Alan Ibale

Microfinance: Financial Intermediation at the Bottom of the Pyramid Final Paper Professor Alex Silva The Heller School for Social Policy and Management, Brandeis University, Waltham MA. USA

Governance of Cooperatives in the Philippines Lieberman defines governance as broader than management. He explained that governance is a means to regulate and fosters a system of check and balance that railroads an organizations direction towards its mission. This direction-setting goal of governance is carried out via establishment of policies, internal control, organization structure, decision-making processes and procedures necessary to perform specific tasks (Lieberman 2008 p.1-3). In relation to this, my paper will revisit the efficiency of governance of farmers cooperatives in the Philippines vis--vis their internal and external environment and challenges. To give a background of the establishment of cooperatives in the Philippines, I will give a succinct history of cooperative movements as an introduction to the main topics. I will limit my discussion on internal environment to organization structure, outreach, product and services and portfolio composition and quality. For the external environment, I will cover the market share and comparative advantage of farmers cooperatives in the local financial market. For the second section of the paper on the challenges of governance, I will limit my discussion on prospects of growth, and diversification of cooperatives as financial intermediaries of people at bottom of the pyramid. To draw out initial lessons on cooperative strengthening program of WOCCU in southern Philippines, I will present the overview of its performance and compare it with the cooperative sector in general. I. Governance of cooperatives a. The history of cooperative movements in the Philippines

The cooperative movement in the Philippines is on its second century. Sibal (2000) divided the history of cooperative movement into three stages: The first stage, from 1895 to 1941, covered the organizing of cooperatives by the anti-Spanish elite revolutionist, the founding of agricultural cooperatives by American missionaries and western-schooled Filipinos, and the state-led cooperatives by the American colonial regime. The second stage, from 1941 to 1986, included mobilizing cooperatives to address food shortages during the Japanese occupation and post World War II reconstruction projects, the resurgence of state-led cooperatives, the rise of non-agricultural cooperatives and politicization of cooperatives during the Martial Law era in the Philippines. The third stage, from 1986 to present, covered alliance building of cooperatives with trade union and Non Government Organizations. The cooperatives in this stage became potent stakeholders of development and the civil society. During the first stage of cooperative development, bureaucratic and excessive intervention and creation of non-functional federation were the dominant approach used in organizing the state-led cooperatives. While, weak management, lack of technology, poor monitoring and evaluation and ineffective networks were experienced by privately initiated cooperatives during the same stage. On the second stage, cooperatives were used by the Japanese colonial regime to address food shortage. After the Japanese occupation (1941-1945), with help from the USAID, the American colonial regime spearheaded the establishments of marketing cooperatives in the Philippines. These marketing coops all failed because the US colonial government intentionally formed these cooperative for reasons of avoiding insurgency and uprising from the peasantry. The US vested the rights to the Bureau of Commerce to spearhead and form marketing cooperatives for political motives. This political motivation and interventionist approach led to the consequent closures of the marketing cooperatives. Alongside, the Roman Catholic Church organized credit cooperatives. These privately-led cooperatives were independently operating throughout the country. After the Martial Law (1972), the Philippine government enacted a tied the program of land reform and cooperative development nationwide. The Presidential Decree 27 and Bureau of Cooperative Development (BACOD) were key policies that pushed the creation of many cooperatives. These state-led cooperatives, called Samahang Nayon which literally means rural associations, reached 200, 000 that involved 3 million

