CREDIT COOPERATIVES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83-00423R000700030001-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 12
• Document Creation Date: November 9, 2016
• Document Release Date: November 13, 1998
• Sequence Number: 1
• Publication Date: February 1, 1951
• Content Type: REPORT

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COUNTRY: Philippines
SUBJECT: Credit cooperatives 25X1A6a
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DATE ACQUIRED :
DATE OF INFO : Prior to Feb 51
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1. The Filipinos, like many other people, are fitted for cooperatives.
Before the era of absentee landlordism there was a spontaneous com-
munity spirit in the rural communities that showed itself in the
custom of cooperating in the erection of a house, the building of an irri-
gation system, in rice planting or in the harvesting of crops and, even
today, some of these customs can still be found existing in parts of the
Philippines.
History of Credit Cooperatives in the Philippines
2. The first attempt in cooperative enterprises in the Philippines in the
field of finance started in 1907 when Governor Teodoro Sandiko of
Bulacan drafted a bill to authorize the creation of a special type of
corporation patterned after the Raiffeisen type credit union as existed
in Germany in the 1850's and 1860's. It is presumed that Sandiko's
interest in credit unions was aroused while he was a student in Europe.
Sandiko's bill was presented to the First Philippine Legislature in 1907
and sponsored by Representative Alberto Barreto of Zambales and approved
by that body in January 1908. However, the Philippine Commission, which
constituted the upper chamber of the legislature at that time, did not
approve the bill.
Operation of Rural Credit Cooperative Associations" wasvpresented slin the
Legislature by Representative Rafael Corpuz of Zambales and passed in
February 1914. It was submitted to the Philippine Commission and the
result was C. B. number 21i2 sponsored by Commissioners Rafael and
Vincente Singson Encarnacion which was enacted in February 1915 and be-
came Act 2508. How er, it remained inoperative until 1916 when an
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amendment was enacted placing upon the d rector of the Bureau of
Agriculture the responsibility of making the necessary plans for
establishment of rural credit associations.
4. The same year, 1916, a rural credit section was created under the
Agriculture Extension Division of the Bureau of Agriculture and Mr.
A. W. Prautch was named Chief with Ludovico Hidrosollo as Assistant.
Prautch came to the Philippines from India in 1898 where he had been
active for several years in cooperative and rural credit movements.
5. Under Prautch's regime, the first rural credit cooperative association
was organized in Cabanatuan, Nueva Ecija in October 1916, and by 1926
there were 544 rural credit cooperatives in 42 provinces. These co-
operatives were largely government sponsored and government financed,
contrary to Prautch's belief in limited government intervention.
6. From 1937 to 1940, Dr. Frederick C. Howe was another prominent figure
in Philippine's cooperative movement. Howe was a U.S. citizen who had
been invited by the Philippine Government to serve as technical adviser
on cooperative matters of all types embracing credit, consumer, producer,
and marketing cooperatives. Howe told me that he felt there was much
talk and theorizing about cooperatives but not enough attempt in actual
sound organization, operation, and supervision. Howe felt that if 50 to
100 cooperatives specialiests were trained to carry on a program in
education, organization, and supervision, the service would be invaluable.
He was partly responsible for the enactment of Commonwealth Act number 565
which made possible actual organization of all types of cooperatives.
By 1939, there were 570 agriculture credit cooperatives in actual operation
with 105,000 members and 3,000,000 in circulating capital. However, as
impressive as these figures appear, the picture was really a sad one and
when the credit cooperative affairs were transferred to the Bureau of
Commerce in 1940, it was found that the majority of the cooperatives had
become stagnant and most of their funds tied up in old frozen loans.
The government made an effort to save these cooperatives which were not
of the true Raiffeisen, but political interference and bad management
made the task a hopeless one. The government lost more than p2,000,000
in these projects between 1916 and 1940.
8. I attribute the failure of these cooperatives at the time to the follow-
ing reasons:
a. Lack of adequate character and moral responsibility in handling
the other fellow's money.
b. Poor managment and lack of understanding basic principles of
cooperation.
c. Borrowing money under false pretenses.
d. Defective security for loans.
e. Political interference, particularly in the collection of loans.
f. Lack of relations of unscrupulous officers who took advantage of
their position to grant loans to themselves and their friends.
g. Too much government money invested in the cooperatives in
proportion to their own money and, thus encouragement for the
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careless manipulations of funds.
h. Lack of democratic procedure in election of officers.
