AIM-SMMPC (a) the Beginnings of a Cooperative

AIM1-05-0001-CS

SMMPC (A): THE BEGINNINGS OF A

COOPERATIVE

In 1991, Simbayanan1 ni Maria Foundation, Inc. (SMFI) was registered as a non-stock, non-profit organization as the parish churchs response to poverty in Taguig. It offered programs on health service, nutrition, skills training, and job placement as well as college scholarships. This foundation spun off the Simbayanan ni Maria Multipurpose Cooperative (SMMPC) to develop and undertake socio-economic programs and activities for the improvement of the quality of life of the people of Lower Bicutan and adjacent villages in Taguig.

Of the total cooperatives that had been established in Taguig since the 1960s, only 10 percent survived by 1996.2 Of all the existing cooperatives in Taguig, SMMPC was the biggest in terms of assets, revenues, and membership equity. From 1991 to 1996, the cooperatives assets grew from Php445,575 to over Php26 million, while membership equity increased from Php316,426 to Php14 million and loan releases likewise went up from Php539,500 to almost Php15 million over the same period. In the last five years, the cooperative generated a surplus with its net income reaching Php 991,498 in 1996. Fr. Antonio C.T. Pascual, or Fr. Anton to his parishioners, a parish priest of Our Lady of the Holy Rosary from 1988 to 1992 and a member of the Board of Directors, looked back at SMMPCs early years and reflected:

This case was written by Asuncion M. Sebastian under the supervision of Prof. Francisco L. Roman, Jr. of the Asian Institute of Management with funding support from the Microfinance Management Institute, a joint venture of the Open Society Institute (OSI) and the Consultative Group to Assist the Poor (CGAP). This material was based on Management Research Report entitled An Integrated Development Strategy for the Simbayanan ni Maria Multipurpose Cooperative by Fr. Antonio C. T. Pascual, Master in Development Management 1997. All case materials are prepared solely for the purposes of class discussion. They are neither designed nor intended to illustrate the correct or incorrect management of problems or issues contained in the case. Copyright 2005, Asian Institute of Management, Makati City, Philippines, http://www.aim.edu.ph, e-mail: [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a report or spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout consent from the Asian Institute of Management. To order copies or request for the reproduction of case materials, write to Knowledge Resource Center, AIM, MCPO Box 2095 Makati City, Philippines or e-mail: [email protected]

1 The term simbayanan was a conjugation of two words: simbahan, which meant church; and

bayan, which meant country. 2 Antonio C.T. Pascual, An Integrated Development Strategy for the Simbayanan ni Maria

Multipurpose Cooperative, Management Research Report, Asian Institute of Management, 1997, p. 31.

AIM1-05-0001-CS SMMPC (A): The Beginnings of a Cooperative 2

Those years were characterized by slow growth because we gave

more weight to sincerity than competence in the choice of directors. After pursuing higher studies in development, I came to realize that I myself lacked the competence to run the cooperative. Now, as we look forward to the next five years, we at the Board need a guide as to how we could enhance SMMPCs capabilities to realize its vision, mission, and objectives.

I want SMMPC to be an effective and efficient social organization

and business enterprisedoing good and doing well. However, how do I direct the organization towards this end? There is so much room for growth and expansion, but how do we ensure the cooperatives sustainability?

THE MUNICIPALITY OF TAGUIG Geography, Population, and Economic Activities SMMPC was located in Lower Bicutan, Taguig, a first class municipality bounded by Pateros and Pasig (north), Taytay and Laguna Lake (east), Muntinlupa, (south), Makati, Pasay, and Paraaque (west). (Annex 2 Map of Metro Manila) Primarily an agricultural plain, Taguig was divided into 18 villages with Lower Bicutan as its fourth largest village in terms of land area and the fifth highest in population density (Exhibit 1 1994 Population of Taguig). In 1996, the breakdown of its land use was as follows: military reservation (34 percent), residential (30 percent), and agricultural (19 percent). From 1990 to 1995, the average annual growth rate of 6.16 percent of the population of Taguig was higher than the National Capital Regions 2.95 percent. This high growth rate was partly due to the high rate of migration to Taguig. In 1994 alone, 20 percent of the surveyed population were new migrants, mostly coming from the Bicol and the Visayas regions. Corollary to this, the increase in housing units from 1970 to 1990 reached almost 600 percent. In 1991, only around 64 percent of Taguigs population was in the labor force because its composition was rather young. Almost 50 percent of the inhabitants belonged to the 0 to 19 age bracket while 47 percent of them were in the productive age range of 20 to 59 years.

The unemployment rate in Taguig increased from nine percent in 1990 to 19 percent in 1992, during which period the National Capital Regions unemployment rate was 17.2 percent.

Asian Institute of Management Copyright 2005

AIM1-05-0001-CS SMMPC (A): The Beginnings of a Cooperative 3 Around 81 percent of the households in Taguig in 1991 had an annual average income ranging between Php20,000 and Php 29,999 while the national poverty threshold that year was set at Php7,302 per capita or Php36,510 for a family of five3. The main economic activities in the municipality were manufacturing, trading, and retailing via micro enterprises, which included sari-sari stores4 and eateries. Around 37 percent of the households were engaged in agricultural activities: farming, fishing, and livestock-raising. Since income of the agricultural sector was relatively low, men tended to engage in other income-generating endeavors such as backyard gardening while women and children worked as garment/dressmakers, rag makers, and stuff toy makers to augment their household income. The children of farmers and fisherfolks, because of their households limited income, were generally unable to go to school and were compelled to take on their parents occupation, thus the vicious cycle of poverty. In Lower Bicutan, 38 percent of the working population lived on salaries and wages, while 34 percent had their own businesses. The rest relied on remittances from their relatives abroad. Based on a survey conducted in 1996, Lower Bicutan had an average monthly family income of Php5,562, with 24 percent of the residents earning a monthly family income ranging between Php5,500 and Php14,000.

