Salient Features of Credit Surety Fund.pptx

Salient Features of Credit Surety Fund.pptx

1. SALIENT PROVISIONS OF RA 10744 & IMPLEMENTING RULES AND REGULATIONS Roadshow Activity in Apayao Province (November 22, 2023)

2. An act providing for the creation and organization of CSF Cooperatives to manage and administer credit surety funds to enhance the accessibility of micro, small and medium enterprises, cooperatives and nongovernment organizations to the credit facility of banks and for other purposes.

3. The CSF Act became a law on February 6, 2016. Its Implementing Rules and Regulations (IRR) was published in the Official Gazette on October 9, 2017.

4. The State hereby recognizes the need to foster national development, promote inclusive growth and reduce poverty by promoting the growth of micro, small and medium enterprises (MSMEs) that facilitate local job creation, production and trade in the country. 1 2 3 DECLARATION OF POLICY The State affirms its declared policy to foster the creation and growth of cooperatives as a practical vehicle for promoting self-reliance for the attainment of economic development and social justice. To attain these objectives, the State shall encourage and assist in the creation and organization of Credit Surety Fund Cooperatives ( CSF Cooperatives) which shall be primarily tasked with administering their respective Credit Surety Funds (CSF). The CSF is designed to provide MSMEs, cooperatives and NGOs with more inclusive access to bank credit, thereby enhancing their sustainability and growth.

5. OBJECTIVES OF THE LAW Encourage, promote and assist in the creation and organization of CSF Cooperatives, which shall be vested with juridical personality; Enhance the creditworthiness of MSMEs, cooperatives, and NGOs, and broaden their access to the credit facilities of banks; Generate more employment and contribute to the poverty alleviation program of the government through increased investments and economic activities; Build up the capability of cooperatives and NGOs in the areas of credit evaluation, loan and risk management, and good governance principles; Sustain the continuous flow of credit in the countryside through the establishment of well and prudently managed CSFs which shall serve as surety covers; Strengthen the CDA by providing it with powers and resources to enable it to effectively regulate cooperatives, including CSF cooperatives.

6. The Cooperative Development Authority (CDA) shall be the government entity in charge of registration, regulation, monitoring and supervision of CSF Cooperatives. The BSP shall spearhead the promotion, encouragement, creation and organizational development of CSF Cooperatives and shall facilitate the acquisition of technical assistance such as trainings and seminars.

7. E stablished for the primary and exclusive purpose of administering the Credit Surety Fund (CSF) An LGU-partnered cooperative comprised of well-capitalized and well-managed member-cooperatives/NGOs, LGUs, GFIs and other institutions/government agencies, all of which shall make contributions to the CSF

8. Well managed and well- capitalized cooperatives Well managed and well-capitalized NGOs Local Government units ( Province and City ) Government Financial Institutions Philguarantee Fund ( Former IGLF) Government Agencies

9. COOPERATIVES AND NGOS registered with the CDA/SEC registered with the BIR and other relevant GAs; Must be in existence for at least one year; Must be earning based on the latest AFS audited submitted to the CDA/SEC; Must have adopted sound lending policies and practices; Must have audited financial statements; Members of the Board and Credit Committee must have acquired CDA’s mandatory training hours; Must have no past due obligations with any of its creditors; Must not have any existing leadership dispute or any or any other cooperative dispute filed with the CDA or any court or tribunal. 1. WELL-MANAGED 2. WELL- CAPITALIZED 3. MINIMUM CONTRIBUTION OF P 100,000. Adjusted Asset of at least One Million Pesos. Adjusted Capital to Adjusted Assets Ratio of at least 20%.

10. LGUs are the lynchpins in the implementation of the CSF Program No CSF Cooperative shall be established without the LGU commitment to support the CSF Cooperative. B y contributing to the Fund (investment or grant). Amount should be not less than the aggregate contribution of cooperatives/NGOs. P roviding other assistance for the growth of cooperatives/MSMEs. LOCAL GOVERNMENT UNITS

11. A municipality within the province may also contribute to a CSF which is administered and managed by a provincial CSF Cooperative, which contribution shall be deemed as part of the contribution of the province; The LGU representative shall sit as an ex-officio member of the BOD without voting rights.

