SCC Manual of Rules and Regulations

Draft for Discussion
MANUAL OF RULES AND REGULATIONS FOR SAVINGS AND CREDIT

COOPERATIVES (SCCS)IN THE PHILIPPINES
TABLE OF CONTENTS
INTRODUCTION 5
ARTICLE 1. SCOPE AND LIMITATIONS 6
SECTION 1.1. COVERAGE 6

SECTION 1.2. DEFINITION OF TERMS 6
ARTICLE 2. ORGANIZATION OF SCCS 7
SECTION 2.1. DEFINITION OF SAVINGS AND CREDIT COOPERATIVE (SCC). 7

SECTION 2.2. MINIMUM REQUIREMENTS. 7
SECTION 2.3. PROVISIONAL LICENSE TO OPERATE 8
SECTION 2.4. REQUIREMENTS FOR REGULAR LICENSE. 8
SECTION 2.5. ISSUANCE OF LICENSE TO OPERATE. 10
SECTION 2.6. VALIDITY OF CONTRACTS. 10
SECTION 2.7. BUSINESS NAME. 10
SECTION 2.8. PROHIBITIONS. 10
SECTION 2.9. SUSPENSION, CANCELLATION OR REVOCATION OF LICENSE. 10
ARTICLE 3. MANAGEMENT 10
SECTION 3.1. OFFICERS OF THE SCC. 11

SECTION 3.2. BOARD OF DIRECTORS. 11
SECTION 3.3. KEY MANAGEMENT OFFICERS. 13
SECTION 3.4. COMMITTEES. 14
SECTION 3.5. TRAINING OF DIRECTORS AND OFFICERS. 15
SECTION 3.6. FUNCTIONS AND RESPONSIBILITIES. 15
ARTICLE 4. GOVERNANCE 15
SECTION 4.1. COMPENSATION OF DIRECTORS, OFFICERS AND COMMITTEE MEMBERS. 15

SECTION 4.2. DEALINGS OF DIRECTORS, OFFICERS AND COMMITTEE MEMBERS 15
SECTION 4.3. LIABILITY OF DIRECTORS, OFFICERS AND COMMITTEE MEMBERS 16
SECTION 4.4. BONDS OF ACCOUNTABLE OFFICERS AND EMPLOYEES. 17
ARTICLE 5. REPORTORIAL REQUIREMENTS 17
SECTION 5.1. REQUIRED REPORTS. 17

SECTION 5.2. AUTHORIZED SIGNATORIES. 17
SECTION 5.3. MANNER OF FILING. 17
SECTION 5.4. REPORT ON CRIME/LOSSES. 17
Manual of Rules and Regulations for SCCs 1

ARTICLE 6. CAPITALIZATION 20
SECTION 6.1. DEFINITION OF NET WORTH. 20

SECTION 6.2. NET WORTH-TO-RISK ASSETS RATIO. 20
SECTION 6.3. PROMPT CORRECTIVE ACTION. 21
SECTION 6.4. REHABILITATION PLAN. 21
SECTION 6.5. PERIOD TO CORRECT CAPITAL DEFICIENCY. 21
SECTION 6.6. RESTRICTIONS FOR UNDERCAPITALIZED SCCS: 21
SECTION 6.7. ACTION REQUIRED FOR CRITICALLY UNDERCAPITALIZED SCCS. 21
SECTION 6.8. INSOLVENCY OF SCCS. 22
ARTICLE 7. DEPOSIT AND BORROWING OPERATIONS 24
SECTION 7.1. MINIMUM DEPOSIT. 24

SECTION 7.2. OPENING AND OPERATION OF DEPOSIT ACCOUNTS. 24
SECTION 7.3. DEPOSITS OF CHECKS AND OTHER CASH ITEMS. 25
SECTION 7.4. PAYMENT OF INTEREST ON TIME DEPOSITS. 25
SECTION 7.5. WITHDRAWAL OF DEPOSITS. 25
SECTION 7.6. DORMANT SAVINGS DEPOSIT. 26
SECTION 7.7. MATURED TIME DEPOSITS. 26
SECTION 7.8. TAX ON INTEREST ON DEPOSITS. 26
SECTION 7.9. RESERVE REQUIREMENTS AGAINST DEPOSIT LIABILITIES 26
SECTION 7.10. BORROWINGS. 26
ARTICLE 8. LOANS AND INVESTMENT 27
SECTION 8.1. FINANCIAL SERVICE. 27

SECTION 8.2. LENDING POLICIES. 27
SECTION 8.3. BASIS IN THE GRANT OF LOANS. 27
SECTION 8.4. LENDING REQUIREMENTS 27
SECTION 8.5. LOAN COLLECTION. 28
SECTION 8.6. LOAN RETENTION SAVING SCHEME. 28
SECTION 8.7. SALARY DEDUCTIONS FOR LOAN REPAYMENT. 28
SECTION 8.8. INTEREST AND OTHER CHARGES. 29
SECTION 8.9. SECURED LOANS 29
SECTION 8.10. UNSECURED LOANS. 31
SECTION 8.11. RESTRICTION ON DIRECTORS, OFFICERS AND COMMITTEE MEMBERS. 32
SECTION 8.12. LOAN LIMITS/MATURITY OF LOANS. 32
SECTION 8.13. DEPOSITS IN BANKS. 32
SECTION 8.14. LOANS/CREDIT ACCOMMODATIONS TO DIRECTORS, OFFICERS AND THEIR
RELATED INTERESTS (DORI) 32
SECTION 8.15. SANCTIONS. 33
SECTION 8.16. SUBMISSION OF CREDIT INFORMATION TO A CREDIT BUREAU. 33
SECTION 8.17. PAST DUE ACCOUNTS. 33
SECTION 8.18. LOAN PORTFOLIO AND OTHER RISK ASSETS REVIEW SYSTEM. 34
SECTION 8.19. BOOKED ALLOWANCE FOR PROBABLE LOSSES ON LOANS (APLL) WHILE THE
ACCOUNT IS IN THE NON-PERFORMING PORTFOLIO. 34

SECTION 8.20. EXTENSION/RENEWAL OF LOANS. 35

SECTION 8.21. WRITE-OFF OF LOANS AS BAD DEBTS. 35
SECTION 8.22. “TRUTH IN LENDING ACT” DISCLOSURE REQUIREMENTS. 35
SECTION 8.23. TREATMENT OF ASSETS ACQUIRED IN SETTLEMENT OF LOANS 35
SECTION 8.24. APPRAISAL OF PROPERTIES TO BE FORECLOSED OR ACQUIRED. 36
SECTION 8.25. INVESTMENTS. 36
SECTION 8.26. INVESTMENT PROGRAM. 36
SECTION 8.27. ALLOWABLE INVESTMENTS. 37
SECTION 8.28. CEILING ON SCC INVESTMENTS. 37
ARTICLE 9. INTERNAL CONTROL 38
SECTION 9.1. DEFINITION OF INTERNAL CONTROL. 38

SECTION 9.2. COMPONENTS OF INTERNAL CONTROL 38
SECTION 9.3. INTERNAL CONTROL STANDARDS. 38
SECTION 9.4. INDEPENDENCE OF THE INTERNAL AUDITOR 47
SECTION 9.5. EXTERNAL AUDITOR 47
SECTION 9.6. DISCLOSURE OF EXTERNAL AUDITOR’S ADVERSE FINDINGS. 48
SECTION 9.7. MISCELLANEOUS PROVISIONS ON INTERNAL CONTROL 48
SECTION 9.8. OTHER INTERNAL CONTROL PRINCIPLES 49
SECTION 9.9. STANDARD AUDIT SYSTEM FOR COOPERATIVES (SASC). 51
ARTICLE 10. PERFORMANCE STANDARDS FOR SCCS (COOP-PESOS) 52
SECTION 10.1. FINANCIAL TRANSPARENCY 52