A source, who had been residing in Lower Bicutan since 1982, however, had the impression that actual unemployment rate must have been higher that statistics. She said that many people in Taguig, particularly in Lower Bicutan, were jobless. And while peace and order situation was generally okay, the youths often figured in gang fights. The Financial Sector in Taguig

A random ocular survey conducted in 1996 showed that there were three to four pawnshops, one investment house, and several 5/6 operators5 in every village in Taguig. These credit providers were generally seen around the market stalls, busy intersections and thoroughfares, and places where there was heavy people traffic. There were also five commercial banks in Bicutan and one rural bank in Ususan; 39 multipurpose cooperatives and 12 credit cooperatives in the entire municipality.

3 National Statistics Office, Family Income and Expenditure Survey (1991, 1994, and 1997),

http://stednet.sei.dost.gov.ph/surveys/DOLE/DOLE_Poverty_919497.htm. 4 Sari-sari stores were small storefronts that sold foodstuff and sachet-packaged products to villages

or communities. They normally catered to the low-income group that could not afford bulk purchases in supermarkets.

5 These were the Indian immigrants in the Philippines who extended flexible short-term microcredit to the poor. Although they operated illegally as usurers, they had mastered the techniques of marketing and collecting from the debtors such that their their simple 5/6 business (that is, for every Php5,000 borrowed, they would collect Php6,000) flourished across generations.



Commercial banks charged 18 percent per annum in interest and required collaterals for loans; lending investors and pawnshops charged three to five percent per month. In contrast, neither cooperatives which charged 1.5 percent per month nor the 5/6 operators who charged between 10 and 20 percent per month required collateral for loans. Friends and relatives were another source of credit for the people of Taguig. While they too did not require collateral, they sometimes also applied exorbitant interest rates on credit.

In Lower Bicutan, SMMPC was the only cooperative that offered credit facilities.

Since there were no banks in the village, major sources of financing in the area were pawnshops and two lending investors. These creditors offered short-term loans of up to Php100,000 for 90 days at five percent interest per month. Their commonly accepted collaterals were real estate and chattel mortgages. However, since most lands in Lower Bicutan did not have titlesonly tax declarations were used as proof of ownershipreal estate mortgage became problematic. In Taguig, people availed of credit facilities generally for the purchase of household appliances. Whenever a household did decide to buy an appliance, it was more particular about the monthly amortization than about the applied interest rate. SMMPC, for example, charged 32 percent over six months if payments were made daily, and 30 percent if made monthly. However, 70 percent of the residents preferred to buy from popular distributors outside Taguig using credit cards or loans from their friends and relatives. The top selling appliances in the area were television sets, followed by refrigerators (which were also used to store ice and ice candies that households sold to their neighbors), washing machines, electric fans, and karaoke. The Cooperative Sector in Taguig Of the 73 registered cooperatives in Taguig in 1996, only three were located in Lower Bicutan. Most of them were situated in Western Bicutan (26 cooperatives) and Bagumbayan (10). In 1994, the Cooperative Development Council conducted a workshop among cooperatives to determine their areas of concern. The main issue raised during the workshop was the Local Government Unit (LGU) representatives lack of experience and initiative to organize the cooperatives, call a meeting, or even draft programs intended to rehabilitate the cooperative movement. As cooperatives were also often perceived as taking political sides, they presented a threat to the incumbents, making it difficult for the cooperatives to establish an alliance with the LGU.

The common problems encountered by the cooperatives were the following:


AIM1-05-0001-CS SMMPC (A): The Beginnings of a Cooperative 5 Cooperative Type

Specific Concerns

Consumer Leadership Vested interests

Irregular meetings Poor attendance in meetings Nonpayment of financial obligations Lack of management skills

Management / Committees

Management of collectors, resulting in late payments Lack of management skills Lack of commitment

Members Refusal to patronize the services offered by their cooperatives Late payments of obligations Untimely withdrawal of funds Lack of coop education

Credit Management/ officers

Collection of loans/ deposits Vested interests Lack of management skills Lack of value formation

Members Late payments of obligations Lack of coop education

Service Members Nonpayment of dues

Non-attendance of meetings Nonperformance of other duties and obligations

Operations Dealing with competition Producers Operations Limited markets

Collection Low quality / poor quality control Lack of capital

Source: Adapted from Antonio C.T.Pascual, An Integrated Development Strategy for the Simbayanan ni Maria Multipurpose Cooperative, Management Research Report, Asian Institute of Management, 1997. In 1992, the Samahan ng mga Kooperatiba sa Taguig (SANGKOT), a federation of cooperatives in Taguig, was established. It initiated programs for farmers and for existing and start-up cooperatives. The federation, however, lasted for only two years due to mismanagement, the lack of financial capability (despite funds generated from the members and the Cooperative Foundation of Taguig, Inc.), poor repayment rate, and the personal interests of the officers coming into play. Sources recalled that SANGKOT ventured into consumer goods trading the officers were said to be the first to avail of appliance loans but never got to pay back their debts.