Alan Ibale
Microfinance: Financial Intermediation at the Bottom of the Pyramid Final Paper Professor Alex Silva The Heller School for Social Policy and Management, Brandeis University, Waltham MA. USA

people. Moreover, these cooperatives are mostly farmers who are beneficiaries of the land reform program (P.D. 27). However, only 3% of these state-led cooperatives survived. One important outcome of the establishment of BACOD was the consolidation of state-led and privately-led cooperatives in the country. The third stage, from 1986 to present, was characterized by sharp increase in number of cooperatives nationwide. In 1990, the Cooperative Code of the Philippines otherwise known as Republic Act 6838 and establishment of the Cooperative Development Authority (CDA) were two of policies that fostered the organizing of cooperatives. BACOD was dissolved and the CDA carried over BACODs functions. By end of 1993, out of 21,125 cooperatives, only 4,495 or 17.8% were confirmed by the CDA as functional, the other 80% of the registered cooperatives could not be confirmed by CDA as operational. By end of 2003, the numbers of registered cooperatives continue to grow, yet, as they continue to rise in number, CDAs incapacity to monitor and regulate remained a problem. The CDAs budgetary and staff shortage problems continue to cripple them to provide technical and regulatory services to cooperatives nationwide. Despite the huge increases in cooperative registration, as seen below by Figure 1, only 20% of cooperatives which are actively sending their annual reports to the CDA are being accounted for.
Figure 1. Number of Cooperatives in the Philippines
Source: Sibal 2000, CDA 2003, CDA 2006 35000

31 ,1 91

number of coops

30000 25000 20000 15000 10000 5000 0 1939 1967 1977 1980 1985 1993 2003 2006
570 1 ,530 1 ,897 2,941 3,350 1 3,583 21 ,1 25

Number

year

In a study by the Cooperative Foundation of the Philippines Incorporated (CFPI), it was found that the cooperative sector remains weak. One of the obvious reasons is that majority of the cooperatives are government initiated. The top-down and interventionist approach used by the government in organizing cooperatives seem to fail in creating a sense of ownership and cultivate leadership among the members. Among the problems that were identified by CFPI are as follows: [1] Lack of capital, [2] Inadequate volume of business, [3] Lack of loyal membership support, [4] Vested interest and graft and corruption among coop leaders, [5] Weak leadership and mismanagement and [6] Lack of government support. These organizational problems are mostly internal in nature. The lack of capital, inadequate volume of business are linked to the lack of loyal membership support. These interlocking problems suggest that leaders are unable to mobilize resources internally because leaders have vested interests that cultivated graft and corruption and further resulted to weak leadership and mismanagement. Amidst these internal inefficiencies, the government cannot provide ample technical assistance to ensure internal control, build leadership and ownership among cooperatives nationwide. According to Araullo (2006), most of cooperatives operate with a few members and small scale operations. Due to financial and human resource constraints, on the side of the government, the CDA could hardly help these small, commonly government-initiated cooperatives. Lack of education and training, lack of market access are two of the weaknesses of these small cooperatives (pp. 10-15). In relation to the management of cooperatives, it is important to revisit the strengths and weaknesses of the organization structure from which these cooperative are operating from.

Alan Ibale
Microfinance: Financial Intermediation at the Bottom of the Pyramid Final Paper Professor Alex Silva The Heller School for Social Policy and Management, Brandeis University, Waltham MA. USA

b.

Organization Structure

The organization structure of a cooperative presents the platform of governance. The Cooperative Code of the Philippines sets the basic organization structure of a cooperative as shown by Figure 2 below (Chap. IV, Sec. 33-44):