12. Promote financial inclusion by providing access to credit for MSMEs that are unable to obtain credit due to lack of acceptable collateral and credit history; By increasing access to credit, small businesses are able to start, grow and expand which stimulate economic growth and create jobs in the local economy; Increased revenues in forms of taxes and fees; Help to encourage more lending to the sector; and Support to the poverty alleviation of program of the LGU. Benefits of LGU participation

13. R efers to financial institutions in which the government directly or indirectly owns a majority of the capital stock and which are registered with or directly supervised by the BSP. DBP, LBP, Philguarantee Fund, among others. May contribute in the form of grant or investment. With voting rights regardless of the nature of contribution. GOVERNMENT FINANCIAL INSTITUTIONS (GFIs)

14. R efers to government institutions/ agencies, including government-owned and controlled corporations, which contribute funds to the CSF Cooperative, either in the form of investment in common shares and Restricted Capital for Surety, or grant, which shall qualify them as members of the CSF Cooperative. May contribute in form of grant or investment. With voting rights regardless of nature of contribution. OTHER INSTITUTIONS/ GOVERNMENT AGENCIES (GAs)

15. Easier access to credit from banks Non-susceptibility to high cost of borrowings (5-6 and Loan sharks) Increase in patronage refund and interest in capital

16. Increased net worth due to increase in membership Program to assist MSME-member Income from trust fund Improved credit management and marketing skills through the capability enhancement program of the CSF Access to bank financing program as buffer fund to credit operations

17. CONTRIBUTIONS DONORS 100% RCS

18. At least 25 % of Authorized capital is subscribed at the time of registration At least 25 % of subscribed capital is paid at the time of subscription Paid-up capital should not be less than 5,000 Maybe increased every five years as determined by CDA CAPITAL

19. All grants shall share in the earnings, in the form of imputed income, and losses of the Fund. losses, if any, will only be up to the extent of their aggregate contributions to the Fund. GRANTS Upon dissolution of a CSF cooperative, grants from LGUs, GFIs, IGLF and GAs shall be returned, net of guarantees issued and liquidation expenses.

20. refer to the contributions of the cooperatives/ NGOs to the CSF Cooperatives, which shall share in the earnings/ losses of the CSF in proportion to their contributions. INVESTMENTS

21. DONORS individual or a private entity that contributes to the CSF Cooperative which shall be treated as grant shall not be considered as members of the CSF their contribution shall be booked as Restricted Capital for Surety Individuals; Private banks and other financial institutions; Associations of businessmen or entrepreneurs; Multilateral or bilateral international institutions or agencies International grants and aids; and Any person or entity which the Board may subsequently accept as donors.

22. a fund generated from the contributions of well-capitalized and well-managed member-cooperatives/NGOs,- LGUs, GFIs and other institutions/ government agencies. NGOs LGUs DONORS COOPs GAs CREDIT SURETY FUND GFIs NGOs LGUs DONORS COOPs GAs a fund generated from the contributions of well-capitalized and well-managed member-cooperatives/NGOs, LGUs, GFIs and other institutions/ government agencies. Any increase in the contribution of existing or new member-cooperatives/NGOs, LGUs, GFIs and other qualified investors or donors. ESTABLISHMENT OF A CREDIT SURETY FUND (CSF)

23. In lieu of hard collaterals, the CSF shall serve as security for the loans that will be obtained by qualified borrowers from lending banks by way of a surety cover issued by the Board of Directors of the CSF Cooperative. Banks generally require hard collaterals when extending loans, a requirement that some MSMEs often find it difficult to comply

24. The consolidated fund of the CSF Cooperative shall be placed under a Trust Fund in a bank licensed to provide trust services by the BSP. Investment of CSF Cooperative shall preferably be in government securities and twenty percent (20%) time deposits with banks as provided in the By Laws. Terms and conditions shall be embodied in a Trust Agreement

25. R efer to the earnings generated by the contributions of LGUs, GFIs IGLF and GAs treated as grants as well as the earning generated by the contributions of an individual or private entity, which shall not be distributed but shall remain in the Restricted Capital for Surety until the dissolution of the CSF Cooperative IMPUTED INCOME

26. MSME-members of cooperative-member of the CSF Cooperative Cooperatives that are members of the CSF Coop NGOs that are members of the CSF Cooperative The purpose of the loan must always be productive in nature such as: a. Additional working capital for business; b. Acquisition of equipment; c. Purchase of goods; d. Additional inputs for agricultural and commercial projects; and e. Lending f. Other purposes that will generate economic activities

27. ENDORSERS member-cooperatives which attest to the CSF Cooperative the creditworthiness of its member-borrowers and binds themselves jointly and severally with the borrower in the event of the latter’s default; thru the issuance of a board resolution, bind themselves jointly and severally liable with the borrower to the bank, or to the CSF Cooperative if it pays the borrower’s past due obligation.

28. A universal bank, commercial bank, thrift bank, rural bank or cooperative bank which is qualified to rediscount its eligible papers with the BSP, LBP or the DBP may participate as lender. Banks can participate in the CSF as an accredited lending bank by submitting a letter of intent to the CSF cooperative. The CSF Cooperative or any of its contributors, shall not interfere in the borrower’s selection of lending bank. LENDING BANKS

29. The lending bank shall ensure the expedient and efficient processing of loan applications endorsed by the CSF Cooperative. Processing time shall not exceed 45 days from submission of complete requirements. The lending bank shall assist the CSF Cooperative in the collection of the service fees prior to the issuance of surety agreement and release of loan proceeds.