THE SMMPC IN FOCUS Brief History of the Cooperative

The provision of financial services to the poor started as part of the Parish Churchs ministryworship, education, social services, temporalities, and youth development under the social services arm. The Church workers believed that We could not preach the Gospel to empty stomachs. As the parish priest of Lower Bicutan, Fr. Anton first ventured into microcredit in 1989 when a benefactor granted him Php1 million to be given out to individuals as micro loans of Php5,000 each. However, only Php100,000 in repayments was collected. Mr. Edgardo Contreras, then a Church volunteer worker, recalled,

We attributed this phenomenon to the members lack of value

formation and sense of obligation to repay whatever they owed. Because of this experience, putting up a cooperative was conceived. We consulted the parish and participated in a cooperative seminar conducted by the San Dionisio Credit Cooperative in Paranaque. By establishing SMMPC in 1991, Fr. Anton formalized the extension of various

services and the provision of loans to small-scale entrepreneurs. SMMPC had the following objectives:

1. To promote the cooperative among its members and create funds to be able to

grant loans for productive and providential purposes; 2. To procure and distribute commodities to members and non-members; 3. To undertake joint agricultural or industrial production; 4. To supply production inputs to members and help market the product; 5. To promote an integrated cooperative system as a way of life so as to improve

the social and economic well-being of the people; 6. To undertake any related activity leading to the members self-government and

to improve the peoples social and/or economic well-being under a truly just and democratic society;

7. To work with the cooperative movement, non-government and government

organizations in the promotion and development of cooperatives and in carrying out government policies; and

8. To undertake other activities for the effective and efficient implementation of

the provisions of the Cooperative Code.



Its vision and mission were expressed thus:

VISION A self-reliant community in Lower Bicutan and the adjacent villages through its

cooperative integrated development programs.

MISSION SMMPC shall develop and undertake socioeconomic programs and activities for

the improvement of the quality of life of the residents. Mr. Contreras, who became the cooperatives first elected Chairman, recalled that

Mt. Pinatubo erupted right after the cooperative was established, covering most parts of Central Luzon and Manila with ashes. He said that the resulting economic crisis from the disaster made it doubly difficult for a start-up cooperative like SMMPC to pursue its objectives. The cooperative had started with only 33 members and a capitalization of Php16,000.

As Chairman, Mr. Contreras had to grapple with several issues. He recounted,

I had to establish the credibility of the cooperative. The recruitment of members was done by promoting the newly-formed cooperative during Sunday mass and through the use of guerilla tactics, that is, we moved around the four nearby villagesLower Bicutan, Bagumbayan, North Daang Hari, and Sitio de Asis. However, people were too afraid to put their resources into something that they feared was not stable. Since there were many fly-by-night cooperatives, people were afraid SMMPC might run off with their money. Aware of what it was up against, SMMPC thus hired managers whom the people

could trust. These managers were existing volunteers in the cooperative. It issued its first loan of Php1,000 in September in 1991. Mr. Contreras said, Initially, very few members wanted to avail of loans, which they found too small to begin with. Thus, SMMPC increased the minimum loan size to Php5,000 to make the service more marketable.

SMMPC also had to compete with the 5/6 operators who did not require any

investment or membership to any one prior to granting a loan. According to Mr. Contreras,



These operators also did not require attendance in seminars during

the loan term and neither did they impose any limit on the loan amount. The cooperative limited the allowable loan to three times the savings amount or share capital of the borrowing member. Moreover, these operators were able to release the loan within the day it was applied for. In contrast, since the SMMPC staff was composed of volunteers who did not necessarily have any banking experience and were thus not used to processing financial transactions, it took them two weeks to release the loans. Realizing the need to build the management capabilities of its officers, SMMPC

used the cooperative education and training fund (CETF)6 for skills training and personal development seminars of the volunteer staff.

Finally, Mr. Contreras had to deal with some very enterprising members who

lent out the loans they obtained from SMMPC to non-members who were not subjected to a background investigation nor screening vis--vis the selection criteria, thus causing SMMPCs past due account to rise.

Since SMMPC was a parish-based cooperative, its Board then was composed of

members of the Parish Pastoral Council who had good leadership because of instilled values of service and sincerity, but simply took directives from the parish priest. In a way, it was really the parish priest who ran the show, Fr. Anton said, referring to himself.

In 1992, Fr. Anton was assigned to Makati City. Believing that the cooperative

would collapse if the next parish priest did not have social orientation, the Board decided to take SMMPC out of the jurisdiction of the parish church and transformed SMMPC into a community-based cooperative. The SMMPC Board-cum-Pastoral Council was maintained while a new set of officers was appointed to the Parish Pastoral Council. Though still in Makati in 1995, Fr. Anton was elected SMMPC Chairman. Products and Services Credit Service Credit Service was the lifeblood of the cooperative which offered two major types of loans, namely, regular and special loans, which had the following features:

6 Equal to 10 percent of the cooperatives net income.


AIM1-05-0001-CS SMMPC (A): The Beginnings of a Cooperative 9 Type of Loan

Use Loan Size

(at 1.5 percent

interest per month)

Loan term Service fees (loan period

and applicable service fee

rate)

Capital Build Up7 Required and Interest

Rate

Regular

Productive loans

For additional capital needed by the borrower for his/her business venture

Maximum Php20,000

Maximum of one year

Providential loans

Calamity or educational needs

Maximum of Php7,000

Maximum of one year

Emergency loans

Illnesses, accidents, thefts, or fire

75 percent of fixed deposit but not exceeding Php20,000

Maximum of two months

Over-the-counter

Maximum of Php3,000

One month

One to four months 2% Five to eight months 3% Nine to 12 months - 4%

Php1,500 to Php5,000 3% Php6,000 to Php10,000 3.5% Php11,000 to Php15,000 4% Php16,000 to Php20,000 4.5%

Special Loans

Php50,000 to Php500,000

Real estate Maximum of Php 500,000

Maximum of three years

Chattel Maximum of Php100,000

Maximum of one year

3% 2%

All loans bore an interest rate of 1.5 percent per month. Every loan transaction

required a service charge and capital build-up, both of which were deducted upon the release of the loan. An additional service or extension fee of three percent was also charged for every petition to extend the maturity of the loan, payable upon the approval of the petition. All loans bore an interest rate of 1.5 percent per month, the payment for which was included in the monthly amortization. For all loans amounting to Php50,000 or below, an amount equivalent to one percent of the loan was deducted and placed in the SMMPCs loan guarantee fund; any loan amount higher than Php50,000 required an insurance of Php12.50 per Php1,000 of loan.

