3 Getting to Know a Cooperative


Getting to Know a Cooperative
Meet Macoy, a pedicab driver. For the benefit of those who are not aware of what a pedicab is, it's simply a three-wheeled bicycle which runs not on engine, but by pedaling. One ride would cost you about 10 to 20 pesos, depending on the distance.

So what financial lessons do you think can we learn from someone like Macoy?


During one of my talks,  a student asked, “..but investments such as Mutual Funds are quite out-of-reach especially for low-salaried people, like pedicab drivers!”. She nailed it. The brutal reality is that, 5,000 pesos is 5,000 pesos, psychological wallet preaching be damned. How could possibly a man who earns roughly about 150 to 300 pesos a day can ever start to save or invest? Until I realized, there are many investment options out there, one of which, is called a Cooperative.

What is a Cooperative?
A cooperative or simply coop, is an association of people who voluntarily cooperate for a mutual benefit. It typically runs one or more businesses that are owned and managed by the members of the coop themselves. Wikipedia defines it as “a jointly owned enterprise engaging in the production or distribution of goods or the supplying of services, operated by its members for their mutual benefit.” Coops are regulated by the government body called CDA or Cooperative Development of Association.

Cooperative Development of the Philippines

Types of Cooperative
Just like a business, there are also different types of cooperative, which includes:
  • Credit Cooperative 
  • Consumer Cooperative
  • Producers Cooperative
  • Marketing Cooperative
  • Service Cooperative
  • Multi-Purpose Cooperative
  • Advocacy Cooperative
  • Agrarian Reform Cooperative
  • Cooperative Bank
  • Dairy Cooperative
  • Education Cooperative
  • Electric Cooperative
  • Financial Service Cooperative
  • Fishermen Cooperative
  • Health Services Cooperative
  • Housing Cooperative
  • Insurance Cooperative
  • Transport Cooperative
  • Water Service Cooperative 
  • Workers Cooperative
Bonds of Membership
Since a coop has a common bond of interest, it is therefore important that its members are bonded by something in common. In other words, for you to become a member of a certain coop, you must qualify in any of the below cases:
  • Residential
  • Associational
  • Occupational
  • Institutional
Risks, Organization and Management of Cooperatives
However, like any other business or organization, a cooperative is vulnerable to mismanagement risks as well. So you need to know your board of directors well and the history of the cooperative before deciding to join. That is why every individual who wish to become a member is required to attend the PMES or Pre-Membership Seminar first. This a government-mandated requirement for all would-be members of any coop, so as to ensure that the person who wants to become part of the coop knows and understands what he or she is getting into.

How do I know if it's legit?
The complete list of accredited and duly authorized cooperatives can be found at the Cooperative Development Authority website at www.cda.gov.ph It is the very first and basic step that you must do before deciding to join any cooperative. The next step is to attend their PMES in order for you to learn more about the cooperative, including its chairman, staff, board of directors, products and services, financial status, historical earnings, book of accounts, and other things you'd like to ask after the orientation. If you notice that the board of directors is composed of more than two people that are relatives, that may be a red flag to watch out for.

Getting to Know a Cooperative
 
General Assembly
General Assembly, or the highest body in a coop, are simply its members. Remember that as a member of the General Assembly, you have the power and right to vote for the board of directors and attend the Regular Annual General Assembly which is held yearly on a date fixed in the bylaws, or if not, on any date within 90 days after the close of each fiscal year (March).

How do I become a member?
The following are the basic qualifications for being a member of a cooperative:
  1. Qualified based on at least one of the Bonds of membership of the cooperative.
  2. Attended the PMES
  3. Has paid the required membership fee
  4. Has paid required initial paid up share capital (amount will depend on the Cooperative)
  5. Pledge to pay the required subscribed capital (amount will depend on the Cooperative)
  6. Not be a member of same type of cooperative or same area of operation
How do I earn?
After a year, CDA will audit the earnings and financial status of the cooperative and will declare the Net Income or Net Surplus. From this, the allocation and distribution will follow. Remember that the earnings/reports are to be determined by CDA, not the cooperative itself. The following are the minimum percentage allocation that the government requires all cooperatives to allocate the Net Surplus:

How to join cooperative

Reserve Fund
This fund will serve as the emergency fund of the cooperative in case of an unforeseen business loss. Ideally, this fund is placed on the coop's bank account and can only be used when authorized by the General Assembly. The minimum Reserve Fund mandated by the government is at least 10% of the Net Surplus.

Optional Fund
This fund is to be used only for major purchases such as fixed assets acquisition (e.g. buy new delivery truck or warehouse) upon approval of the board. The minimum percentage allocation that the government requires for this fund is 5%.

Education & Training Fund
This fund will be utilized for continuous trainings and development of the coops' staffs, committee members, board of directors and the manager. This is to ensure that the key persons running the coop are equipped with the right knowledge in running the business. The minimum allotment should be 5%.

Social Services Fund
To give back to the community, the government requires all coops to allocate at least 3% of their Net Income to conduct community-driven activities such as medical missions, tree-planting, making donations, caravans, etc.

Dividends
The remaining percentage from the Net Income will be declared as the dividends, which will be divided to all members based on the number of shares that they own in the coop. Thus, the highest possible percentage or allotment that can be given to all the members is 77% (if the cooperative decides to comply only the minimum percentage required by the government). The good news? Your dividends are tax-free!

Coop Savings Account
Most coops also offers Savings Program. This is different account from your share capital, which you can't usually withdraw partially. It's simply like having a savings account in a bank but with two notable advantage: same or higher interest rate and zero tax deduction (because cooperatives are exempted from paying taxes).

Wait, there's more!
On top of the tax-free dividends you get from your share capital, you also enjoy free or discounted services and/or products from your cooperative. Some coops even give Christmas gifts such as hams and Gift Certificates to their members! Banks would never give you a biscuit! 

Remember Macoy?
The good thing about a cooperative is that they allow people like Macoy to start saving and investing! Would you believe me if I tell you that Macoy drops to the cooperative and deposits 40 Pesos a day(20 for his Share Capital and 20 for his Savings)? Yes! He does it. 

Every. Single. Day. 

But every time I tell this story to people, they laugh. “Where will his 40 a day bring him?” is probably the thought that they have on their minds. But guess what? Pick a random coat-and-tied employee in Makati on a date that is not pay day, and you'll be surprised that Macoy got more money than that person.

Look who's laughing.


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3 comments :

  1. mike.laneteOctober 27, 2015

    Do you have a list of good cooperatives that you can personally suggest??

    ReplyDelete

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