General Assembly

Audit Committee

Board of Directors

Election Committee

Credit Committee

Secretary Education/Training Committee

Treasurer

Management

The highest governing body of the cooperative is the general assembly. The general assembly, as the supreme governing body, is composed of all the members in good standing. In principle, all policies, systems, procedures and decisions have to be approved by the general assembly. The board of directors acts as the legislative body. Theoretically, the board performs its function in conjunction with election, credit, education/training and audit committees. A secretary and treasurer reports to the board directly. The management, under the supervision of the board, runs the day-to-day operations of the cooperative. The structure of cooperatives needs a blend of participatory and hierarchal governance. The board needs the permission of the general assembly in every major decision it makes. It is hierarchal because it has at least three layers of management: the general assembly, the board and committees, and the management. In every layer of bureaucracy, more time, resources and competencies are required. According to Araullo (2006), most of the cooperatives are operating with small membership and small scale of operation. Based from this finding, the cost per transaction in small cooperatives tends to be high. In a practical sense, filling up all committees that has at least 3 people per committee, at least 5 board members, at least 3 people at the management require a lot of human resource and time. Not to mention that leaders and members of the cooperatives are poor farmers who barely reached secondary education. In a tribal cooperative that I worked with in Aurora province, Philippines, the highest school attendance among the 5 board of directors is 6th grade in elementary. In another, farmer cooperative that I worked with among the 7 board of directors at least 1 has reached high school. Among the 10 bookkeepers that I worked with in Aurora province, Philippines, only 2 have finished college, the rest are either in the secondary or elementary levels. The gap between actual and required competencies of leaders and staff to run the cooperative tend to be wide. This training gap was validated by Araullo (2006) on his study. It is not only training that most of the leaders of cooperatives need, they also need formal education to actually perform the tasks under the standard organization set up. According to CMEF (2005), an effective composition of the board requires a good mix of audit skills, legal knowledge, knowledge of the target market, and social mission. Atop of these, personal dedication, political influence, gender, ethnic and cultural diversity are also required to form a competent board (p.9-10). Although these

Alan Ibale
Microfinance: Financial Intermediation at the Bottom of the Pyramid Final Paper Professor Alex Silva The Heller School for Social Policy and Management, Brandeis University, Waltham MA. USA

qualities are for a corporate MFI board and by no means replicable in a small cooperative, at least the acculturation of corporate qualities and values are needed to effectively govern a farmer-led cooperative. According to Professor Alex Silva, during the April 9, 2008 class, the problem of farmer initiated cooperative can also be attributed to the multiple hats that the board of directors wears as a member, borrower and director all at the same time. These interlocking multiple hats will likely color board decisions with vested interests and whenever these interests prevails the cooperative operation will be adversely affected. The relatively weak governance of majority of cooperatives is reflected on their capacity to reach the needy sector. c. Outreach

The outreach trend of cooperatives is erratic. The increase on outreach did not reflect a linear measure of strengths and weaknesses of cooperatives within a particular condition over time. Below, Figure 3 shows the baseline at 105,000 in 1939, peaked at 555,000 in 1967, fell to 223,700 in 1980, rose again to 337,000 in 1985 then finally dropped to 67,444 in 2006:
Figure 3: Membership in Cooperatives in the Philippines
Source: Sibal 2000, CDA 2003, CDA 2006 600000 500000 400000 300000 200000
105,000 223,700 555,000 460,000 337,000

Members

100000 0

67,444

1939

1967

1977

1980

1985

2006

The major reason for the rise and fall of membership was the nationwide state-initiated organizing of cooperatives that were not sustained over time and conditions. In 1939, the colonial government of Japan in the Philippines used the cooperative to address food shortages by linking agricultural cooperative with urbanbased cooperatives. Through the partnership of the Japanese government with prominent Filipino businessmen (Laurel, Aquino, Ramos and Recto) resulted into founding of 5000 consumer cooperatives and producers cooperatives (Sibal, 2000). In 1967, the entry of the Catholic parishes in rural areas, founding of the Philippine Rural Reconstruction Movement (PRRM), Federation of Free Farmers boosted the government-led organizing. The entry of these sectors into the cooperative movement expanded the outreach of membership and paved way for non-agricultural cooperatives. In 1972, the Philippine government tied up cooperative development with land reform. With the intention of using other government agencies to help cooperatives, the Philippine government mandated the Philippine Coconut Authority, Cooperative Administration Office and Agricultural Cooperative Administration to launch programs related to strengthening cooperatives. However, instead of helping out the cooperatives these agencies did not synchronize their programs that resulted into competition of development programs, politicization of cooperatives and decrease in membership by more than 100,000. In 1977, the establishment of national cooperative unions started. In 1979, the Philippine Rural Electric Cooperative Associations was established (PHILRECA). PHILRECA unified 113 electric coops serving 73