7 Refers to the members share of equity or ownership in the cooperative and the corresponding

interest or earnings on investment. This amount adds up to the fixed deposit investment of the member-cooperators which is used for the cooperatives working capital.



Regular loans did not require collateral but the borrowers had to undergo a series of graduated credit packages (i.e. loan limit increases with the number of loan cycles) to gauge their creditworthiness before the loan approval. On the other hand, special loans required either chattel or real estate mortgage. In addition to the abovementioned charges, special loans required an annotation fee of Php750 per Php50,000 of the loan amount, but not to exceed Php3,000.

From 1991 to mid-1996, SMMPCs total loan releases rose from Php539,500 to almost Php15 million (Exhibit 2 SMMPC Loan Releases, 1991-1996). Its capital build-up stood at Php342,448 while its repayment rate was at 96 percent as of June 1996. (Exhibit 3 SMPC Repayment Rates, 1996) Approval of a loan application depended on the cooperators actual need, credit standing in the cooperative and the community, earning capacity, paying capacity, the solvency of his co-makers or the value of his/her collateral, and the ageing of deposits (30 days after attending the pre-membership education seminar or full payment of the Php500 fixed deposit). The Credit Committee reviewed and approved or rejected all the loan applications. To match competition, especially the 5/6 operators, SMMPC tried to process regular loan applications within a week, and applications for special loans within two weeks. (Exhibit 4 Comparison of Services, SMMPC and Competitors)

Of the 117 cooperators who Fr. Anton interviewed, 83 percent had availed of SMMPCs credit services. Of this number, 48 percent borrowed for productive purposes (often, for additional capital to finance existing trading and micro enterprise activities and for renovating houses to be rented out), 33 percent for providential needs, 14 percent for emergencies. The remainder borrowed for special purposes such as business operations requiring large capitalization (higher than the maximum amount under the productive loans). From among the Taguig residents, however, only 30 percent of the survey respondents had borrowed from SMMPC as most of them either relied on personal savings and income, or borrowed from 5/6, rural banks, lending investors, family or friends, or from SMFIs micro-lending program.

Aside from loans, SMMPC also offered life insurance to cooperators who had fully

paid their share capital.8 This program was called the Damayan Trust Fund whereby on the day of a beneficiarys death, each member contributed Php10.00 if the deceased person was the member himself/herself, or Php5.00 if the deceased person was only a members beneficiary.

8 For a fee of Php500, a cooperator could become a lifetime, full-fledged member of the

cooperative.


AIM1-05-0001-CS SMMPC (A): The Beginnings of a Cooperative 11 Consumer Service SMMPCs Consumer Service Department, which handled the sale of consumer goods and appliances, was organized only in 1995 that it had to grapple with procedures, the reporting, and delivery systems. There were cases of goods lost in transit or lost deliveries, unknown signatory and/or unknown receiving party so loan could not be collected accordingly, and borrowers running away with the loaned appliances and goods. Appliance sales were the Consumer Services bread and butter but the Department had to fine-tune yet its relationship with the Credit Service Department, particularly in assessing the creditworthiness of the member-cooperators.

SMMPCs two main competitors in Taguig were located outside the cooperatives area of operation and did not offer delivery services. SMMPCs 10-percent mark-up on every product made its cash sales less competitive than the competitors but the interest rate it imposed on credit was lower than the competitors, giving SMMPC a decided advantage (Exhibit 5 Comparison of Prices, SMMPC and Competitors). Still, SMMPC faced stiff competition from the big corporations outside Taguig such as those from Makati, Paranaque, Pasay, and Las Pinas. In the sale of rice, on the other hand, SMMPC competed with the local dealers. SMMPC sold appliances through its sales force of 32, most of them women, who conducted door-to-door direct marketing. Their incentives included commissions equivalent to 30 percent of gross profit and cash awards given to top sales performers who also served as collectors.

Based on the survey conducted by Fr. Anton in 1996, only 36 percent of the 117 respondents bought appliances from SMMPC, while 32 percent bought outside the cooperative despite the fact that they found the price offered by SMMPC right for them (81 percent), its delivery system efficient (86 percent), its terms of payment acceptable (74 percent), and the quality of products satisfactory (74 percent). Based on another survey by Fr. Anton in 1996, he found out that of the 100 randomly selected samples, only 18 percent bought appliances from SMMPC on installment, while 75 percent bought appliances in cash in the commercial areas outside Taguig. The commercial establishments charged extra for delivery but the buyers perceived the goods supplied by these stores to be of better quality and at lower prices; they also thought that since SMMPC also sourced its supplies from these stores, they might as well buy directly from them.


AIM1-05-0001-CS SMMPC (A): The Beginnings of a Cooperative 12 Membership

Only those who had resided in Taguig for at least three years, either as homeowners or lessees, could become members of SMMPC. In June 1996, SMMPCs membership reached 1,220, of which 1,153 (94 percent) were regular members, 198 were special depositors9, and the rest, associate members10. Seventy-six percent of the members were from Lower Bicutan, where they covered less than two percent of the total population. Other members came from seven other villages in Taguig. In the last five years, a total of 429 patrons (24 percent) withdrew their membership from the cooperative either because they transferred residence outside SMMPCs area of jurisdiction or could no longer attend meetings and activities due to business and/or personal reasons. Emergencies forced some members to withdraw their funds. Some members who were unable to pay their dues on time opted to terminate their membership. (Exhibit 6 SMMPC Membership, 1991-1996)