SECTION 10.2. PERFORMANCE STANDARDS 53
SECTION 10.3. COMPUTATION OF COOP-PESOS 55
SECTION 10.4. OVERALL RATING. 55
ARTICLE 11. MISCELLANEOUS 56
SECTION 11.1. CONFIDENTIAL INFORMATION. 56

SECTION 11.2. COOPERATIVE PREMISES AND PROPERTY AND EQUIPMENT. 56
SECTION 11.3. BRANCHING. 58
SECTION 11.4. SATELLITE OFFICES. 59
SECTION 11.5. SUPERVISION AND EXAMINATION OF SCCS 59
ARTICLE 12. GENERAL PROVISIONS ON SANCTIONS 60
SECTION 12.1. SANCTIONS. 60

SECTION 12.2. DEFINITION OF UNSAFE OR UNSOUND PRACTICE. 60
SECTION 12.3. MONETARY PENALTY. 60
SECTION 12.4. REMOVAL FROM OFFICE OF ERRING DIRECTORS AND OFFICERS 61
SECTION 12.5. PROHIBITION AND SUSPENSION 63
SECTION 12.6. CEASE AND DESIST ORDER 64
ARTICLE 13. TRANSITORY PROVISIONS 67

SECTION 13.1. TRANSITORY PROVISIONS. 67

SECTION 13.2. REPEALING CLAUSE. 67
SECTION 13.3. EFFECTIVITY. 67

MANUAL OF RULES AND REGULATIONS FOR SAVINGS

AND CREDIT COOPERATIVES (SCCs)
IN THE PHILIPPINES
INTRODUCTION
It is the declared policy of the State under R.A. 6938 (An Act to Ordain A Cooperative Code of the
Philippines) to foster the creation and growth of cooperatives as a practical vehicle for promoting
self-reliance and harnessing people power towards the attainment of economic development and
social justice.
Credit cooperatives and other types of cooperatives with lending activities have established
themselves to be effective vehicles in the improvement of the social and economic conditions of their
members, particularly those in the countryside. By providing their members access to financial
services including savings, cooperatives have encouraged thrift and opened opportunities to the poor
that other formal financial institutions may not be willing to provide.
As government veers away from direct intervention in the provision of financial services, the need to
further develop and strengthen cooperatives into viable and sustainable financial institutions
becomes more apparent. Safe and sound operations of cooperatives will have to be ensured in order
to protect the investments and savings of their members. With strong credit cooperatives operating
in a viable and efficient manner, creative and innovative loan products and financial services suited
to the needs of the poor will continuously be offered and enhanced. By providing greater access to
quality financial products and services, cooperatives with savings and credit activities can greatly
contribute to the improvement of the lives and welfare of their constituents.
Recognizing these realities, the Cooperative Development Authority (hereinafter referred to as the
Authority) has resolved to put in place measures to develop and strengthen cooperatives. These
include, among others, the establishment of an effective regulatory and supervisory environment for
credit and savings cooperatives. The Authority in collaboration with the National Credit Council
(NCC)-Department of Finance (DOF), the Bangko Sentral Ng Pilipinas (BSP), other relevant
government agencies and the major federations of cooperatives have initiated work towards this end.
Following the establishment of the Standard Chart of Accounts (SCA), the performance standards for
credit cooperatives (COOP-PESOS), and the adoption of the framework for effective regulation and
supervision of credit and other types of cooperatives with credit services, this Manual of Rules and
Regulations was developed.
The rules and regulations set forth in this Manual and the attached Appendices will provide credit
cooperatives specific guidelines for the safe and sound conduct of their operations and for the
development and strengthening of their respective institutions. It shall be the comprehensive
authority on the rules and regulations to implement the provisions of RA 6938 and RA 6939 and other
existing laws that will govern the operations of cooperatives with savings and credit operations.
Any changes or amendments to the laws, circulars or issuance, shall subsequently be integrated and
form part of the affected sections or subsections of this Manual while repealed rules shall thenceforth
be deleted so that the user of this Manual shall no longer refer to a separate issuance, e.g., circular,
memorandum, but shall instead cite the particular section or subsections of the manual, including its
appendices.
As a code of regulations, the manual contains the basic features of division into parts further
subdivided into major type of headings, which introduce the corresponding sections and subsections
that will make up the provisions governing the operations and activities of SCCs subject to the

related regulations. Parts and major topic headings as well as coded section numbers and headings
are made uniform for all the groups of regulations.
This manual is useful for both the supervisory and regulatory authorities, and the Management of
SCCs themselves. The performance indicators and standards established herein shall ensure that the
SCCs have the financial discipline for the safety and soundness of the institution. In the end, this will
result in stronger, viable and sustainable SCCs with greater public trust and confidence.
ARTICLE 1.
SCOPE AND LIMITATIONS
Section 1.1. Coverage
1.1.1. With Minimum Paid-In Capitalization. All prospective and duly registered
cooperatives with a minimum paid-in capitalization of TWO MILLION AND
FIVE HUNDRED MILLION PESOS (P2,500,000) that intends to or will continue to
engage in savings and credit activities beyond the effectivity of this Manual, are
hereby required to apply for a License to Operate as a Savings and Credit
Cooperative (hereinafter referred to as SCC), subject to the herein rules and
regulations.
1.1.2. With Less Than Minimum Paid-In Capitalization. Cooperatives with a paid-in
capitalization of less than P2.5 million shall not be covered by these rules and
regulations, PROVIDED, THAT, all other existing applicable laws, circulars,
issuances, and rules and regulations shall apply, and PROVIDED, FURTHER, that
as soon as the minimum capitalization of P2.5 million has been reached, the rules
and regulations provided herein shall apply.
1.1.3. Not Engaging in Credit Activities. Duly registered cooperatives with a paid-in
capitalization of P2.5 million and above, that do not apply or have been denied
the License to Operate as a SCC, shall immediately terminate and cease from
engaging in any credit activity within one (1) year from the date of effectivity of
this Manual; PROVIDED, THAT, cooperatives without a License to Operate as a
SCC may continue to engage in their savings activity in support of other business
activities as approved by the Authority, and PROVIDED, FURTHER, that
cooperatives previously allowed to engage in credit operations but did not apply
or was denied the License, shall immediately amend their Articles of Cooperation
and By-laws to reflect such changes, to be submitted to and subsequently
approved by the Authority.
Section 1.2. Definition of Terms
For purposes of this Manual, the terms defined in the General Guidelines, Rules and
Regulations for the Registration and Operation of Cooperatives and those enumerated
below shall apply:
1.2.1. Credit accommodation includes borrowings of members and advances made by

officers and employees;

1.2.2. Debentures are serial obligations or notes issued on the basis of the general credit
of the corporation, since they are not secured by the corporation property, they
are not bonds under Section 38 (Corporation Code, De Leon)
1.2.3. Loans in Litigation are total collectibles from past due loans under legal action.
1.2.4. Loans restructured are past due loans whose terms and conditions have been
modified, extended or renewed after full payment of interest/surcharges due
thereon. Items in litigation and loans subject of judicially approved compromise,
as well as those covered by petitions for suspension or a new plan of payment
approved by the court, shall not be classified as restructured loans.
1.2.5. Loans shall include all types of credit accommodations granted to the borrower.
1.2.6. Past due accounts shall refer to loan accounts where one amortization/installment
has not been paid on the due date.
1.2.7. Savings deposits are deposits made by members evidenced by a passbook or any
other equivalent financial document consisting of funds deposited to the credit of
one (1) or more members that can be withdrawn anytime at the option of the
member-depositor.
1.2.8. Time deposits are deposits made by the members over a specified period of time as
evidenced by a time deposit certificate or any other equivalent financial
instrument that provides on its face that the amount of such deposit is
withdrawable at a predetermined date.
ARTICLE 2.
ORGANIZATION OF SCCs
Section 2.1. Definition of Savings and Credit Cooperative (SCC). SCCs are duly registered
cooperatives licensed to operate as a financial entity with savings and credit
operations that are owned and operated by its members with the following
objectives:
• Encouraging thrift and savings among its members;