Alan Ibale
Microfinance: Financial Intermediation at the Bottom of the Pyramid Final Paper Professor Alex Silva The Heller School for Social Policy and Management, Brandeis University, Waltham MA. USA

provinces nationwide. Despite these developments, the membership of cooperatives dropped. In 1985, the outreach rejuvenated. In 1986, the 21 year-dictatorship of Marcos regime was ousted by the revolutionary government of Corazon Aquino. During that time, the actual number of cooperatives continued to increase yet the actual membership was undetermined. The Cooperative Development Authority (CDA) cannot determine the actual number of members. In 2006, the CDA can only account for 67,444 members of those cooperatives that religiously submit their annual reports. In summary, the competing approaches between privately-initiated and government-initiated approaches, seeming lack of sense of ownership among cooperative members, political and economic instability are some of the key factors on the erratic outreach of the coop sector over time. In another study by CGAP (2005) a sample of 1285 coop members were interviewed on where they deposit or keep their savings. 63.5% says they keep it at home; 9.7% says they save it in rural banks; 9.4% says they save it in cooperatives; 6.7% says they save it in self-help groups; 2.2% says they save it in commercial banks; and the remaining 2.3% says they save it in other places (p.5). The bulk of savings is still at home. The cooperative were only able to reach 9.4% or about 120 savers. This suggests that the cooperatives are unable to open a window on savings that fits the needs of customers/members. To illustrate further, the CGAP (2005) study cited the CUES finding on the distribution of savings in the cooperative sector, it revealed that 80% of the savings deposits are below US$90 and only 3% maintains more than US$4,444. This may imply that the influx of small savings that constitute 80% of the deposits into the cooperative come from poor people (p.4). However, it is also possible that the savers in cooperatives maintain small deposits because they do not want to save large amount of money in the cooperatives. Whichever is the case, the point remains that the pool of savings are from a large number of savers. Table 1 Deposits in the Philippine financial system, December 2003
Total volume Billion $ 43.99 3.53 1.13 0.14 0.02 48.81 percent 90.13% 7.23% 2.32% 0.29% 0.03% 100.00% Number of accounts million 17.92 2.69 5.14 4.31 0.56 30.65 Percent 58.56% 8.76% 16.77% 14.07% 1.83% 100.00% Average account balance $ 2,451 1,315 219 354 27 1,826

Universal & Commercial banks Thrift banks Rural & Cooperative banks Cooperatives Microfinance NGOs Total

Source: Central bank of the Philippines, Microfinance Council, Cooperative Development Authority

Table 1 suggests that the cooperative was able to capture 29% of the savings in the financial market that is further broken down into 4.31 savings accounts. Assuming that each saver maintains two savings accounts, it may imply that the cooperative are servicing 2 million savers in the Philippines (CGAP 2005, p.9).

Alan Ibale
Microfinance: Financial Intermediation at the Bottom of the Pyramid Final Paper Professor Alex Silva The Heller School for Social Policy and Management, Brandeis University, Waltham MA. USA

d.