The same survey conducted by Fr. Anton among the cooperators revealed that 28 percent of the members participating in the study joined SMMPC in the hope that the cooperative could help improve their economic plight. Another 19 percent intended to borrow capital from SMMPC to be able to start their business or increase the capitalization of their existing businesses. Still others (17 percent) joined the cooperative for various financial reasons: the low interest rate imposed on loans, the savings facilities available, and the availability of emergency funds. According to the Pre-Membership Education Seminar forms, the average monthly income of members ranged from Php5,875 to Php7,889. Around half of the members were salaried workers and 23 percent were microentrepreneurs. The family size of members ranged in number from five to six. Fr. Antons survey also showed that only 15 percent of the members were able to finish college; the rest were college undergraduates, vocational course certificate-holders, and high school and elementary levels. Of the total members, 30 percent were housewives who simply cared for the children and did the chores at home. They simply had no chance to go out of their house to find work. This last segment thought that SMMPC could help them through livelihood programs that would enable them to augment their income even in the confines of their homes. Aside from economic matters, health and water supply were the primary concerns of the members. Common illnesses were colds, fever, and headache. Water was mostly sourced from deep wells (45 percent) or from commercial sources (41 percent), which imposed monthly charges ranging from Php150 to Php1,000. When asked if SMMPC was able to live up to its mission of helping its members uplift their economic conditions, 97 percent of the survey respondents answered positively, saying that the cooperative helped their family financially through its credit services and low interest charges on loans.

9 Non-members who were willing to place fixed deposits in the coop. 10 Members who could avail of all coop services except loans and had no voting power.


AIM1-05-0001-CS SMMPC (A): The Beginnings of a Cooperative 13 Organizational Structure The general assembly was the highest decision-making body of the cooperative. Under this body was the Board of Directors (BOD), the highest-policy making body elected by the general assembly.

SMMPCs BOD, all working on voluntary basis and did not get paid for holding their posts, took on an active role in the cooperative: they participated in decision- and policy-making and coordinated with the committees as often as possible. The board had four working committees, as follows:

1. Education Committee. As of 1996, the Committee conducted only one program, the Pre-Membership Education Seminar, for the members-cooperators.

2. Audit and Inventory Committee. Having one only certified public accountant on

board, the Committee failed to audit SMMPC religiously.

3. Election Committee. Members of this Committee lacked planning and organizing skills. Previous records showed that the committee did not screen the candidates for positions properly.

4. Credit Committee. The most active committee despite its being understaffed; its

members needed further training in credit and collection. As of 1996, the Committee had not had regular meetings with the management staff.

Composed of eight personnel, the management team reported to the BOD (see Exhibit 7 for their profiles). Fr. Anton observed:

The BOD, which is supposed to be legislative in nature, is tasked to monitor and evaluate the operations of the cooperative. Majority of the BODs are also directly involved in operations. Further, since the committees are in the same level as the BOD and work independently from the BOD and from each other, non-coordination among these committees is inevitable.

There is also a gap between the BODs and the management staff. A

number of policies approved by the BOD have not been properly channeled to the managers, resulting in conflicting decisions and the overlapping of old policies already superseded by new policies. But generally, the working relationship in SMMPC is healthy, although occasional conflicts arise due to work pressure.

One good thing about the Board and the management staff is their

openness to change.



At the grassroots level, the cooperators were organized through the Pook Tulungan11 (PT), which was under the Credit Committee. A PT group composed of five to ten members elected their PT leader whose functions included the calling of PT meetings, the signing of loan applications, recommending possible cooperative members, and assisting in loan collection. The PT members monitored one another and assisted management in the dissemination of information, particularly BOD policies.

Fr. Anton commented,

Because most PT leaders were not sufficiently informed of the policies and procedures of SMMPC, they caused miscommunication and confusion among the members. Many cooperators had also lost contact with their PTs because of the leaders oversight.

The PT structure has proven to be too bureaucratic that members

have difficulty getting their loans approved by their respective PT coordinators12.

Systems and Procedures SMMPC did not maintain efficient records of its inventory facilities, property, membership profile, and other pertinent cooperative memoranda. Thus, delinquency status of loans had not been properly monitored since the cooperatives establishment. Even the suggestion box, which is intended to get feedback and suggestions from the members, has been missing for quite sometime now, Fr. Anton said in dismay. The cooperative hoped to install a computerized system for its consumer and credit services soon. Fr. Anton added,

Each committee is supposed to submit its list of proposed annual programs and budget to the BOD, which would then assess and evaluate the proposals according to the general assemblys approved programs. However, not one of the SMMPC committees have submitted an annual program and budget to the BOD in the last five years.

Monitoring and evaluation were undertaken either by the committee heads or by the committee as a group. The BOD then called all the committee heads and managers for the monthly monitoring and evaluation of their performance. If the BOD saw it fit, it made the necessary recommendations, gave suggestions, or issued new policies.

11 A phrase which meant in a place for mutual help. 12 Elected representatives of the PT leaders. Both PT Leaders and Coordinators worked on voluntary

basis and were not treated as coop employees.



Fr. Anton opined,

The cooperative needs additional personnel, especially those with accounting background and sales experience. Although it conducts external sourcing of candidates for the various positions, priority is given to cooperative members and their beneficiaries who reside within the area of SMMPCs operation. The managers and/or directors evaluate the applicants based on the latters knowledge, expertise, and experience. At present, SMMPC suffers from a lack of performance appraisal mechanisms of its full-time staff, a competitive salary structure, an incentive scheme, and career development plans for its personnel.

Performance From 1991 to 1996, SMMPCs assets grew from Php445,575 to over Php26 million (Exhibit 8 SMMPC Financial Performance). Of this amount, Php10 million was invested in the Metro South Cooperative Bank. As of June 1996, SMMPC had total loan disbursements of more than Php9 million, broken down as follows: 51 percent from special loans, 42 percent from productive loans, 6 percent from providential loans, and one percent from emergency loans. At the end of each fiscal year, SMMPC distributed its net surplus as follows: 10 percent for its reserve fund; 10 percent for the education and training fund; 10 percent for lands and buildings, community development, etc. The remainder was made available to the members in the form of patronage funds and interest on their share capital, the rate of which was not to exceed the normal rate of return on investments prescribed by the Cooperative Development Authority.