9. It was. in 1938 that we, at the church, organized the first credit
Union of the Raiffeisen type in the Philippines at Vigan, Ilocos Sur
and, only after I had called, the officers of the Church of Christ in
Vigan together and very thoroughly explained the plan. At first the
Security and Exchange Commission delayed the granting of a charter for
three months while they attempted to persuade us to organize as an
ordinary corporation. They objected to some of the basic principles
that we felt were imperative for a sound-cooperative such as one vote
per member regardless of number of shares owned, refusal to permit
proxy voting, etc. Finally, however, the Iglesia ni Cristo (Disciples)
National Credit Union was granted a charter in October 1938. (With
admonition to run as a corporation but the members were determined to
run it as a real Credit Union). By 1941, we were instrumental in
organizing 30 credit unions along our Raiffeisen lines with 2,000 members.
10. It was about this time, 1940, that the Philippine Government was beginning
to give more serious attention to the cooperatives and I was invited., with
several others, to act in an advisory capacity on cooperative matters.
In the same year, the first National Institute of Cooperatives was held
in Manila under the auspices of the Bureau of Commerce and the Consumer's
Cooperative League, in which I participated. There were more than 300
in attendance including college professors, government officials, social,
religious, and business leaders, as well as students of economics and
others interested in the movement.. Miss Helen F. Topping, a visiting
international authority on cooperatives, was an active participant.
War II and the Cooperatives
11. During the Japanese invasion, the credit cooperatives were practically
wiped out, and the statistical data that we had at the Missionary head-
quarters was lost or destroyed. However, there were several of the credit
unions thatWe had helped to organize that managed to continue doing
business. Batac, Ilocos Norte, under the leadership of Reverend and Mrs
Silvestre Morales, and the Pias Credit Union, under Mr. Julio Pascua, made
excellent records. They continued. operating, changed from Filipino money
to provincial war notes, then to Japanese war money, and finally back to
sound money in 1945. Unfortunately, Batac got caught with }8,ooo of
Japanese war money and had to discount all shares 50%. This was done and
today this credit union continues to serve the community. Pias also had
Japanese war money and had to discount all shares 25%. Some other credit
unions did some business but most of them closed during the war years.
Since that time some of the old ones were able to reorganize and new ones
were established so as of December 1948, there were 60 credit unions, 44
of them functioning rather well, 16 feeble and. 10 of the 16 practically
dead.
Post War
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strong to try to develop credit cooperatives. In an advisory capacity,
I worked with some 200 provincial county agents,(similar to the U.S.
county agricultural agents. I endeavored to get across to them the basic
principals of the real Rural Credit Union. Likewise, under the auspices
of the Department of the Rural Church of the Philippine Federation of
Christian Churches, we were instrumental in raising the number of organized
Credit Unions to 81 by 1950 with a total of 7,300 members with a total
loan of '16800,000.00.
13. My successor in the Philippines, Cornelio M. Ferrer, has advised me the
early part of 1953, that largely through the efforts of the Philippine
Federation of Christian Churches, they have succeeded in organizing 10
new Credit Unions during 1952. Our Agency continues to be the only
source of supplying credit union forms in the Philippines.
Philippine Government and Credit Cooperatives
14+. I consider Cornelio Balmaceda, the Director of Commerce, an able, honest,
and intelligent man. It is under his supervision that the Cooperative
Division operates. However, it seems to be a deep rooted belief of the
government that they should participate in the operation of credit unions.
During our early days in 1938 to 1941, the government was insistent that
they participate in owning shares in the credit union, and that they vote
according to shares held. They also strongly urged proxy voting and did
not want a person's character to be a consideration for denying a loan.
15. We were always fearful that a too active participation of the government
would eventually mean the domination of the credit unions by the large
land owners and, thus; defeat the purpose of the credit union which we
felt was for the relief of the small peasant farmer.
16. The cooperative division of the government appears reluctant to let the
cooperatives start from the bottom and through their own methods supply
their own capital. They appear to labor under the impression that it
would, take too many years and, under present conditions, they can not
afford to spend. such a long time developing the cooperatives. They seem
to think that the movement must be accelerated and can only accomplish
this by government participation.