• Creating a pool of such savings for which loans for productive or provident
purposes maybe granted to its members; and
• Providing related financial services to enable its members to maximize the
benefit from such services.
Section 2.2. Minimum Requirements. Cooperatives covered under Article 1, Section 1.1.1
above are required to apply for a License to Operate as a SCC and submit to the
Authority, a resolution of the Board of Directors indicating its approval of the
following:
2.2.1. Savings and credit operations shall be a primary function of the Cooperative; and

2.2.2. A minimum amount of TWO MILLION AND FIVE HUNDRED THOUSAND

PESOS (P2,500,000.00) of the cooperative’s paid-in capitalization shall be
exclusively allocated for its savings and credit operations. For this purpose, the
following additional documents shall be submitted to the Authority:
2.2.2.1. In the case of a new cooperative, a Depository Bank Certificate of deposits

of the cooperative’s paid-in capital allotted for this purpose;
2.2.2.2. In the case of existing cooperative, the financial statement indicating the
P2.5 million capital allocated for savings and credit operations with the
accompanying schedule;
2.2.2.3. Duly notarized Treasurer’s Affidavit indicating that at least P2.5 Million
of the paid-in capital has been allocated.
Section 2.3. Provisional License to Operate
2.3.1. Upon submission to and approval by the Authority of the minimum requirements
in Section 2.1.2, the applicant cooperative shall be granted a provisional license to
operate as SCC.
2.3.2. The provisional license shall be valid for a maximum of one (1) year within which
the License to Operate shall have been issued by the CDA. Otherwise, the
provisional license shall be automatically revoked and deemed null and void,
unless extended by the CDA.
Section 2.4. Requirements for Regular License. Within one (1) year from receipt of the
provisional license to operate, the applicant cooperative shall:
2.4.1. Establish the business site which shall be equipped with facilities, furniture, forms
and stationery, and vault of reinforced concrete with a steel two-hour fire
resistant door and equipped with time delay device, in accordance with standard
specifications;
2.4.2. Effect and complete the training/seminar of directors and officers of the
cooperative as hereby required;
2.4.3. At least thirty (30) days prior to the start of operations, the cooperative shall
submit the following requirements:
2.4.3.1. Amended Articles of Cooperation and By-laws;
2.4.3.2. Request for ocular inspection of the premises at least thirty (30) days
before the scheduled date of operations;
2.4.3.3. Certificates of training/seminar of officers and employees on cooperative

management by accredited federation/union;
2.4.3.4. Certificates of attendance of the special seminar on financial

intermediation and good governance for Members of the Board of
Directors conducted by Bangko Sentral ng Pilipinas (BSP) or its accredited
institutions;
2.4.3.5. List of management officers and their respective designations and

salaries;
2.4.3.6. Biodata sheets, National Bureau of Investigation (NBI) and Bureau of

Internal Revenue (BIR) clearances, statement of assets and liabilities,
income tax returns and statement of income and expenses for the last
three (3) years of directors/officers who have not had the previous
approval of the Authority for evaluation of their qualifications prior to
assumption of office;
2.4.3.7. Chart of Organization. (The chart shall show the names of

departments/units/offices with their respective functions and
responsibilities, and the designations of positions in each
department/unit/office with their respective duties and responsibilities);
2.4.3.8. Manual of Operations embodying the policies and operating procedures;
2.4.3.9. Pro-forma (two (2) sets) of accounting and other forms in conformity with
the Standard Chart of Accounts (SCA) and Accounting Manual;
2.4.3.10. Copy of Contract for the use of the SCC’s premises;
2.4.3.11. Copy of the insurance coverage of the SCC office and premises;
2.4.3.12. Copy of the Bonds of accountable officers/employees. This may be

executed in the form of an insurance bond (such as fidelity, surety, or
guarantee bond), cash bond or real estate bond.
2.4.3.13. Excerpts of the minutes of meetings confirming all transactions relative to

activities undertaken to prepare the cooperative to operate as SCC (e.g.
appointment of officers, contract of lease, etc);
2.4.3.14. An alphabetical list of regular and associate members with the number
and percentage of the amount of share capital subscribed, paid and
unpaid;
2.4.3.15. A separate list containing the names of members who are related to each
other within the 3rd degree of consanguinity or affinity;
2.4.3.16. Certification by the Chairman of the Board that no person who is the
spouse or relative within the 2nd degree of consanguinity or affinity of any
person holding the position of Chairman, General Manager, Treasurer,
Chief Cashier or Chief Accountant or any position of equivalent rank will

be appointed to any of said positions in the SCC;
2.4.3.17. Appointment of officer of the registered SCC who shall have undergone
orientation on the reportorial requirements with the AUTHORITY and a
certification by the Manager that he is fully aware of said reportorial
requirements and the respective deadlines for submission to the
AUTHORITY; and
2.4.3.18. Other documents/papers which may be required by the Authority.
Section 2.5. Issuance of License to Operate. Within sixty (60) days from submission and full
compliance of the mandatory requirements specified under this Section, the
Authority shall issue to the applicant cooperative the License to Operate as a
Savings and SCC.
Section 2.6. Validity of Contracts. Contracts executed between and among private persons
and the cooperative prior to the issuance by the Authority of the License to
Operate shall remain valid and binding between the concerned parties. A formal
written contract shall be entered into by the contracting parties and made in the
SCC's name or on its behalf.
Section 2.7. Business Name. Duly registered cooperatives organized and operating under
R.A. 6938 and granted license by the Authority shall include in their names the
term “Savings and SCC”. Such cooperative shall display at their business offices a
sign including, among other things, the following words: “Licensed by the
Cooperative Development Authority”.
Section 2.8. Prohibitions.
2.8.1. No person, juridical or natural, shall do business or hold itself out as doing
business as a savings and SCC, or shall use the term “Savings and SCC” or any
other title or name tending to give the public impression that it is engaged in the
savings and credit operations and activities unless licensed by the CDA.
2.8.2. The use of savings and SCCs of any other name or title or combination of names
and titles or any other deviation from the requirements of this section shall not be
made except upon prior authorization by the CDA.
2.8.3. SCCs shall not advertise nor represent itself to its members or to the public as a
bank or a quasi-bank.
Section 2.9. Suspension, Cancellation or Revocation of License. The CDA may suspend,
cancel or revoke, after due notice and hearing, the License to Operate as SCC on
any violation or non-compliance of the provisions of this Manual, the Code,
circulars and issuances of the CDA.
ARTICLE 3.
MANAGEMENT

Section 3.1. Officers of the SCC. The Officers of the SCC shall be comprised of the members
of the Board of Directors, and key management officers.
Section 3.2. Board of Directors. In addition to the provision of Section 6.02 of the General
Guidelines on the Registration and Operations of Cooperatives provided for in
Appendix A, at least one (1) of the members of the Board of Directors must have,
in addition to the minimum qualifications prescribed in this Manual, at least one
(1) year experience in banking or credit cooperative operations.
3.2.1. Qualifications and Disqualifications of BOD. Persons elected or appointed as

officers of SCCs without the qualifications or possessing any of the
disqualifications as enumerated hereunder shall vacate their respective positions
immediately.
3.2.2. Minimum Qualifications of a SCC Board Director.
3.2.2.1. At least twenty-five (25) years of age at the time of his/her election or
appointment;
3.2.2.2. At least college level or have at least three (3) years experience in
business;
3.2.2.3. Must be fit and proper for the position of a director of the cooperative. In
determining whether a person is fit and proper for the position of a
director, the following must be considered:
• Cooperative Values as defined in the International Cooperative

Alliance (ICA);
• Competence;
• Education;
• Diligence; and
• Experience/ training.
3.2.2.4. Must be member in good standing for at least two (2) consecutive years
prior to election, except in the case of newly registered SCC.
3.2.3. Grounds for Disqualification of a SCC Board Director. Without prejudice to

specific provisions of law prescribing disqualifications for Board directors, the
following members are disqualified from becoming directors:
3.2.3.1. Permanently disqualified:
3.2.3.1.1. Persons who have been convicted by final judgment of the court for
offenses involving dishonesty or breach of trust, such as estafa,
embezzlement, extortion, forgery, malversation, swindling and theft;
3.2.3.1.2. Persons who have been convicted by final judgment of the court for
violation of banking and cooperative laws; or