MOVING FORWARD

As Fr. Anton looked forward at SMMPCs prospects, he expressed thus,

SMMPC is bullish in the entrance of the third millennium. By capitalizing on its strengths and overcoming its weaknesses, the cooperative can become a major socio-economic player in the municipality of Taguig and a potent catalyst in the development of other key actorsthe government organizations, the non-government organizations, or people s organizations. But with what has been happening to SMMPC and its environment in the last five years, how do we grow the cooperative while ensuring its sustainability?



Exhibit 1

Name of Village Area (has.) Male Female Total HouseholdsDensity (Total

pop'n/area)Signal Village 110 28,488 29,650 58,138 11,628 529 Upper Bicutan 144 24,656 25,663 50,319 10,064 349 Lower Bicutan 235 20,158 20,981 41,139 8,228 175 Western Bicutan 355 16,826 17,513 34,339 6,868 97 Bagong Tanyag 217 13,661 14,218 27,879 5,576 128 Bagumbayan 362 12,994 13,525 26,519 5,304 73 Hagonoy 162 7,830 8,149 15,979 3,196 99 Ususan 145 6,830 7,109 13,939 2,788 96 Sta. Ana 22 5,498 5,772 11,270 2,244 512 Ibayo-Tipas 156 4,998 5,202 10,200 2,040 65 Tuktukan 31 3,998 4,162 8,160 1,632 263 Wawa 198 3,665 3,815 7,480 1,496 38 Napindan 270 3,332 3,468 6,800 1,360 25 Calzada 177 3,165 3,295 6,460 1,292 36 Palingon-Tipas 117 3,165 3,295 6,460 1,292 55 Bambang 92 2,832 2,948 5,780 1,156 63 Ligid-Tipas 68 2,666 2,774 5,440 1,088 80 Maharlika Village 51 1,833 1,907 3,740 748 73 Total 2,912 166,595 173,446 340,041 68,000 117 source: Taguig Municipal Planning and Development Office

Population of Taguig, 1994



Map of Taguig



Exhibit 2 SMMPC Loan Releases, 1991-1996

Year Productive Providential Emergency Special/Character Total1991 377,000 81,000 458,0001992 2,376,890 461,710 122,265 17,050 2,977,9151993 3,194,210 580,570 33,370 41,300 3,849,4501994 2,856,955 1,056,128 106,599 11,950 4,031,6321995 5,274,500 1,209,500 152,258 3,375,000 10,011,2581996 4,001,198 730,185 176,170 9,973,600 14,881,153Total 18,080,753 4,119,093 590,662 13,418,900 36,209,408

Table 2.1Loan Releases from June, 1991 to June, 1996 (in pesos)

Year Productive Providential Emergency Special/Character Total1991 113 56 1691992 595 214 45 58 9121993 624 219 24 140 1,0071994 388 338 45 39 8101995 568 379 50 129 1,1261996 408 207 40 151 806

Table 2.2Number of Persons Granted Loan Releases from June, 1991 to June, 1996

Year Productive Providential Emergency Special/Character1991 3,336.28 1,446.43 1992 3,994.77 2,157.52 2,717.00 293.97 1993 5,118.93 2,651.00 1,390.42 295.00 1994 7,363.29 3,124.64 2,368.87 306.41 1995 9,286.09 3,191.29 3,045.16 26,162.79 1996 9,806.86 3,527.46 4,404.25 66,050.33

Table 2.3Average Loan Size from June 1991 to June 1996 (in pesos)



Exhibit 3 SMMPC Repayment Rates, 1996

Outstanding Receivable

Amount of Delayed

and Past Due Accounts

Estimated Balance on Receivable

Repayment Rate

January 6,212,420.78 664,538.06 5,547,882.72 89% February 7,284,615.72 805,035.78 6,479,579.94 89%

March 8,807,466.31 742,701.65 8,064,764.66 92% April 9,483,316.24 895,643.77 8,587,672.47 91% May 11,786,934.38 9,377,019.87 10,849,914.51 92% June 13,779,355.28 538,991.79 13,240,363.49 96%

Exhibit 4 Comparison of Credit Services, SMMPC and Competitors

Rates SMMPC Rural Bank A Lending Investor 5/6

Service fee 3% regardless of

term 3% 3% none documentary stamps none

P105 deduction P200 for a none

for P120,000

loan P20,000 loan notary fee none None P400 for a none P20,000 loan credit life insurance

1% - P50,000 and below

according to loan bracket 1% none

1.25 - above

P50,000 processing fee none 0.25% none none annotation charge P1,000 to P4,000 None none none E-VAT none 10% 10% input tax none application fee none P2,000 none none

interest rate 1.5% 5% per month 2% 20% per month

effective annual 34% annually 116% annually 39% annually 76% payable

weekly

interest rate 93% daily payments



Exhibit 5 Comparison of Consumer Service, SMMPC and Competitors

Comparison of Cash Prices of Appliances

Appliance Model SMMPC Competitor

A Competitor

B G.E. Refrigerator GT08 P13,365 P12,150 P12,150 National Uprigh Freezer NR2201F P8,735 P8,850 P8,850 National Washing NAS40A3 P2,860 P2,880 P2,600 Machine G.E. Refrigerator GS06 P8,965 P7,480 P8,150 National Washing NA35A1 P4,840 P4,448 P4,400 Machine Panasonic Karaoke RQK640 P8,910 P8,548 P8,100 National Aircon 3/4 HP P13,167 P12,700 P11,970