30. Interest on loans. —Lending /participating banks are encouraged to charge reasonable interest rates on CSF covered loans granted to qualified borrowers. For this purpose, the CSF Cooperative may disseminate to all participating cooperatives the interest rates of all participating banks As an accredited lending bank, it shall have the responsibility of communicating to the Board on a monthly basis the status of the loans that are already covered or shall be covered by the CSF Cooperative. The lending bank shall submit monthly, quarterly and annual reports as may be provided in the Bylaws, this Rules and in the agreement with the CSF Cooperative to ensure that appropriate risk mitigating measures are installed promptly.

31. BORROWING THRU THE CSF COOPERATIVE CSFC BOARD 6. Evaluates and processes the loan application 10. Releases loan proceeds 2. Evaluatesthe application 4. Decision through a Board Resolution BORROWER 9. Issues surety cover 8. Borrower pays surety fee Submits application (Loan/ Surety Cover) CREDIT COMMITTEE 3. Submits result to CSFC Board CSFC BOARD 5. Submits Loan application to the chosen lending bank 7. Notifies the CSF Coop to issue the Surety Cover CSFC BOARD

32. IN CASE OF DEFAULT…… The lending bank may file a claim against the CSF Cooperative within 30 days after the loan has been declared in past due status, provided that the following conditions are met:   The account has been declared by the lending bank to be in past due status based on the definition of “Past Due Account” under the Implementing Rules and Regulations; The lending bank submits a report showing, among others, that:   i . Despite diligent efforts to collect the past due account remains unpaid; ii. All remedial measures and alternative means, including restructuring, were exhausted; and iii. No other plain and speedy remedy available to collect the loan.

33. The lending bank will execute a notarized “Deed of Assignment of Credit” in favor of the CSF Cooperative and submit the same to the BOD together with all original documents evidencing the loan grant, i.e. promissory notes, subsidiary records, official receipts or other evidences of payment, statements of account, demand letters/correspondence between the bank and the borrower.

34. In case of default… 5. Collects from the borrower 6. Borrower pays past due loans to the CSF coop 3. CSFC BOARD pays the bank 1. Files claim with the CSF Cooperative / submits requirements 2.Reviews validity of claim and completeness of required documents 4. books the claim against the borrower/endorser BORROWER

35. The Surety Agreement shall not cover any extension, renewal or novation of the loan in the nature of new, separate and additional loans without approval of the CSF Cooperative. Provisions of the Civil Code of the Philippines particular on credit transactions, guaranty and surety and other relevant laws and jurisprudence shall apply.

36. SERVICE/SURETY FEES The CSF Cooperative /endorser shall charge the MSME-borrowers reasonable annual service fees computed based on the amount of the outstanding principal loan granted by the lending bank per transaction.

37. Max amount of loan that a member coop/NGO can borrow shall not exceed 10x its contribution to the CSF at any given time ; however, if there is no qualified endorser, maximum is 5x its contribution to the CSF Max amount of loan that a member coop can endorse shall not exceed 10x its contribution to the CSF at any given time ; RISK MANAGEMENT & PRUDENTIAL MEASURES

38. Aggregate outstanding balance of loans granted by all banks shall not exceed 3x the CSF Coops RCS at any given time. the 3x leverage may be reviewed annually for progressive increase but not to exceed 5x the RCS The CSF Coop shall cease issuing Surety Agreement to any and all member coops/NGOs whenever the outstanding past due loans in the books of all or any participating bank reach 10% of the total outstanding loans covered by Surety Agreement RISK MANAGEMENT & PRUDENTIAL MEASURES

39. Withdrawal of Contributions  Subject to the procedures and requirements stated in the implementing rules and regulations, a member-cooperative/NGO and other private institutions may withdraw all or part of its contributions:  Provided,  That it has no outstanding obligation on account of the surety agreements issued and subject to such reasonable terms and conditions such as, among others, the liquidity of the Fund. LGUs, GFIs and other government agencies may only withdraw their contribution upon dissolution of the CSF Cooperative. ( Sec. 18)

40. Tax treatment of CSF Cooperatives A CSF Coop registered with the CDA shall enjoy the tax privileges of coops subject to the conditions set in Sections 60 and 61 of “Coop Code of 2008”, and relevant joint rules and regulations or revenue issuances on the matter. The members of the CSF Coop which are not coops shall be subject to regular taxes as provided under NIRC, as amended, and other tax laws (Rule 29, Section 4).

41. The COA shall be allowed to inspect the books of accounts and other financial records available with respect to the contribution of the LGUs, GFIs, IGLF or other institutions/GAs to the CSF Cooperative (Rule 29, Section 2)

42. Governing Law.  – The provisions of this Act and its implementing rules and regulations shall primarily govern the organization, establishment, governance and operation of CSF Cooperatives. The provisions of the Cooperative Code of 2008 shall apply only insofar as they are not inconsistent herewith.

43. CREDIT SURETY FUND SERVICE