Portfolio quality

Another important variable in governance is portfolio quality. According to CDA (2006) a total of 262 milliondollar worth of transaction related to farming were disbursed by the Philippine cooperative sector in 2006. This may mean that if the agricultural cooperatives are well governed and operated they can contribute to development substantially. The macro picture of transaction does not really present a viable cooperative sector. The cooperatives are indeed catering to agricultural production but not all of them. The bulk of transactions are mostly from well established, professional governed and managed cooperatives. For instance, in Aurora province where I work as a community organizer, the CDA accounted 205 registered cooperatives by 2000. Out of 205 registered cooperatives, only 7 cooperatives have access to lending windows of the Land Bank of the Philippines Baler Branch. The Land Bank of the Philippines only extend loans to cooperatives who have at least 3 years of operations, maintain cooperative offices, have good credit records, maintain books of accounts, manage by regular staff and governed by an active board. The 7/205 cooperative participation in the Land bank of Philippines lending program is an indication the basic criteria of loan eligibility as stated above were not met by the cooperatives. However, the stringent requirements of the bank can also affect the enrollment or application of cooperatives in Aurora which are mostly operating with voluntary and unpaid staff and board. A case in point is the Simbahan-Mapalad Agrarian Reform Beneficiaries Cooperative (SIMARBECO). SIMARBECO is a registered farmers cooperative founded in June 25, 1995 with license number LGA-4057 and managed by voluntary staff and board and is operating in a very small scale and not eligible for a bank lending window. SIMARBECO operate in the coastal towns of Dinalungan, Aurora, Philippines. The members of SIMARBECO are awardees of farm land title given by the Department of Agrarian Reform (DAR). As a DAR extension worker, I worked with SIMARBECO as community organizer and trainer. I helped SIMARBECO in installing their financial system, policies, systems and procedures. I also help in packaging project proposals and in their implementation. With authorization or request from them, I also observe board and management meetings. Prior to the technical assistance to SIMARBECO, the cooperative has only 37 members with a paid-subscription of only 42, 340 Philippine Peso ($1,085). It has no office. Every loan transaction is approved during a meeting of credit committee in a public place. Oftentimes, the disbursement of loan and other money transaction are done in the house of the Treasurer. The cooperative has no written vision, mission and goals. Among the board and staff, only 1 staff has college education, the rest either has secondary or elementary education. Bangus fry gathering and production lending are the two projects SIMARBECO operate. In June 2002, SIMARBECO became recipient of a two-year Agrarian Reform Infrastructure Support Project (ARISP). ARISP has infrastructure and institutional strengthening programs and funded by the Japan Bank for International Cooperation (JBIC). ARISP was implemented in partnership with ARCOW - a local nongovernment organization, the Department of Agrarian Reform and Development Academy of the Philippines. Improvement of irrigation systems, establishment of potable water system, warehouse and drying facility and farm-to-market road are the subprojects under the infrastructure components. A training package for staff, board, and members on cooperative development and management are essentially the description of the institutional program. Institutional development was implemented alongside with the infrastructure development within the project life. From a small, voluntarily governed and managed cooperative, SIMARBECOs performance improved in two years. According to the terminal report on institutional strengthening prepared by ARCOW in 2004, membership grew from 37 to 113; paid-up share subscription increased from P 42,340 to 138,000 ($1,085 to

Alan Ibale
Microfinance: Financial Intermediation at the Bottom of the Pyramid Final Paper Professor Alex Silva The Heller School for Social Policy and Management, Brandeis University, Waltham MA. USA

$3,450); businesses diversified from fry gathering and production lending, additional projects included rice trading, catering service, consumer goods retailing, and warehousing. SIMARBECO was able to have an office as part of the warehouse facility. Strategic direction was set via creation of mission, vision and goals. Policies on credit, warehousing, membership, auditing, project, record keeping were prepared, documented and packaged in user-friendly manuals. These operating and financial manual were translated in local language. Within the project life of ARISP II, SIMARBECOs performance was enhanced. Governance of SIMARBECO during the two-year project implementation of ARISP was not exclusively performed by the board. ARCOW assigned a village-based community organizer who was always at the reach of the board and management. In other words, the cooperative was co-governed and co-managed by the board, staff and the community organizer. The community organizer was an experienced bookkeeper and organizer at the same time. The combined financial and operational competency of the community organizer helped a lot in encouraging SIMARBECO to perform well. Immediately after the assignment of the village-based community organizer, strategic assessment and planning was conducted in December 7-8, 2002. I was one of the trainers of that training. The outputs of the training included the setting of vision, mission and goals that set the shortterm and long-term direction of the cooperative. This training was followed by cooperative value socialization, policy formulation, accounting for non-accountants, basic course on governance among others. The output of these institutional training included the manualization of systems, policies and procedures. In a way, the whole training packages professionalize the farmer-leaders, who barely had formal education, in conducting board meetings, writing board resolutions, making memorandum, writing policies and making guided day-to-day decisions in operating and financing. Based on my observations, as a community organizer and trainer, within the two year implementation of infrastructure and institutional components of ARISP II, the cooperative had benefited from the presence of village-based, NGO staff that immersed throughout the project life and served as the cooperatives technical support on day-to-day decision making. The expansion of membership and influx of share subscriptions improved the portfolio of the cooperative. The production loan was tied up to the hybrid rice and hybrid corn production. As a result, loan recovery and roll over was high. The trust of members to the cooperative can be said to have improved as share subscription tripled in two years. Clear administrative and financial policies that were posted on the bulletin boards of the cooperative were also instrumental in keeping members from participating and patronizing the loan products of the cooperatives. In sum, to make the portfolio of a cooperative lucrative, as in the case of SIMARBECO, it required agricultural and institutional infrastructure. Putting other factors constant, it may take all these costly infrastructures to make the 200 cooperatives in Aurora operationally and financially viable and bankable.