17. I am also of the opinion that the individual money-lenders and the large
land owners exert their influence when they can, to retard the development
of credit unions. Unfortunately, there is no strong credit union lobby to
champion the cause of the credit unions. There is no strong group like
the Credit Union National Association in the U.S. The nearest thing to
such a group is our church organization, the Rural Church Department of
the Philippine Federation of Christiai Churches.
18. I believe the Credit Union Movement is fortunate in having a man like
Santiago C. Manongdo as head of the Credit Union Bureau, which is under
the Cooperative Division of the Bureau of Commerce. I consider Manongdo
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a very able and conscientious man. He is devoting his life to the
credit union movement in the Philippines, and I understand he has
recently visited Europe, and particularly Denmark, to study credit
cooperatives.
Church Efforts in Credit Unions
19. When I first went to the Philippines in 1926, I was disturbed to find
the masses of underprivileged Filipinos in debt and being kept in this
debt bondage by unscrupulous money lenders and landlords. So when I
returned to the U.S., I began to study the operation of Credit Unions
in the U.S. and got some actual practice by establishing a successful
Credit Union in our Church in Indiana so that when I returned to the
Philippines in 1939 as Director of the Rural Church Department, Philippine
Federation of Christian Churches, we put on an active campaign for the
establishment of Credit Unions. I compare our work in the Philippines
to that of the Credit Union National Association (C.U.N.A.) in the U.S.,
although of course in a much more modest form.
20. We at the Church of Christ were the first active members to organize
Credit Unions but were soon joined by the Methodist, Presbyterian,
Congregational, United Bretb n, and also found. people ready and, willing
to organize in the Occupation and Residential group of Credit Unions.
21. I think a few statistics may better serve to give a general picture of
the results of our activities as of the end of 1948. We have noted the
figures in round figures and may not be as accurate we we would like to
have them, and the Japanese invasion period shown as a static condition.
I do believe, however, it is a good background of the situation. Like-
wise, no comparison is made to allow for the cost of living index rise
which is naturally reflected in the average size of loan.
22. Types of Credit Unions Operating in
The Philippines, December 19
Associational - Church Parish
Occupational
Colleges 3
Schools 8
Gov't Nat'l 2
Gov't Prov. 1
Hotels 1
Laundry 1
Market Venders 2
Residential
Rural Community 3
Urban Community 2 5
TOTAL 14.
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Location Credit Unions Operating in
Philippines, December 1948
Luzon 37
Negros 5
Leyte 1
Mindanao 1
24.
TOTAL 44
Number of Members, Amount of Shares, Amount of Loans
Outstanding from December 1938 - December 1948
Year
Number Number Amount
Credit of of
Unions Members Shares
Average
Share
Number Amount
of Outstanding
Borrowers Loans
Average
Size of
Loan
1938
3 150 450
5.00
20 400
20.00
1939
11 600 6,000
10.00
300 4,800
13.00,
1940
16 1,200 19,000
16.00
500 15,000
30.00
1941
27 2,000 20,000
15.00
1,000 30,000
30.00
1942
2 800 10,000
13.00
400 10,000
25.00
1943
2 800 10,000
13.00
400 10,000
25,00
1944
2 800 10,000
13.00
400 10,000
25.00
1945
5 950 15,000
16.oo
500 15,000
30.00
1946
8 1,100 20,000
18.00
550 25,000
45.00
1947
21 2,500 100,000
40.00
1,200 100,000
83.00
1948
44 3,500 150,000
43.00
2,000 175,000
88.00
Factors Attributed to the Successful Operation of a
Credit Union in the Philippines
25. Before I left the Philippines in 1951, I made an analysis of the reasons
that might be attributed to the successful operation of the outstanding
Credit Unions in the Philippines. I would emphasize the following con-
tributing factors. They may be elementary but they are important when
dealing with people who are largely uneducated in handling their personal
money matters.
a. A democratic management by leaders well informed about Credit
Unions. Leaders who understand the purpose, operation, and
service of a credit union.
b. Belief of the members in cooperative credit as a means of improv-
ing their economic condition. Confidence in their own ability to
meet their credit needs through the Credit Union and, of course,
confidence of the members in their leaders.
c. Limited area of operation and close bond of relationship with all
members. .
d. Sufficiently large membership to maintain feeling of worthwhileness
of the project.
e. Frequent meeting of all members and regular reports of all officers.
f. A Credit Committee that meets regularly and frequently.