3.2.3.1.3. Persons who have been judicially declared insolvent, spendthrift,

insane or incapacitated to contract.
3.2.3.2. Temporarily disqualified:
3.2.3.2.1. Persons who refuse to fully disclose the extent of their business
interest to the Authority when required. This disqualification shall be
in effect as long as the refusal persists;
3.2.3.2.2. Persons who have business directly competing with the cooperative
business, until such time that such persons have divested their
interests in and/or have disengaged from said business;
3.2.3.2.3. Directors who have been absent or who have not participated during
their incumbency, in three (3) consecutive meetings or in more than
fifty percent (50%) of all meetings within a twelve (12) month period,
both regular and special, unless with valid excuse as approved by the
Board of Directors. This disqualification shall be applied immediately
and for the succeeding election;
3.2.3.2.4. Persons who are delinquent in the payment of their obligations as

defined hereunder:
3.2.3.2.4.1. Obligations with the cooperative where he/she is a director or

officer or at least two obligations with other
cooperatives/financial institutions.
3.2.3.2.4.2. Obligations from a SCC/bank/quasi-bank or another cooperative

obtained by:
3.2.3.2.4.2.1. A director or officer for his own account or as the

representative or agent of others or where he/she acts as
guarantor, endorser or surety for loans from such financial
institutions;
3.2.3.2.4.2.2. The spouse or child under the parental authority of the

director or officer;
3.2.3.2.4.2.3. Any person whose borrowings or loan proceeds were

credited to the account of, or used for the benefit of a director or
officer;
3.2.3.2.4.2.4. A partnership of which a director or officer, or his/her

spouse is the managing partner or a general partner owning a
controlling interest in the partnership; and
3.2.3.2.4.2.5. A corporation, association or firm wholly-owned or majority

of the capital of which is owned by any or a group of persons
mentioned in the foregoing items I), ii), and iv). This

disqualification shall be in effect as long as the delinquency

persists.
3.2.3.2.5. Persons convicted for offenses involving dishonesty, breach of trust or

violation of cooperative/banking laws but whose conviction has not
yet become final and executory;
3.2.3.2.6. Directors and officers of closed cooperatives/banks/quasi-

banks/trust entities pending their clearance by the Authority or
Monetary Board;
3.2.3.2.7. Directors disqualified for failure to observe/discharge their duties and

responsibilities prescribed under existing regulations;
3.2.3.2.8. Directors who failed to attend the special seminar required for board
of directors. This disqualification applies until the director concerned
had attended such seminar;
3.2.3.2.9. Persons dismissed/terminated from employment for cause. This

disqualification shall be in effect until they have cleared themselves of
involvement in the alleged irregularity;
3.2.3.2.10. Those under preventive suspension; or
3.2.3.2.11. Persons with derogatory records with the National Bureau of

Investigation (NBI), court, police, Interpol and monetary authority
(central bank) of other countries involving violation of any law, rule or
regulation of the Government or any of its instrumentalities adversely
affecting the integrity and/or ability to discharge the duties of a
cooperative/bank/quasi-bank/trust entity director/ officer. This
disqualification applies until they have cleared themselves of
involvement in the alleged irregularity.
3.2.4. Additional Qualifications/Disqualifications. The foregoing

qualifications/disqualifications for directors shall be in addition to those already
required or prescribed under existing laws or By-laws.
Section 3.3. Key Management Officers. The key management officers of a cooperative may
either be elected or appointed by the General Assembly/Board and shall include
but not be limited to the:
• General Manager/Chief Executive Officer;

• Treasurer,
• Accountant; and
• Committee Members.
3.3.1. Qualifications for Key Management Officers.
3.3.1.1. At least twenty-one (21) years of age;

3.3.1.2. At least a college graduate;
3.3.1.3. Have at least three (3) years of experience in operations or related

activities or in a field related to his/her position and responsibilities;
3.3.1.4. Have undergone training in SCC/banking operations acceptable to the

BSP/AUTHORITY or will undergo said training within six (6) months
upon assumption of office; and
3.3.1.5. Must be fit and proper for the position he/she is being
proposed/appointed to, as indicated in Section 3.2.2.3 above.
3.3.1.6. The foregoing qualifications for officers shall be in addition to those

already required or prescribed under existing laws and the SCC’s By-
laws.
3.3.2. Disqualification of Management Officers. The following grounds for

disqualification shall apply to officers in addition to those already required or
prescribed under existing laws, By-laws and the grounds for disqualification of
directors, except that stated in Section 2.02 (E)(2)(iii) and (viii) hereto:
3.3.2.1. The spouse or a relative within the second degree of consanguinity or

affinity of any person holding the position of Board of Directors and
management officers;
3.3.2.2. The spouse or relative within the second degree of consanguinity or

affinity of any person holding the position of Manager, Cashier, or
Accountant of a branch or office of a cooperative is disqualified from
holding or being appointed to any of said positions in the same branch or
office; and
3.3.2.3. Any officer or employee of the CDA or any appointive or elective public
official, except a barangay official.
Section 3.4. Committees. The SCC by-laws shall provide for the creation and establishment of
the following committees:
• Audit;
• Credit;
• Election;
• Education/Training and Membership;
• Ethics, Mediation and Conciliation; and
• Other committees necessary for the proper conduct of the affairs of the SCC.
3.4.1. Appointment/Election of Committee Members
3.4.1.1. Members of the Committees shall be elected during the holding of a

General Assembly or appointed by the Board.
3.4.1.2. The Board shall appoint from among themselves, other than the

Chairman, the Chairperson of the Education/Training and Membership

committee.
3.4.1.3. Unless otherwise provided in the by-laws, the Board, in case of vacancy
in said committees, may cause an election to fill the vacancy or appoint a
person to fill the same subject to the provision that the person elected or
appointed shall serve only for the unexpired portion of the term.
Section 3.5. Training of Directors and Officers. Directors and officers of the SCC shall be
required to undergo continuous training at an accredited organization of the BSP
and/or Authority.
Section 3.6. Functions and Responsibilities. The functions and responsibilities of the officers
and members of various committees shall be those as prescribed in the SCC’s by-
laws. (These functions are shown in Appendix E.)
ARTICLE 4.
GOVERNANCE
Section 4.1. Compensation of Directors, Officers and Committee Members. The Board of
Directors/committee members shall not receive any form of compensation other
than reasonable per diem as set by the General Assembly. Provided, that
payment of per diem shall not exceed two (2) meetings in a month; Provided
further, that only per diems shall be paid during the first year of existence of the
cooperative. In succeeding years, additional compensation maybe granted to
directors/committee members; provided that such additional compensation shall
be approved by a majority of the members with voting rights at a regular or
special general assembly meeting. The By-laws shall specify the process by which
the compensation of officers shall be determined.
Section 4.2. Dealings of Directors, Officers and Committee Members
4.2.1.1. At the option of the Cooperative, a contract of the cooperative with one
(1) or more of its directors, officers or committee members may be
deemed valid and binding should all the following conditions are
present:
4.2.1.2. That the presence of such director in the board meeting in which the
contract was approved was not necessary to constitute a quorum for such
meeting;
4.2.1.2.1. That the vote of such director was not necessary for the approval of
the contract;
4.2.1.2.2. That the contract is fair and reasonable under the circumstances; and