Comparison of Price of Appliances on Credit Basis

Credit Terms SMMPC Competitor A Competitor B

Major Credit Cards

1 - 3 mos 1.5% interest

members 6% month

interest none - cash

basis 3% interest

4 - 6 mos 2% interest

members 6% month

interest none - cash

basis 3% interest

7 - 9 mos 2.5% interest

members 6% interest none - cash

basis 3% interest 10 - 12

mos. 3% interest

members 6% interest none - cash

basis 3% interest

Over 1 year maximum credit 6% interest none - cash

basis 3% interest

1991 1992 1993 1994 1995 Jun-96Regular Members - 385 791 968 967 1,030 New Members 387 428 202 83 225 324 Subtotal 387 813 993 1,051 1,192 1,354 %age increase 111% 26% 9% 23% 31%Withdrawn Members 2 22 25 84 162 134 %age of withdrawal 1% 3% 3% 8% 14% 10%Total 385 791 968 967 1,030 1,220 %age change of total 105% 22% 0% 7% 18%source: Adapted from Pascual, 1997

Exhibit 6 - Membership, 1991-1996



Exhibit 7 Board of Directors, 1996

Mrs. Zeny Alvarado Chairperson

One of the incorporators of SMMPC Attended seminars and training programs in the University of Asia and the Pacific, Planters Development Bank, and Polytechnic University of the Philippines on subjects related to cooperative management

Mr. Jessie Ramos

Licensed non-life insurance agent Marketing Executive of a realty company With accounting background

Fr. Antonio C.T. Pascual

Ordained priest of the Archdiocese of Manila Executive Director of Simbayanan ni Maria Foundation Had a Certificate in Program for Development Management, Asian Institute of Management Candidate13, Master in Development Management, Asian Institute of Management

Mrs. Teresita Franco

Businesswoman Medical technician by profession

Mr. Ely Bisco

Businessman Worked as an Operations Manager in two shipping companies

Mrs. Tess Cahanding

Certified Public Accountant Attended seminars and training programs at the Executive Development Academy, Technology, Livelihood and Research Center (TLRC), and Development Management Consultants

Mr. Ador Coloma

Former military officer Managed own distributorship of beverage

Mrs. Vicky Ungco Treasurer

Graduate of business administration major in accounting

Ms. Hilda Tinampay Secretary

Graduate of Bachelor of Science in Cooperatives Assisted SMMPC in conducting the Pre-Membership Education Seminar

Management Staff, 1996 Mrs. Baby Mariano Management Consultant

Certified Public Accountant Retired bank manager with 12 years of banking experience Handled finance and administrative functions of SMMPC

Ms. Liberty Felipe Credit Service Manager

Graduate of Business Administration major in Marketing and Accounting

Mrs. Stella Jacob Consumer Service Manager

College graduate Managed own business in Taguig Former officer of Rustans Corporation and Duty Free Philippines

Ms. Concepcion Mariano Mrs. Aida Pascual Bookkeepers

Commerce graduates

Mrs. Nida Arizabal Ms. Mary Anne Teodosio Ms. Pinky Amarga General Clerks

College graduates

13 At the time of the case, he was a candidate of MDM. He graduated in 1997.



SMMPC Organizational Chart, 1996



Exhibit 8

Assets 1991 1992 1993 1994 1995 1996

Petty Cash Fund 1,000.00 1,000.00 1,000.00 1,000.00 2,000.00 Cash on Hand 37,606.55 7,073.84 4,858.01 3,611.63 117,698.24 160,501.93 Cash on Bank 64,578.49 60,928.11 52,674.24 330,231.53 797,144.87 Accounts Receivable-trade 155,852.53 3,415,652.13 Merchandise inventory beg. 32,278.00 65,240.72 Loan Receivable

Productive 320,912.50 1,049,526.00 1,646,118.11 2,024,172.84 3,239,531.43 6,117,166.09 Providential 52,406.00 141,762.30 244,481.67 490,873.30 554,804.59 615,324.97 Character 3,600.00 7,400.00 2,585.00 Special 2,433,681.65 19,064,685.34 Emergency 7,774.00 12,253.00 47,380.00 76,771.45 169,334.72 consumer Store 18,000.00 Total 373,318.50 1,220,662.30 1,910,252.78 2,565,011.14 6,304,789.12 25,966,511.12

Advances receivable 2,450.00 3,157.09 1,169.00 Cash advances 6,765.86 43,602.03 Health care receivable 16,466.64 CISP receivable 11,339.80 SSS receivable 3,844.96 Penalty receivable 749.10 4,531.37 705.35 Interest receivable 17,510.50 2,350.00 400.00 Special loans receivableMiscellaneous receivable 13,624.52 2,163.79 7,089.12 Prepaid rent 6,000.00 6,000.00 3,000.00 5,350.00 13,350.00 Prepaid insurance 4,547.67 investment 15,000.00 16,000.00 10,030,000.00 11,129,300.00 Delivery equipment 313,584.00 261,965.30 Leasehold improvement 13,227.00 41,688.53

Less: amort. Of lease. Imp. 9,927.00 3,300.00

Office supplies on hand 6,181.45 8,362.20 9,723.29 8,014.20 6,514.40 6,514.40 Office materials on hand 658.50 Office fur. & equipment 7,284.00 24,404.30 28,079.30 62,399.30 112,986.48 288,851.48

Less: accumulated dept. 183.84 9,135.64 16,392.89 24,855.17 38,272.24 77,439.44 7,100.16 15,268.66 11,686.41 37,544.13 74,714.24 211,412.04

Land and building 3,605,200.00 Total Assets 445,574.76 1,332,983.95 2,021,722.95 2,700,479.86 17,392,634.34 45,713,290.10

Simbayanan ni Maria Multipurpose CooperativeASSETS

the Years ending 1991 to 1996Statement of Financial Condition for




Liabilities & Members' Equity 1991 1992 1993 1994 1995 1996

Accrued expens 849.00 Damayan Fund 103,384.53 Accounts payab Trade 752,128.60

Time Deposit 2,189,051.00 7,399,707.42 Saving deposi 104,533.45 221,034.56 340,559.98 355,320.77 484,338.70 1,030,643.14 Customers deposit 2,010.00 3,480.00 Interest on sa /capital 360.35 59,903.21 100,109.59 Loans payable 1,013,584.00 10,179,751.40 Unearned inco e 110.00 20.00 468,547.74 Insurance 5,088.70 14,310.05 SSS payable 721.60 Health care pa e 8,851.12 WTX payable 941.31 Dues to CDA/ TF 10,562.75 16,328.01 41,198.82 41,198.81 Div. & Patronage refund 25,672.81 42,904.11 321,623.13 Rent payable 3,000.00 5,000.00

