Financing

Financing
Cooperatives as capitalists

Ever heard of a cooperative that finances startup technologies? Maybe not, at least in the PHilippines. But this is how Dr. Virginia A. Teodosio described cooperatives to be capable of doing given opportunities to serve its members in rural areas. Among what they are eyeing to finance now are telemedicine and perhaps solar energy and malunggay biodiesel production. “My plan is to connect Ateneo’s telemedicine, solar and water projects with the cooperative movement because coops can be investors, said Teodosio, a professor at the University of the Philippines-School of Labor and Industrial Relations (UP-Solair). “Cooperative financing can work in biotech. These women (cooperative) leaders welcome telemedicine because the cooperative movement is for the community. In Tabuk (Kalinga), they have many medical missions, so (the need for) telemedicine.” What may be surprising, although this claim may have its own proof, is cooperatives have lots of disposable money to finance technology incubation. “I’m energized because I’ve seen (the value of these cooperatives). That’s worth half a trillion. You just have to guide them. You have to capture their imagination,” she said. One of Teodosio’s plans is to link telemedicine development at Ateneo’s Innovation Center led by Dr. Gregory L. Tangonan with cooperatives in Tabuk in Kalinga, in Batangas or in Quezon and with hospital cooperatives owned by doctors and nurses. “Our doctors won’t have to leave the country. The hospital is owned by them.” These cooperative leaders, traditionally leaders of their own barangays, are also interested in propagating malunggay for its application as a food nutrition enhancer and as a pharmaceutical product. They may work too with Secura International which is pushing for a P1 billion malunggay biodiesel facility. Cooperatives have a potential for financing technology at startup stage as they have the means to accumulate huge funds through several means. “Collective action through cooperatives is one of the most important and yet least recognized dimensions of Philippine development. Overlooking their achievement reflects a failure to interrelate concepts of social capital and institutional development,” according to Teodosio. Cooperatives gain capital by requiring members to learn first how to save before they are even allowed to borrow. Cooperatives also earn from interest on loans as much as banks do. They can get funding from big banks like Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP). They retail these funds to members or to community businesses. Globally, the largest 300 cooperatives, believed to be part of the International Cooperative Alliance, recorded a $1 trillion revenue as of 2004, according to a Social Weather Station (SWS) publication of Teodosio. She co-wrote this SWS book with Linda Luz Guerrero and Jeanette Ureta. In the Philippines, cooperatives totaled to 30,000, according to the Cooperative Development Authority’s (CDA) 2004 annual report. However, only a total of 8,000 cooperatives have been monitored for their financial record. Share capital paid by members totaled to P3.3 billion while their savings was at P6.7 billion; and loans, P297.8 million. While there are some mass-based organizations that lobby for policy reforms with regard to how economic progress can be achieved, it is important to determine whose voice really counts, Teodosio said. And this voice must be those who know the plight of the least economically privileged economically in the society who have at the same time shown proof on how upliftment of the poor is possible. That has been demonstrated by cooperatives which have been effecting pockets of development in rural areas. An SWS survey indicated that 63% of 1,000 cooperative members are in rural areas, and 74% belong to the D socio-economic class. Cooperatives help small entrepreneurs in the provinces by lending to them at an interest rate lower than the interest rate they could get from loansharks such as the “Bumbays” that are lending at usurious “five-six” terms. “Cooperatives don’t impose charges similar to bank charges. We help small entrepreneurs. We lend for farmers’ purchase of fertilizers and for their daily needs,” said Florence Pagcayan of the Tabuk Multi Purpose Cooperative Inc. (TAMPCO) in Tabuk, Kalinga. Interest is 12-15% including service charges for a salary loan which can be reasonable enough as rural banks charge as much as 24% interest. Terms are four to five months just like a crop loan for rice and corn, 10 months, and 24 months. Perhaps LBP can lend at a lower interest rate, but the charges too are significantly high if one is delayed in paying. But of course LBP also lends through its conduit cooperatives who pass on LBP’s rate at an additional spread. At certain circumstances, TAMPCO, which started in 1983, lends to members in good standing without interest, but that is also because members are required to save in the cooperative fund first even before