4.2.1.2.3. That in the case of an officer or committee member, the contract with
the officer or committee member has been previously authorized by
the General Assembly or by the Board.
4.2.1.2.4. Where any of the first two conditions set forth in the preceding
paragraph is absent in the case of a contract with a director, such
contract may be ratified by two-thirds (2/3) vote of all the members
with voting rights in a meeting called for the purpose: Provided, That
full disclosure of the adverse interest of the directors involved is made
at such meeting, and that the contract is fair and reasonable under the
circumstances.
Section 4.3. Liability of Directors, Officers and Committee Members
4.3.1. Directors, officers and committee members, who willfully and knowingly vote for
or consents to patently unlawful acts, or who are guilty of gross negligence or bad
faith in directing the affairs of the cooperative, or acquire any personal or
pecuniary interest in conflict with their duty as such directors, officers or
committee member, shall be liable jointly and severally to the SCC for the full
amount of damages or personal gain resulting therefrom.
4.3.2. Directors, officers or committee members who, by virtue of his office, acquires for
himself an opportunity which should belong to the cooperative, shall be liable for
damages and must account for double the profits that otherwise would have
accrued to the cooperative by refunding the same, unless his act has been ratified
by a two-thirds (2/3) vote of all the members with voting rights. This provision
shall be applicable, notwithstanding the fact that the director used his own funds
in the venture.
4.3.3. Directors, officers or committee members who attempt to acquire or acquire, in

violation of his duty, any interest or equity adverse to the cooperative with
respect to any matter which has been reposed in him in confidence, he shall, as a
trustee for the cooperative, be personally liable for damages and for twice the
profits which otherwise would have accrued to the cooperative.
4.3.4. Directors, officers, or committee members, or their associates1 who, make use of
or disclose confidential information on the operation of a cooperative, that
includes, among other things, transaction relating to shares or a debt obligation
for his benefit or advantage or that of an associate, that, if generally known, might
reasonably be expected to adversely and materially affect the condition of the
SCC shall be held:
4.3.4.1. Liable to compensate any person for a direct loss suffered by that person
unless such information was known or reasonably should have been
known to the person at the time of the transaction; and
4.3.4.2. Accountable to the cooperative for any direct benefit or advantage
1
Associate as referred in this Section shall refer to any person connected or has joined such directors
and officers in a common purpose or to partake or share in a common design of making use of
confidential information prejudicial to the condition of the cooperative

received or yet to be received by him or his associate, as a result of the

transaction.
4.3.4.3. The cooperative shall take all the necessary steps and measures to enforce
the liabilities described in this section.
Section 4.4. Bonds of Accountable Officers and Employees.
4.4.1. Every officer or employee handling funds, securities or property on behalf of a

cooperative shall, before performing such duties, execute and deliver adequate
and appropriate bonds for the faithful performance of his duties and obligations,
and provide indemnity to the cooperative against the loss of money or securities
by reason of their dishonesty or gross negligence. The board of directors shall
determine the adequacy of such bonds.
4.4.2. The bond of the cashier, assistant cashier, treasurer and other employees having
money accountability shall not be less than their average daily accountability for
immediately preceding a three (3) month period. The bond must be issued by a
reputable bonding company duly licensed by the Insurance Commission. Capital
contribution or a cash bond deposited with the SCC or with a bank may also be
allowed.
ARTICLE 5.
REPORTORIAL REQUIREMENTS
Section 5.1. Required Reports. SCCs shall regularly submit to the Authority the required
reports listed in Appendix G of this Manual.
Section 5.2. Authorized Signatories.
5.2.1. Appendix H provides the guidelines on the prescribed report signatories for each
report category and the requirements on signatory authorization. Reports
submitted electronically shall be subject to the same requirements.
5.2.2. A report submitted under the signature of an officer who is not authorized in
accordance with the requirements in this subsection shall be considered as not
having been submitted.
Section 5.3. Manner of filing. Reports shall be submitted personally to the Authority, or via
registered mail or special delivery through couriers.
Section 5.4. Report on crime/losses. SCCs shall report to the Authority the following:
5.4.1. Crimes whether consummated, frustrated or attempted against property/facilities

(such as robbery, theft, swindling or estafa, forgery and other deceits) and other
crimes involving loss/destruction of the cooperative property when the amount
involved, in each crime is P20,000 or more.

5.4.2. Crimes involving officers and employees, regardless of whether or not such
crimes involve the loss/destruction of cooperative property, even if the amount
involved is less than P20,000 shall likewise be reported to the Authority.
5.4.3. Incidents involving material loss, destruction or damage to the cooperative

property/facilities, other than arising from a crime, when the amount involved
per incident is P100,000 or more.
5.4.4. The following guidelines shall be observed in the preparation and submission of
the report on crime/loss:
5.4.4.1. The report shall be prepared in the prescribed form as shown in

Appendix G in two (2) copies and shall be submitted to the Authority
within five (5) days from the knowledge of the crime or incident;
5.4.4.2. Where a thorough investigation and evaluation of facts is necessary to

complete the report, an initial report submitted within the deadline may
be accepted: Provided, that a complete report is submitted not later than
fifteen (15) business days from termination of investigation; and
5.4.4.3. Proof of submission of the report within the deadline shall be determined
by the date of postmark, if the report was sent by mail or by the date
received, if hand-carried to the Authority.
Section 5.5. Sanctions for willful delay in submission of reports/refusal to permit

examination.
5.5.1. Definition of terms. For purposes of this subsection, the following definitions
shall apply:
5.5.1.1. Reports shall refer to any reports or statement required of SCCs to be

submitted to the Authority periodically or within a specified period.
5.5.1.2. Willful delay in the submission of reports shall refer to the failure of SCCs to
submit a report on time. Failure to submit a report on time due to
fortuitous events, such as fire and other natural calamities, system
breakdown and public disorders, including strike or lockout affecting the
SCCs as defined in the Labor Code or a national emergency affecting the
operations of SCCs shall not be considered as willful delay.
5.5.1.3. Examination shall include, but need not be limited to, the verification,
review, investigation and inspection of the books and records, business
affairs, administration and financial condition of any SCC including the
reproduction of its records as well as the taking possession of the books
and records and keeping them under the AUTHORITY and/or deputized
supervisor custody after giving proper receipt therefore. It shall also
include the interview of the directors and personnel of the SCC including
its Electronic Data Processing (EDP) service provider. Books and records
shall include, but not limited to data and information stored in magnetic
tapes, disks, printouts, logbooks and manual kept and maintained by the

SCC or the EDP service provider, necessary and incidental to the use of
EDP systems by the SCCs.
5.5.1.3.1. Refusal to permit examination shall mean any act or omission which
impedes, delays, or obstructs the duly authorized examiner from
conducting an examination, including the act of refusing to accept or
honor a letter of authority to examine presented by the Authority.
5.5.2. Fines for willful delay in submission of reports.
5.5.2.1. SCCs incurring willful delay in the submission of required reports (A1
and A2) shall pay a fine of P100.00 per report per business day of default.
5.5.2.2. Delay or default shall start to run on the day following the last day
required for the submission of reports. However, should the last day of
filing fall on a non-working day in the locality where the reporting SCC is
situated, delay or default shall start to run on the day following the next
working day.
5.5.2.3. For the purpose of establishing delay or default, the date of

acknowledgement by the Authority appearing on the copies of such
reports filed or submitted or the date of mailing postmarked on the
envelope/the date of registry or special delivery receipt, as the case may
be, shall be considered as the date of filing.
5.5.2.4. Delayed schedules or attachments and amendments shall be considered

late reporting subject to the above penalties.
5.5.3. Fines for refusal to permit examination.
5.5.3.1. Any SCC which shall willfully refuse to permit examination shall pay a
fine of P3,000.00 daily from the day of refusal and for as long as such
refusal lasts.
5.5.3.2. The duly authorized examiner shall report to the Authority, who shall
forthwith make a written demand upon the SCC concerned for such
examination. If the SCC continues to refuse said examination without
any satisfactory explanation therefor, the duly authorized examiner shall
submit a report to the Authority.
5.5.3.3. The fine shall be imposed starting on the day following the receipt by the
said Authority of the written report submitted by the duly authorized
examiner concerned regarding the continued refusal of the SCC to permit
the desired examination. A copy of the said report shall be provided to
the SCC. Transfer to the table of Sanctions
5.5.4. Manner of payment or collection of fines.