Total Current Li ilities 105,003.80 224,903.56 441,698.75 618,047.01 4,056,894.35 19,900,281.19 Total Long-Term iabilities 5,500,000.00 TOTAL LIABILIT S 105,003.80 224,903.56 441,698.75 618,047.01 4,056,894.35 25,400,281.19

RESERVE, SH E CAPITAL &SURPLUS

Share CapitalSubscribed Capital Stock 357,050.00 (7141 shares- share)Paid-in Capita tock 310,269.00 Capital Build-u 6,157.68

Total Share Capi l 316,426.68 1,034,362.47 1,555,042.29 1,980,191.95 12,895,669.79 16,375,646.19 Undivided earni 24,144.78 64,858.75 14,451.89 Retained earnings 14,428.82 Net surplus 3,317,594.70

Annotation 70,628.70 Textile 800.00 CETF fund 6,612.75 10,250.26 1,054.12 KB guarantee fund 3,452.20 5,404.37 1,796.76 Reserved educa nal fund 2,414.48 24,870.82 General reserved fund 4,030.21 23,086.18 45,030.25 99,414.94 79,723.12 Reserved option fund 2,414.48 21,125.50 41,556.02 91,297.64 91,297.64 Damayan Fund 195,402.22 216,821.50 Social Fund 13,808.68 Loan guarantee nd 23,780.00 184,191.22 Miscellaneous f dTotal share Cap l-Earnings and R Fund 1,108,080.39 Total Liab., Res nd Capital 445,575.26 1,332,983.95 2,051,017.67 2,700,479.86 17,416,367.26 45,753,487.03

Simbayanan ni Maria Multipurpose CooperativeLIABILITIES, RESERVE AND MEMBERS' EQUITY

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SMMPC (A): The Beginnings of a Cooperative 25


s discounts 1,545 15,007 Net Sale 1,574,086 10,711,490 Less cost f sales

Invento beg. 37,278 Purchases 1,523,147 9,897,979 Freight in 1,500 3,049 Freight out 544 Deliver cost of purchases 1,525,191 9,901,027

Less rchase discounts 3,615

Goods available for sale 9,928,593 Less in ntory end 37,278 65,241

Cost of g sold 1,487,913 9,863,352 Gross pr t on sales 86,172 848,137 Financial charges 294,472 Gross in me - consumer 1,142,610 Add inco e from loans:

Interest ncome on loan 20,895 79,525 192,489 316,135 631,002 2,336,473 Membe unterpart 960 Bank Interest on Deposits 1,154 2,535 1,274 1,148 Service ee 10,985 69,461 100,681 130,122 324,818 1,197,113 Penalty 771 8,052 33,780 70,114 72,183 173,393 Filing f 980 5,080 4,281 3,620 16,921 21,226 Semina ee 6,093 7,100 4,115 3,750 15,650 Membe hip fee 9,400 9,420 4,300 3,750 13,150 23,125 Other income 2,026 2,198 4,299 11,798 38,113

Gross in me - credit 53,264 183,372 345,220 540,437 1,111,836 3,751,329 Gross o rating income 1,198,008 4,893,939 Less exp es:Salary & lowances 1,400 44,850 128,963 232,531 288,133 296,588 192,956 Commis n 112,118 Interest/s vings/time 183 6,475 8,757 10,067 99,666 982,415 126,744 Rent 9,000 24,000 24,000 72,200 51,700 68,100 SSS, MED. & EC. 25,127 9,054 276 Office su lies 10,153 16,819 23,399 23,165 86,740 42,248 Seminar/PMES 17,624 3,041 5,928 18,642 Depreciation fur. & fixtures 394 8,952 7,257 8,462 13,417 18,003 64,280 Repairs and maintenance 12,193 9,904 Represe 8,555 9,578 1,391 5,026 11,750 Bad deb 2,200 3,578 10,567 Amort. O e improvements 9,927 Telephon and telegraph 300 2,192 8,515 9,107 382 Bank cha s 1,048 482 8,217 Damayan Fund 3,000 6,300 Transportation 500 1,422 1,701 3,247 5,710 863 Advertisi pense 3,300 2,600 Souvenir agazine 14,872 Light and water 48 264 1,539 1,829 216 412 Gasoline 8,953 Professio al fee 2,000 1,500 1,750 Member ip Sangkot/MMCC 100 1,000 Withhold g Tax 231 Insuranc 361 400 400 305 KB guarantee fund 3,452 5,404 Miscellaneous expenses 368 5,694 12,417 14,650 47,002 Total Ex nses 27,345 119,963 218,222 337,946 655,820 1,466,015 627,237

Add Prior eriod adjustments 1,814 Operating incomeOther inc e and expensesCommis nInterest incomeInterest expense 5,100 Documentation 2,805 Miscellaneous 2,404 2,000

INCOME 25,919 63,410 126,998 202,492 542,188 Less prio riod adjustments 44,772 NET INCOME 497,416 SURPLU 25,919 Less prio riod adjustments (868) Add othe omeLess adm istrative expensesNET SURPLUS 25,052 9,000 24,000 202,492 3,334,508

2,788,379 12,309

2,776,070

1,241,723

Statement of Operations

1996For the Years Ending 1991 to 1996

683,284.81

1991 1992 1993 1994 1995 Credit Consumer

Sales 1,575,631 10,726,497 Less Sale

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AIM-SMMPC (a) the Beginnings of a Cooperative

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