II.

Challenges a. Growth

Sibal (2005) found that a large number of cooperative in the Philippines still operate in small, unviable scale. Only 17% of 25,125 cooperatives in 1993 were actively engaged in gainful businesses. Agriculture-based cooperatives, particularly those which are under the land reform program, are unproductive. The protectionist mentality, parochialism, and close-doorism remains as socio-cultural and structural barriers that impede the growth of cooperatives. State protectionism comes in the way whenever the Philippine government enacts policies that affect the market and subsidies for cooperative operations. Parochialism and close-doorism

Alan Ibale
Microfinance: Financial Intermediation at the Bottom of the Pyramid Final Paper Professor Alex Silva The Heller School for Social Policy and Management, Brandeis University, Waltham MA. USA

are notions about cooperative services and products that are solely for the members only; thus ignoring the associate members or non-members that can also contribute to internal and external resource mobilization. CGAP (2005) found that the poor are capable of saving as demonstrated on the distribution of savings in the banking systems in the Philippines. CGAP (2005) found that savings deposits amounting between US$ 1 266 comprise more than 70% of savings in the banking systems. This suggests that the poor are depositing their money in banks. Likewise, the same trend are seen in cooperatives in the Philippines that take savings deposits, wherein 80% of savings deposits ranged from US$ 0 89 (p.4). Indeed, the cooperative sector may need to revisit savings mobilization as a means to mobilize funds and engage members in gainful enterprises and collective actions. The other issue on growth is what professor Silva has lectured on in one of the Microfinance Policy classes. Professor Silva said that growth is not linear and very relative. He explained that an informal self-help group may be more effective in staying informal and small but can be an excellent source of financial and institutional services. There are MFIs that really need economies of scale to better deliver financial intermediation. Growth is more focused on finding a niche or a market position that best fits the nature and development mission of a particular self-help group or MFI. Growth is more on finding a fit in the financial market, social and political environment at the same time. In other words, growth is independently determined by a group and not merely based on financial viability and thus gives more weight on the non-economic factors such as spirit of cooperation, fraternity, solidarity and mission. I find this idea of growth as equally challenging and practical. It is challenging because to be able to understand it I must be fully aware of why do the less privileged or people at the bottom of the pyramid wants to build a group. The other more challenging part is the idea of questioning my own framework of development. I think I am used to looking at growth in linearity. Professor Silva pauses a new discourse about growth that I need to contend with in relation to my framework of development. Professor Silvas discourse on growth is quite practical yet too practical to accept easily. I have been a Jesuit volunteer, NGO worker and a government employee. All throughout my work experiences, I was accustomed to see growth as linear. In the office, I need to deliver outputs if I failed, I will get sanctions. So I often explore all means of bringing in growth, yet all these time, I have been missing a very important point that growth is not always linear, rather it is contextual based on what a group envisions to achieve not what the financial market or any socio-economic yardstick dictates in particular environment over time. This means that cooperatives in Aurora province which are operating in a very small scale should not be seen as not growing; as long as they fulfill their development mission, the niche that they are positioned at might be their fit in the economy and society. b. Diversification