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An honest, interested, and industrious treasurer who would be
bonded. He should submit frequent reports to be posted in the
Credit Union office and should also see that the records are well
t
.
kep
h. A regular audit,- by a supervisory committee and an annual audit by
the government.
i. Loans made to all members needing credit without discrimination or
favoritism.
J. A compulsory saving plan and. maintenance of adequate reserve fund.
k. A close follow-up made of delinquent loans.
26. Factors Contributing to the Failure of Credit Unions in the Philippines
I would list the following factors as the principal contributing reasons
for the failure of credit unions in the ]Philippines.
a. Lack of adequate leadership, unwillingness of members to assume duties
of officers and committeemen, and unwillingness to give the necessary
time.
b. One-man management.
c. Membership unacquainted with possibilities of a Credit Union to meet
their needs and uninterested membership.
d. Membership too small for successful operation, or too scattered, or
too loose a bond of association.
e. Inefficient treasurer, treasurer living outside the community, unbonded
treasurer, and the keeping of poor records by the treasurer.
f. Undue and harsh criticism of officers before all facts are known.
g. Members fail to build up savings account.
h. Borrowing of officers and shortage of funds.
i. Too few loans made and inadequate follow-up of delinquent loans.
J. Failure to cooperate with other Credit Unions and carry on a continuous
program of education of its members, and lack of effort to enlarge
membership.
27. Of course the Credit Union is not the cure all for the many problems of
the peasant Philippine farmer, but I think it is one step in the direction
of helping him avoid the usurious charges of the money lenders where 5%
to 10% per month is the usual rate. The Credit Union goes further in that
it begins to educate the peasant in personal money management for they
seem to have no training in this direction and, consequently, in the
Credit Unions loans must be carefully supervised to see that the loaned
money is spent for the purpose it was borrowed. Otherwise, 100 pesos
borrowed for seed may be spent on a wedding or dissipated in some similar
fashion.
28. The other cooperative movements, such as the Producers Cooperatives,
Marketing Cooperatives, and Consumers Cooperatives are also contributing
their part, in a limited manner, in helping the peasantjbut the big remain-
ing unsolved problem is the question of land redistribution.
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29. I am optimistic of the growth of Credit Unions in the Philippines only
when they are operated along the line of the Raiffeisen type that is
the self-help type. I also feel that when the Philippine Government
insists on participating in the financial set-up of the credit cooperatives
and demands representation in the cooperative in proportion to its
financial investment, then the cooperative will have serious struggle
to survive. Such cooperatives will merely be a repetition of the earlier
unsuccessful attempts. I have found that the Filipino is not one that
takes to handling money of others with the same discretion and care and
honesty as he does his own or in an undertaking where his own money is
involved.
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APPENDIX
Commonwealth Act No. 565
30. An Act providing for the organization of Cooperative Associations,
authorizing the creation of an agency or designation of an instrumen-
tality of the government to promote and supervise the said Associations,
and providing funds for the promotion and supervision of the same.
31. Be it enacted by the National Assembly of the Philippines:
Section 1. Fifteen or more persons, citizens of the Philippines or
of the United States residents of the Philippines, may organize a co-
operative association for the mutual benefit of the members thereof.
Any association or corporation organized under other laws of the
Philippines, at least sixty-one per centum of the capital of which is
owned by citizens of the Philippines or of the United States, may be
affirmative vote of the members or stockholders holding two-thirds of
its capital, organized a cooperative association or convert itself into
a cooperative association under the provisions of this Act; provided,
that no such association or corporation organizing a cooperative
association under this Act shall own or hold more than twenty per centum
of the authorized capital of the same, unless the majority of the capital
of such association or corporation is owned by the government.
Section 2. No member or stockholder of a cooperative association organized
under this Act shall be entitled to more than one vote, regardless of the
number of shares he may own therein, unless the stockholder be a
corporation owned or controlled by the government, whose vote shall be
equal to the number of shares it may hold therein.
Section 3. No capital invested in any cooperative association organized
under this Act or under any other existing law shall earn more than eight
per centum (8%) interest per annum.
Section 4. The provisions of the Corporation haw and of the existing
laws regulating agricultural or other cooperative associations, as are
not inconsistent with the provisions of this Act, shall apply to the
cooperative associations herein authorized.