borrowing. If one has a P60,000 deposit, he can borrow up to four times this deposit. Pagcayan at one time has been able to borrow P150,000. Members at TAMPCO that have saved big enough can borrow as much as P1 to P2 million for as long a they have a collateral such as a land title. One can borrow for his daily needs, for a business capital, or for his child’s education. TAMPCO has been registering around P20 million income per year and regularly declares dividends to members. A members’ dividend income comes from his earnings from his share capital, 40%, while 60% comes from the cooperatives’ earnings from operations (lending and investments). At a certain year, Pagcayan, who had once established a furniture and bakery business, earned P15,000 in dividend income. Members also get the benefit of a mortuary aid that can amount to P55,000, hospitalization aid which can be claimed by up to three times a year, a medical consultation aid, and an educational loan of up to P4,000 per semester. Salary loan of employee-members can amount to five times of one’s monthly wage. TAMPCO has become profitable enough to build its own 60-person capacity hotel which is used as a seminar site for government clients such as the Department of Agriculture. At the Infanta Credit and Development Cooperative (ICDC), a member and officer, Wilma Coronacion, has been able to borrow up to P300,000 to P400,000. But cooperatives do get vulnerable to financial failures if managing funds err. In its effort once to help the poor, promote membership, and raise earnings, ICDC lost from its lending to individuals who never paid. “We gave them debts even if they never had a share capital. We failed in not having investigated them,” said Coronacion. But ICDC also learned its lessons from there and implemented reforms in lending. Cooperatives have advantages over other lending institutions particularly as it does not pay for withholding tax, according to a cooperative member. It can raise funds from other institutions such as from NATCO (National Confederation of Cooperatives). ICDC now owns two buildings one of which houses its office. It also owns a warehouse, a water purifying business, and a drug store. It had an original capital from a few members’ share of P1,116 when it was founded in 1967. It now has P78 million in asset. The cooperative system works in the country because of the Filipino culture on “bayanihan,” the concept of helping at all costs a neighbor in the community who is in need. Cooperatives have made a positive impact all over the world for the past 200 years, Teodosio said. This is specially true in countries where governments have subsidized it. Consumer cooperatives in West Germany and Japan have been instruments of wealth reform there by the influential. New Zealand’s dairy farmers, 96% of whom are cooperative members, make up the sixth largest dairy-producing country in the world. Agriculture has seen progress through cooperatives among coffee farmers in Africa, dairy farmers in India, and beef producers in Argentina and Brazil. In Italy, a federation of cooperatives, Emilia Romagna, has 8,000 primary cooperatives engaged in food retail and is present in 155 centers with six million members. Unlike in a corporate environment where majority of the corporate stock is owned by a family, a cooperative is member-owned. “It’s only through cooperatives that you can narrow the gap between the rich and the poor-- spread the wealth. This is not just simply wealth creation. Cooperatives are there to serve the people, not just to make money. They need the surplus, but they will never use it just to do business but do what’s good for the community,” she said. Teodosio herself founded the University of the Philippines housing cooperative which has been able to build teachers’ houses at 30 % cheaper cost. Building cooperatives can also be economically beneficial for other professions. “The Associated Press is a cooperative. The National Times of Thailand is a cooperative. Ninety-nine percent of farmers in Japan are cooperative members. In the past, no bank went to the countryside. There were only savings and credit cooperatives. ” Despite its advantages and its presence in the rural areas where it could make the most help on poverty reduction, cooperatives in the Philippines do have to be improved. “A cooperative must apply systems of innovation, create its own knowledge base, exploit business opportunities and learn to use networks of interconnected instiutitons,” said the SWS report. The should provide more people with more training on cooperativism and should advance this learning in formal school curriculum from grade school to college. “CDA should not only require reports but should provide trading and technical assistance such as accounting. The government should build on the strengths inherent in cooperatives. These are cooperatives’ ability to upholding people’s right to participate and converting economic activities into forms of social ownership. end---------------