In relation to these growth challenges, revisiting some basic notions on savings-led diversification may prove to be helpful in addressing the limited products and services of agricultural cooperatives in the Philippines. To show the potentials of cooperatives to improve their operations and viability, the case of WOCCUs Credit Union Empowerment and Strengthening (CUES) program that was implemented in southern Philippines starting on October 2005 was a good example. The WOCCU CUES project in southern Philippines is a savings-led microfinance initiative aimed at improving the operations of cooperatives. The project involved 16 credit unions which are composed of cooperatives. WOCCU CUES partnered with the Mindanao Alliance for Self Help Societies-Southern Philippines Educational Cooperative Center (MASS-SPECC) and the Philippine Federation of Credit Cooperatives-Mindanao League (PFCCO-ML). As one of the outcomes of CUES, 69% of the total assets were sourced from savings deposits and share capital and only 11% of revolving fund was externally accessed by participating cooperatives.

Alan Ibale
Microfinance: Financial Intermediation at the Bottom of the Pyramid Final Paper Professor Alex Silva The Heller School for Social Policy and Management, Brandeis University, Waltham MA. USA

Below are the outreach, financial performance, savings mobilization and loan purpose of WOCCU CUES participating credit unions:

Table 2 Outreach for 19 WOCCU CUES Philippines Credit Union

Outreach Indicator Number of Member-Clients % of Women Member-Clients No. Loans Outstanding Avg. Loan Size Outstanding Total Loans Outstanding Avg. Deposit Size Total Deposits Average Share Size Total Shares Total Assets Source: www.woccu.org 12/31/2006 361,241 29% 0 $14,214 $1,711,733,724 $3,540 $1,279,127,813 $1,363 $492,426,995 $2,373,565,591 12/31/2007 479,121 62.3% 115,008 $356 $55,732,658 $84 $40,701,924 $31 $14,870,244 $76,016,576 %Change 32.6% 114.8% NA -97.5% -96.7% -97.6% -96.8% -97.7% -97.0% -96.8%

The 32.6% percentage change in number of member-clients, 114% participation of women, and utilization of funds suggests that the CUES project are initially upgrading the performance of cooperatives in southern Philippines. The initial total deposit of 1.2 billion dollars alone in December 31, 2006 is way too high as compared with the 6.6 million dollars amount of paid up subscription in cooperative sector as of December 31, 2006 Table 3 Financial Performance 19 WOCCU CUES Philippines Credit Union
Outreach Indicator Provision/Loans delinquent>12 months Net loans/Total Assets Liquid Assets ST Payables/Total Deposits Source: www.woccu.org 12/31/2006 98.8 % 73.4 % 24.6 % 12/31/2007 99.56 % 69.22 % 29.17 % %Change 0.8 % -5.7 % 18.6 %

The selected financial performance shows that the provisioning of loan is almost 100% while the liquidity of the project increased by 18.6%. Based on these performances it may be said that the project is well governed and managed. Table 4 Loan Purpose 19 WOCCU CUES Philippines Credit Union
Outreach Indicator Agriculture Commerce Housing Personal/ consumption Small Micro Enterprise TOTAL Source: www.woccu.org %No. of loans 7.61 % 18.84 % 0.95 % 27.67 % 17.27 % 27.66 % 100.00 % Volume of loan 5,115,281 16,712,811 316,852 9,961,701 8,054,703 11,453,082 US$ 51,614,430

Alan Ibale
Microfinance: Financial Intermediation at the Bottom of the Pyramid Final Paper Professor Alex Silva The Heller School for Social Policy and Management, Brandeis University, Waltham MA. USA

Table 4 shows a diversity of loan products that is less focused on agriculture and more focused on small microenterprises and providential services (personal/consumption). This diversity in product keeps the cooperative from doing single business. It also decreases massive loss of funds that are concentrated on farming. Hence, the transformational process which the WOCCU CUES 19 cooperatives are undergoing may be a replicable practice and technology for strengthening agricultural cooperatives in the Philippines. The savings-led approach that WOCCU adopted to improve the operational and financial viability of the 19 cooperative unions gained initial positive results. It has the potential to help the cooperatives enhance their internal capacities as well as collection actions towards shared goals of bridging the gap in the financial mainstream.