32. Such cooperative associations, as well as those organized prior to the
approval of this act under existing laws at least sixty one per centum
of the capital of which is owned by citizens of the Philippines or of the
United States, shall, during the first five years from their organization,
be exempted from all taxes and government fees of whatever name and
description. (See Republic Act No. 89 for amendment)
Section 5. The President of the Philippines, may, by executive order,
consolidate in any government agency now existing all government
activities relating to the promotion, organization, and supervision of
cooperatives or mutual aid associations, or he may create a new agency
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for such purpose, transferring to the same the personnel, equipment,
supplies, records, and unexpended balance of appropriations employed in
said activities.
Section 6. The President may issue such rules and regulations as may be
necessary to promote and. help the organization of cooperative associations
under this Act as well as those necessary and convenient to carry into
effect the objective thereof.
Section 7. The President of the Philippines is authorized to set aside
a portion of the fund. appropriated under Commonwealth Act No. Four hundred
and ninety-eight for the proper carrying out of the purpose of this Act.
The sum thus set aside, together with the Agriculture Cooperative Fund.
created under Commonwealth Act No. One hundred sixteen and with the avail-
able appropriations transferred to the agency in charge of the administration
of this act, shall constitute a special fund to be known as the National
Cooperative Fund and shall be disbursed upon direction of the head thereof,
subject to the provisions of Section 7-1 (4) of Commonwealth Act no. Two
Hundred and forty-six. All income or receipts derived from the operation
of the special fund therein created shall accrue to and form part of the same
and shall be available for expenditure and/or investment for the same pur-
poses for which it has been created.
Section 8. This Act shall take effect upon approval.
APPROVED: June 7, 19+0
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Commonwealth Act No. 713
33.
An Act to amend section Five of Commonwealth Act numbered five hundred
and sixty-five entitled:. "An Act Providing for the Organization of
Cooperative Associations, Authorizing the Creation of an Agency or
Designation of an Instrumentality of the Government to Promote and
Supervise the said Associations and Providing Funds for the Promotion
and Supervision of the same!"
Section 1. Section five of Commonwealth Act Numbered Five hundred and
sixty-five is hereby amended so as to read as follows:
"Section 5. There is hereby created a non-stock corporation to be known
as the 'National Cooperatives Administration' to take charge of the
promotion, organization, and supervision of cooperative and mutual aid
associations now existing as well as those which may hereafter be formed
under the provisions of this Act and the rules and regulations promulgated
thereunder.
34. The Governing body of said corporation shall consist of a board of
governors composed of a chairman and four members appointed by the
President of the Philippines with the consent of the Commission on
Appointments of the Congress of-the Philippines. The members of said
board who are not in the employ of the Government of the Commonwealth of
the Philippines shall each receive a per diem of not exceeding fifteen
pesos for each meeting actually attended by them. The Chairman of the
Board of Governors shall appoint such technical and subordinate personnel
as may be necessary for the proper performance of the functions of the
corporation and shall fix their salaries subject to the approval of the
board.
35. The Office and principal place of operation of said non-stock corporation
shall be in the City of Manila, and branch offices shall be established
in such places as may be selected and determined by the Board of Governors.
36. The corporation herein created shall exercise the powers and, duties
contained in the articles of incorporation and by-laws to be approved by
the President of the Philippines and the rules and regulations that may be
issued by the President from time to time in conformity with the provisions
of Section Six of this Act."
Section 2. The sum of five million pesos is hereby appropriated out of
any funds in the National Treasury which together with the other funds
mentioned in section seven of Commonwealth Act Numbered Five hundred and
sixty-five, will constitute a special fund. to be known as the National
Cooperative Fund and will be placed at the dispatch of the Board for
the promotion of cooperative enterprises in the Philippines. All incomes
or receipts derived from the operation of the special funds herein created
shall accrue to and form part of the same and shall be available for
expenditure and/or investment as the board may direct for the p0tl4pose of
carrying out the purpose of this Act.
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Section 3. The funds appropriated all not be released unless and
until the Secretary of Finance and the Auditor General shall have
Certified to the President that there are existing and available funds
in the National Treasury in excess of the sums appropriated in the
General appropriation law for the fiscal year ending June thirtieth,
ninetteen hundred forty-six and the priority appropriations established
by law.
Section 4. This Act shall take effect upon its approval.
APPROVED: November 1, 1945
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