5.5.4.1. SCCs shall, within thirty (30) calendar days from receipt of the statement
of account from Authority, pay the fines imposed;
5.5.4.2. Failure to settle the full amount of the fines within the period or on the
day prescribed herein shall be subject to additional penalties, fines and
surcharges as provided for in the Table of General Sanctions.
5.5.5. Other penalties. The imposition of the penalties shall be without prejudice to
the imposition of other administrative sanctions and to the filing of a criminal
case as provided for in other provisions of law.
5.5.6. Appeal to the AUTHORITY. SCCs may request for a reconsideration of the
imposition of sanctions to the CDA within thirty (30) calendar days upon receipt
of notice. The Board of Administrators of the Authority shall, upon receipt of the
request for reconsideration, act within sixty (60) calendar days, otherwise the
imposition of sanctions shall be deemed lifted. The decision of the Board of
Administrators shall be final and executory.
ARTICLE 6.
CAPITALIZATION
Section 6.1. Definition of Net Worth. The term net worth shall refer to equity inclusive of
members’ equity, donations/grants and reserve funds less unbooked allowance
for probable losses on loans, investments and other assets and other capital
adjustments as may be required by the CDA.
Section 6.2. Net Worth-To-Risk Assets Ratio. The net worth of a SCCSCC shall at all times
not be less than an amount equal to eight percent (8%) of its risk assets which is
defined as its total assets minus the following assets:
6.2.1. Cash on hand;
6.2.2. Evidences of indebtedness of the Republic of the Philippines and of the BSP, and
other evidences of indebtedness or obligations the servicing and repayment of
which are fully guaranteed by the Republic of the Philippines;
6.2.3. Loans to the extent covered by hold-outs on, or assignments of, deposits
maintained in the SCC and held in the Philippines;
6.2.4. Land owned by the SCC used for operations;
6.2.5. Building and land improvements, net of depreciation;
6.2.6. Furniture, fixtures and equipment, net of depreciation;
6.2.7. Real estate mortgage loans insured by the Home Insurance Guarantee
Corporation (HIGC), to the extent of the amount of the insurances, and;

6.2.8. Other non-risk items as the CDA may, from time to time, authorize to be
deducted from total assets.
Section 6.3. Prompt Corrective Action. The SCC’s net worth position should be sufficient to
meet competitive pressure and adverse economic conditions as they arise. It
should enhance the safety of the members’ shares and keep pace with growth in
SCC assets. Net worth categories for purposes of prompt corrective action are:
6.3.1. Well-capitalized – the SCC’s net worth to risk-asset ratio is at least ten percent
(10%);
6.3.2. Adequately capitalized - net worth to risk-asset ratio is equal to eight percent
(8%) but less than ten percent (10%);
6.3.3. Undercapitalized - net worth to risk-asset ratio is equal to six percent (6%) but
less than eight percent (8%);
6.3.4. Significantly undercapitalized – net worth to risk-asset ratio is equal to two

percent (2%) but less than six percent (6%)
6.3.5. Critically undercapitalized – net worth-to-risk asset ratio is less than two percent
(2%).
Section 6.4. Rehabilitation Plan. A SCC that is categorized, as either undercapitalized or

significantly undercapitalized shall submit for approval within the deadline set
by the Authority, a rehabilitation plan prior to its implementation.
Section 6.5. Period to Correct Capital Deficiency. Whenever the net worth of SCCs are
deficient with respect to the requirements of Section 3.2 above, the SCC shall
within a two (2) year period meet the minimum requirement for net worth to risk
asset ratio.
Section 6.6. Restrictions for undercapitalized SCCs: From the time the Authority has
declared the SCC as undercapitalized and until such time that the SCC is
adequately capitalized, it shall not be permitted to:
6.6.1. Distribute interest on share capital and patronage refund unless added to share
capital;
6.6.2. Increase its risk assets; and
6.6.3. Expand operations unless part of the rehabilitation plan
Section 6.7. Action required for critically undercapitalized SCCs. The CDA, not later than
ninety (90) days after the date on which a SCC becomes critically undercapitalized
shall:
6.7.1. Appoint a conservator, receiver or liquidator, as the case may be; or

6.7.2. Take such other actions as it determines would better achieve the purpose in lieu
of appointing a liquidator.
Section 6.8. Insolvency of SCCs. A SCC will be determined to be insolvent when the cash
value of its assets is less than its total liabilities.
6.8.1. Proceedings Upon Insolvency. In case a SCC is unable to fulfill its obligations to
creditors due to insolvency, such SCC may apply for such remedies as it may
deem fit under the provisions of the Insolvency Law (Act No. 1956, as amended).
Nothing in this section, however, precludes creditors from seeking protection
from said insolvency law.
6.8.2. Appointment of Conservator.
6.8.2.1. Whenever, on the basis of a report submitted by the appropriate

supervising or examining department of the Authority, or upon the
request of the delegated supervising and examining federation or union,
in accordance with Section 3.07 above (Action Required for Critically
Undercapitalized) or the Authority finds that the primary cooperative is
in a state of continuing liability or unwillingness to maintain a condition
of liquidity deemed adequate to protect the interest of members and
creditors, the CDA may appoint a conservator with such powers as the
CDA shall deem necessary to take charge of the assets, liabilities, and the
management thereof, reorganize the management, collect all monies and
debts due said SCC, and exercise all powers necessary to restore its
viability.
6.8.2.2. The conservator shall report and be responsible to the CDA and shall
have the power to overrule or revoke the actions of the previous
management and board of directors of the primary cooperative.
6.8.2.3. The conservator should be competent and knowlegeable in cooperative

operations and management. The conservatorship shall not exceed one
(1) year.
6.8.2.4. The conservator shall receive remuneration to be fixed by the

AUTHORITY in an amount not to exceed two-thirds (2/3) of the salary of
the manager of the primary cooperative or its equivalent in one (1) year,
payable in twelve (12) equal monthly installments; Provided, that, at any
time within the one (1) year period, the conservatorship is terminated on
the ground that the institution can operate on its own, the conservator
shall receive the balance of the remuneration which he would have
received up to the end of the year; but if the conservatorship is terminated
on other grounds, the conservator shall not be entitled to such remaining
balance.
6.8.2.5. The CDA shall not appoint a conservator from the unit or department of
the Authority recommending conservatorship.
6.8.2.6. The CDA shall, on the basis of its findings, the report of the conservator

and/or the report of the examiner, terminate the conservatorship when:
6.8.2.6.1. It is satisfied that the SCC can continue to operate on its own; or
6.8.2.6.2. The continuance in business of the SCC would result in additional loss
to its members or creditors, in which case the process of receivership
and liquidation shall apply.
6.8.3. Proceedings in Receivership and Liquidation.
6.8.3.1. The CDA may summarily and without need for prior hearing, forbid the
SCC from doing business in the Philippines and designate a receiver of
the SCC concerned, whenever the CDA finds that a SCC:
6.8.3.1.1. Is unable to pay its liabilities as they become due in the ordinary
course of business; Provided, that this shall not include inability to pay
caused by extraordinary demands induced by financial panic;
6.8.3.1.2. Cannot continue in business without resulting in probable losses to its

members or creditors; or
6.8.3.1.3. Has willfully violated a cease and desist order that has become final,
involving acts or transactions which amount to fraud or a dissipation
of the assets of the SCC.
6.8.3.2. Any person of recognized competence in finance and cooperativism may

be designated as receiver.
6.8.3.3. The receiver shall immediately gather and take charge of all the assets
and liabilities of the SCC, administer the same for the benefit of its
members and creditors, and exercise the general powers of a receiver
under the Revised Rules of Court but shall not, with the exception of
administrative expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the SCC; Provided, That the receiver
may deposit or place the funds of the SCC in non-speculative
investments.
6.8.3.4. The receiver shall determine, as soon as possible but not later than ninety
(90) days from takeover, whether the SCC may be rehabilitated or
otherwise placed in such a condition so that it may be permitted to
resume business with safety to its members and creditors, and the general
public; Provided, That any determination for the resumption business of
the SCC shall be subject to prior approval of the CDA.
6.8.3.5. If the receiver determines that the SCC cannot be rehabilitated or

permitted to resume business in accordance with the preceding
paragraph, the CDA shall notify in writing the cooperative’s Board of
Directors of its findings and direct the receiver to proceed with the
liquidation of the cooperative. The receiver shall:

6.8.3.5.1. File ex-parte with the proper Regional Trial Court, and without
requirement of prior notice or any other action, a petition for
assistance in the liquidation of the SCC pursuant to a liquidation plan
adopted by the CDA. The receiver shall pay the cost of the
proceedings from the assets of the cooperative.
6.8.3.5.2. The designation of a conservator under the preceding Section or the

appointment of a receiver under this Section shall be vested
exclusively with the CDA. Furthermore, the designation of a
conservator is not a precondition to the designation of a receiver.
6.8.4. Liquidation, Distribution and Disposition of Liquidation Proceeds. The

process for liquidation, and the distribution and disposition of the SCC’s assets
after liquidation shall be governed by the provisions of Sections 12.05, 12.06 and
12.07 of the General Guidelines, Rules and Regulations on the Registration and
Operation of Cooperatives.
ARTICLE 7.
DEPOSIT AND BORROWING OPERATIONS
Section 7.1. Minimum Deposit. Savings and Time Deposits with SSC may be opened with a
minimum amount to be determined by the Board of Directors.
Section 7.2. Opening and Operation of Deposit Accounts. The following shall govern the
opening and operation of deposit accounts of SCC:
7.2.1. Who may open deposit accounts. Only members of the SCC may open savings
and/or time deposit accounts. The cashier, bookkeeper and their assistants, and
other employees and officers of the SCC whose duties entail the handling of cash
or checks, can deposit and withdraw provided that such transactions are
processed by another officer. Any withdrawal from their accounts has to be
approved by the General Manager or his/her designated officer.
7.2.2. Identification of member-depositors. A SCC shall be responsible for the proper

identification of its member-depositors.
7.2.3. Number of deposit accounts. A member-depositor may open and maintain

several deposit accounts in his/her own name. In the case of savings deposits,
the accounts so opened and maintained shall be on a per savings product basis
while time deposit accounts shall be opened and maintained on the basis of its
terms and conditions. He/she may also open an account in other capacities as
guardian, agent or trustee for his/her immediate family members who are minors
and cannot be qualified as a member.
7.2.4. Signature card. A signature card bearing at least three (3) specimen signatures of
each member-depositor shall be required upon opening of a deposit account.
7.2.5. Savings Passbook and certificate of time deposits.

7.2.5.1. A savings deposit passbook, signed by the receiving teller and an

authorized officer, shall be issued to a member-depositor showing,
among other things, his name and address, account number, date,
amount of deposit/withdrawal, interest credits and balance.
7.2.5.2. In the case of a time deposit, a certificate of time deposit or its equivalent
instrument signed by at least two (2) authorized officers, shall be issued
to the member-depositor containing, among other things, his name,
amount of deposit, date when the deposit was made, its due date and
interest rate.
7.2.5.3. Savings deposit passbooks and certificates of time deposit shall be pre-
numbered.
Section 7.3. Deposits of checks and other cash items. Checks and other cash items may be
accepted for deposit by the SCC: Provided, That withdrawals from such deposits
shall not be made until the check or other cash items is collected.
Section 7.4. Payment of Interest on Time Deposits. Interest on time deposits may be paid at
maturity or upon withdrawal or in advance: Provided, That interest paid in
advance shall not exceed the interest for one (1) year.
Section 7.5. Withdrawal of Deposits. Withdrawal from:
7.5.1. Savings deposits can be made by presenting to the SCC a duly accomplished
withdrawal slip together with the depositor’s passbook or through Automatic
Teller Machines (ATMs).
7.5.2. Time deposits can be made upon presentation by the member-depositor of the
certificate of time deposit or equivalent document that the SCC issued to evidence
its receipt of time deposit placement. The Paying/Disbursing Teller shall
immediately stamp the withdrawn certificate of time deposit or its equivalent
document as “Cancelled” or “Paid” and shall require the member-depositor to
acknowledge receipt of the proceeds said deposits.

Section 7.6. Dormant Savings Deposit. A SCC may charge a service fee for the maintenance
of dormant savings deposits. Savings deposits shall be classified as dormant if no
deposit or withdrawal has been made for the last two (2) years.
Section 7.7. Matured Time Deposits. A time deposit not withdrawn or renewed on its due
date shall be treated as a savings deposit and shall earn interest from maturity to
the date of actual withdrawal or renewal at a rate applicable to savings deposits.
Section 7.8. Tax on Interest on Deposits. Interest income earned by members of the
cooperative from any deposits or any other monetary benefit from deposit
substitutes and similar arrangements shall be subject to the 20% final income tax
on interest. SCCs are considered as withholding agents and are required to file
withholding tax returns with and remit withholding taxes on interest income
payments within the specified period as prescribed by the Bureau of Internal
Revenue.
Section 7.9. Reserve Requirements against Deposit Liabilities
7.9.1. Liquidity Reserve Fund. SCCs shall maintain a liquidity reserve fund that will be
restricted in nature to meet withdrawals against deposit liabilities equivalent to at
least two percent (2%) of their savings and time deposit liabilities. The liquidity
reserve fund shall be computed based on the preceding end-of-month level.
7.9.2. Form and Composition of Liquidity Reserve Fund. The composition of the
reserve fund shall be:
7.9.2.1. At least ten percent (10%) in the form of cash on hand and/or cash in
banks, and
7.9.2.2. The remaining ninety percent (90%), in the form of evidences of

indebtedness or obligations of the government, its political subdivisions
or instrumentalities.
7.9.2.3. For the purpose of computing the reserve fund, the value of government
securities shall be the cost of acquisition. The SCC may keep physical
possession of such government securities, but shall supply the Authority
with the following information:
• Name of issuer
• Serial number/Transaction code
• Denominations
• Cost of acquisition
• Maturity Dates
Section 7.10. Borrowings. The SCC through the Board of Directors as authorized by the
general assembly, may borrow from any source at the best terms or conditions
available and in such amount that may be needed.

ARTICLE 8.
LOANS AND INVESTMENT
Section 8.1. Financial Service. Loans represent a SCC’s primary earning asset and is an
essential financial service provided by the SCC to its members.
Section 8.2. Lending Policies. The Board of Directors shall be responsible for setting written
loan policies. Lending policies should clearly reflect:
8.2.1. Limits on loan amounts; loan maturities and repayment terms; acceptable
collateral; and interest rates that are reasonably designed to meet the SCC’s
objectives.
8.2.2. Effective loan collection policies designed with the following characteristics:
8.2.2.1. Prompt and accurate delinquent loan reporting to the board;

8.2.2.2. Timely and consistent follow-up actions;
8.2.2.3. Utilization of outside collection sources when internal efforts fail to
produce results; and
8.2.2.4. Maintenance of collection records.
Section 8.3. Basis in the Grant of Loans. The granting of loans by the credit committee and
loan officers shall be based on the four "C’s" of credit: Character, Capacity to pay,
Circumstances, and Collateral.
8.3.1. Character. A determination of character involves the development of information

relating to the applicant’s credit history. This may be obtained from the
community, other financial institutions and credit bureaus.
8.3.2. Capacity to Pay. In determining an applicant’s capacity to pay, the credit

committee or loan officer should carefully examine income, debts, debt payments,
and living expenses. After debt payments and living expenses are taken into
account, the applicant’s income should be adequate to repay the loan in
accordance with the agreed upon terms.
8.3.3. Collateral. A SCC may grant unsecured and secured loans. Unsecured loans are
consumer-type loans, usually relatively small, traditionally offered for various
purposes incidental to the members’ needs. Secured loans extend credit with a
security interest in personal or real property of tangible value. The security may
also be an endorsement by another person who agrees to repay if the borrower
fails to do so. Co-maker loans, share-secured loans, and automobile loans are
common types of secured loans. Other types of secured loans are home equity
loans, residential real estate loans and member business loans.
8.3.4. Circumstances
Section 8.4. Lending Requirements