III.

Conclusion

Based of the foregoing evidences, it can be deduced that the governance of cooperatives was weak generally but the erratic performance trend of cooperative cannot be the only measure of their growth over time. On one hand, the inconsistency in linear increase in number and erratic rise and fall of membership of cooperatives suggests that the general assembly and officials were either not really in control or not competent enough to manage a social enterprise. The organization structure of a cooperative is quite formal. This formality and hierarchy in structure, that requires minimum competency in running a business, often limit the board, committees and management to innovate, diversify and get out-of-the-box. As Sibal imply the organizational culture of parochialism and close-doorism often create a mentality that the cooperative exists in a vacuum. Since most cooperatives were government-initiated, interventionist approach did harm than good. Cooperatives were formed not in the spirit of cooperation, unity and entrepreneurship but as a means to funnel top-down projects. The entry of the religious organization and civil society in the formation of privately-initiated cooperatives started to introduce the idea of sense of ownership among the cooperative members. However, the Non Government Organizations and the sectarian organizations fall short of capacities to develop entrepreneurial skill, knowledge and values needed to cultivate the culture of social enterprise. Finally, the WOCCU CUES savings-led project that aims to strengthen the cooperative is gaining initial positive results. The savings-led technology can be a replicable means to socialize the values of cooperation and personal commitment towards a shared goal of providing choices for the people at the bottom of the pyramid and enable them to participate in the financial mainstream. On the other hand, I think there is a need to ask the cooperative members of what they envision to reach as they develop social enterprises. Concluding levels of growth of cooperative, based on a yardstick of governance, may not necessarily be an accurate representation of how the less privileged conceive growth as seen in a particular development lens (like what I have).

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Alan Ibale
Microfinance: Financial Intermediation at the Bottom of the Pyramid Final Paper Professor Alex Silva The Heller School for Social Policy and Management, Brandeis University, Waltham MA. USA

Work cited: From Reading Pocket, Class Presentation & Recommended sites: CGAP (2005) Philippines: Country-Level Savings Assessment CGAP Savings Initiative Retrieved on 26 April 2008 from http://cgap.org/savings/philippines_assessment.html CDA (2000) List of Registered Cooperatives in the Philippines Baler, Aurora, Philippines: Cooperative Development Authority. CMEF (2005) The Practice of Corporate Governance in Shareholder Owned Microfinance Institutions Lieberman, Ira (2008) Corporate Governance and the Role of Board of Directors, A PowerPoint presentation for the Microfinance: Financial Intermediation at the Bottom of the Pyramid class, 9 April 2008, Brandeis University WOCCU (2008) Credit Union Empowerment and Strengthening Program [CUES] in the Philippines, Retrieved on 26 April 2008 from http://www.woccu.org/dev/programs/program?sp=43#_OOFS_Overview The Economist (2005) The Hidden Wealth of the Poor in November 5, 2005 Issue. From other sources: Araullo, Dennis B. (2006) Agricultural Cooperatives in the Philippines a paper delivered in FFTC-NACF International Seminar on Agricultural Cooperatives in Asia: Innovations and Opportunities in the 21st Century, Seoul, Korea, 11-15 September 2006 Retrieved on 26 April 2008 from http://www.agnet.org/activities/sw/2006/520024423/ ARCOW (2004) Completion Report, Institutional Development Component, ARISP II Baler, Philippines: ARCOW Sibal, Jorge V. (2000) A Century of the Philippine Cooperative Movement, Madison: University of Wisconsin Center of Cooperatives Retrieved on 26 April 2008 from http://www.uwcc.wisc.edu/info/abroad/sibal.html

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