NGOs, LGUs, GFIs, and other institutions/government agencies that contributed to the CSF and are admitted by the CSF Cooperative as members.
- MSME means any business activity or enterprise engaged in industry, agri-business and/or services, as a single proprietorship, cooperative, or partnership, with total assets (inclusive of those arising from loans but exclusive of land where the office, plant and equipment are situated) within:
- Micro: Not more than P 3,000,000
- Small: P3,000,001 to P15,000,000
- Medium: P15,000,001 to P100,000,000
- MSME classification is subject to review and adjustment by the MSMED Council under Section 6 of Republic Act No. 6977, as amended, taking into account inflation and other economic indicators, and the MSMED Council may use other variables such as number of employees, equity capital, and asset size.
- NGO means a nonstock, nonprofit organization duly registered with the Securities and Exchange Commission (SEC) focusing on upliftment of basic or disadvantaged sectors by advocacy, training, community organizing, research, access to resources, provision of microfinance programs and services, or similar activities.
- Qualified borrowers are:
- (1) An MSME-member of a cooperative-member of the CSF Cooperative;
- (2) A cooperative that is a member of the CSF Cooperative; and
- (3) An NGO that is a member of the CSF Cooperative.
- Registration is the operative act granting juridical personality to a proposed CSF Cooperative evidenced by a certificate of registration.
- Surety Agreement is an agreement executed in favor of the lending bank where the surety obligates itself jointly and severally with the qualified borrower in the event of default; a surety agreement is not an insurance contract, and issuance under this Act is not considered doing an insurance business under Republic Act No. 10607; the Surety Agreement must be endorsed by the endorser to the CSF Cooperative, but if a cooperative has no endorser, the CSF Cooperative (subject to implementing rules and regulations) may execute the Surety Agreement solely in favor of the lending bank.
- Trustee bank/s are bank/s designated by the Board of Directors to manage the CSF, authorized by the BSP to engage in trust and other fiduciary business under Republic Act No. 8791; implementing rules and regulations provide additional eligibility requirements.
Organization and registration of CSF cooperatives
- A CSF Cooperative shall be organized as an LGU-partnered cooperative in accordance with the implementing rules and regulations promulgated by the CDA.
- A CSF Cooperative may be established in a province or in a city.
- A CSF Cooperative must file its articles of cooperation and bylaws for registration with the CDA, including any amendments, and the articles of cooperation must be signed by the shareholders and acknowledged before a notary public.
- The articles of cooperation must set forth items required by the implementing rules and regulations.
- A CSF Cooperative must adopt bylaws not inconsistent with the Act and its implementing rules and regulations, and must file bylaws at the same time as articles of cooperation containing items required by the implementing rules and regulations.
- A CSF Cooperative acquires juridical personality from the moment the CDA issues a certificate of registration under its official seal.
- A certificate of registration issued under the CDA’s official seal is conclusive evidence of due registration unless it is proven that registration has been cancelled.
Governance, capitalization, and board duties
- The Board of Directors must consist of representatives of the member-cooperatives/NGOs, GFIs, and other government agencies in accordance with the bylaws, Republic Act No. 9520, the Act, and implementing rules and regulations.
- The LGU representative sits as an ex officio member without voting rights.
- The Board of Directors must:
- (a) Determine and formulate general policies and guidelines for proper administration of the CSF Cooperative.
- (b) Act as manager of the CSF until trustee banks are designated or appointed as manager.
- (c) Designate bank/s duly licensed by the BSP to perform trust and other fiduciary functions as trustee bank/s or investment manager/s to manage investment, reinvestment, and disposition under Republic Act No. 8791.
- (d) Promulgate rules and guidelines governing infusion of additional contributions, admission of new members, and acceptance of additional contributions in the form of investments or contributions.
- (e) Enter into contracts and transactions involving or affecting the CSF, including issuance of the Surety Agreement in favor of lending banks.
- (f) Sue and be sued in cases involving the CSF.
- (g) Periodically review the CSF and take appropriate action on audit of financial condition and operations.
- (h) Create committees and appoint other officers subject to qualifications in the board and bylaws.
- (i) Delegate any powers to the Chairman, Vice Chairman, or any board member whenever necessary and as allowed by law.
- (j) Exercise general supervision of all CSF Cooperative affairs, issue policies and regulations for CSF operations, and be directly accountable to general membership of CSF Cooperatives.
- (k) Issue the Surety Agreement jointly and severally with the endorsing entity in favor of the lending bank to secure loans of qualified borrowers.
- (l) Perform acts and exercise powers/duties necessary and proper to achieve the purpose of the CSF.
- At least 25%