Cooperative banks

lecture on cooperative banks in the philippines

1. Cooperative banking in the philippines 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.       D IVERSIFICATION 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.