8.4.1. Application. A member-borrower applying for a loan must submit an application

stating the purpose of the loan and such other information as may be required by
the SCC. The loan application and other required documents shall form part of
the credit information file of the member-borrower.
8.4.2. Credit investigation. No loan shall be approved unless prior investigation has
been made to determine the credit standing of the applicant and/or the fair
market value of the property offered as security and the report thereon shall be
made part of the loan application.
8.4.3. Credit information file/collateral file. SCC shall maintain a credit information
file which shall contain, among other things, the member-borrower’s application,
financial record, the collateral and other information relative to the member-
borrower.
8.4.4. Loan Approvals. Loans shall be approved in accordance with the Codified
Approving and Signing Authority (CASA) (Appendix I) as approved by the
General Assembly.
8.4.5. Loan Agreements. For each loan granted by a SCC, a promissory note shall be
executed by the member-borrower in favor of the cooperative stating the amount
of the loan, date granted, due date, interest rate and other information.
8.4.6. Inscription of Lien. In case of mortgage loans, no release against an approved

loan shall be made before the inscription of the mortgage.
Section 8.5. Loan Collection. While loan collections maybe delegated to a committee or staff
member(s), the board has the responsibility of exercising close control and
monitoring over the lending program.
Section 8.6. Loan Retention Saving Scheme. SCCs may require member-borrowers to
deposit a portion of the loan proceeds, whether in the form of savings or time
deposits. Where, subsequent to the release of the loan proceeds, member-
borrowers open deposit accounts or make additional deposits to their existing
accounts, no part of such new deposits shall be covered by a stipulation
prohibiting or limiting withdrawal while a portion of their loans are outstanding:
Provided, That this prohibition shall not apply in cases of loans secured by a hold-
out on deposits to the extent of the unencumbered amount of the deposit existing
at the time of the above-mentioned loan application.
Section 8.7. Salary Deductions for Loan Repayment.
8.7.1. Pursuant to Section 59 of R.A. 6938 and in reference to Supreme Court Decision
on the Legality of Salary Deduction dated June 30, 1995, the SCC is authorized to
make the necessary payroll deduction arrangements with the employer of the
member-borrowers.
8.7.2. In the case of a member-borrower who is a permanent employee or wage earner,

the treasurer, cashier or paymaster of the firm employing him shall be authorized,
pursuant to Supreme Court Decision on the Legality of Salary Deduction dated

June 30, 1995 and Section 59 of R.A. 6938, to make deductions from his salary,
wage or income in accordance with the terms of his/her loan, and to remit such
deductions to the SCCs.
8.7.3. In case of government employees cooperative, participation in the automatic

payroll deduction shall be subjected to the provisions and limitations of the
General Appropriations Act (GAA) or any other government rules and
regulations on the matter.
Section 8.8. Interest and Other Charges. The following shall govern the rates of interest and
other charges on loans granted by SCC:
8.8.1. Interest Rate. The rate of interest including commissions, premiums, fees and
other charges on loans and forbearance of money, regardless of maturity and
whether secured or unsecured, shall be reasonably set to at least fully cover the
operational and financial costs of the SCC;
8.8.2. Payment of loan before maturity. Should a member-borrower opt to pay the
outstanding balance of his loan before maturity, the SCC may impose a premium
on the portion of the loan to be prepaid, subject to prior agreement between the
SCC and its member-borrowers. Provided, That in case of interest paid in
advance, the amount of interest for the unmatured portion of the loan shall be
refunded to the member-borrower.
8.8.3. Interest in the absence of contract. The rate of interest for the loan or forbearance
of any money, goods or credit and the rate allowed in judgments, in the absence
of express contract as to such rate of interest, shall be twelve percent (12%) per
annum.
8.8.4. Accrual of interest earned on loans. SCCs shall not accrue interest income on
loans that are already past due or on loan installments that are in arrears,
regardless of whether the loans are secured or unsecured. Interest on past due
loans or loan installments in arrears shall be taken up as income only when actual
payments thereon are received.
Section 8.9. Secured Loans
8.9.1. Loans Secured by Real Estate Mortgages. Loans against real estate security shall
not exceed seventy percent (70%) of the appraised value of the real estate security
including insured improvements, if any, and such loans shall not be made unless
title to the real estate is in the name of the mortgagor and properly annotated with
the appropriate regulatory body.
8.9.2. Real Estate Security Without Torrens Title. Loans may also be granted on the
security of lands without Torrens Title where:
8.9.2.1. The owner of the private property can show 5 years or more of peaceful,
continuous and uninterrupted possession in the concept of an owner;
8.9.2.2. Portions of friar land estates or other lands administered by the Bureau of

Lands are covered by sales contracts and the purchasers have paid at least
five (5) years installment thereon, without the necessity of prior approval
and consent by the Director of Lands;
8.9.2.3. Portions of other estates under the administration of the Department of

Land Reform (DLR) or other governmental agency are likewise covered
by sales contracts and the purchases have paid at least five (5) years
installments thereon, without the necessity of prior approval and consent
of the DLR or corresponding governmental agency;
8.9.2.4. Homesteads or free patent lands have approved titles that are yet to be
issued, the provisions of any law or regulations to the contrary
notwithstanding, Provided, That:
8.9.2.4.1. When the corresponding titles are issued, the same shall be delivered
to the Register of Deeds of the province where such lands are situated
for the annotation of the encumbrance;
8.9.2.4.2. Copies of notices for the presentation of the final proof shall also be
furnished the SCC and, if the borrower applicants fail to present the
final proof within thirty (30) days from date of notice, the SCC may do
so for them at their expense;
8.9.2.4.3. The applicant for homestead or free patent has already made
improvements on the land and the loan applied for is to be used for
further development of the same or for other productive economic
activities; and
8.9.2.4.4. The appraisal and verification of the status of a land is a full

responsibility of the cooperative and any loan granted on any land
which shall be found later to be within the forest zones shall be for the
sole account of the cooperative.
8.9.3. Loans Secured by Chattels. Loans on the security of chattels shall not exceed fifty
percent (50%) of the appraised value of the security, and such loans shall not be
made unless title to the chattels, shall be in the name of the mortgagor.
8.9.4. Loans Secured by Personal Properties. Loans may be secured by unencumbered

personal property which may consist of:
8.9.4.1. Bonds and securities issued by the Government. Such bonds and
securities may be accepted at their face value;
8.9.4.2. Quedans or warehouse receipts issued by bonded warehouses covering

stock deposited in said warehouses up to eighty percent (80%) of the
calculated market value of the stock; and
8.9.4.3. Any other personal property, up to fifty percent (50%) of the fair market
value. If the property is newly purchased and the purchase price thereof
appears in a bill of sale, then the above percentage shall be based on the

price of the said bill of sale.
8.9.5. Loans Secured by Certificates of Time Deposits (CTDs). The following rules shall
govern the grant of loans secured by hold-out on and/or assignment of CTDs
issued by the lending cooperative or any other financial institution
8.9.5.1. The original copy of the CTDs subject to hold-out or assignment shall be
surrendered to the lending cooperative;
8.9.5.2. If the terms of the CTDs subject to hold-out or assignment is shorter than
the term of the loan, there shall be an agreement in writing that renewal
of the time deposit upon maturity shall be made at least co-terminus with
the term of the loan;
8.9.5.3. The depository bank, other than the lending bank, shall be furnished a
copy of the Deed of Assignment or hold-out agreement on the deposit
used as collateral;
8.9.5.4. There shall be no pre-termination of the time deposit without the consent
of the lending cooperative and unless an acceptable substitute collateral
for the loan has been made;
8.9.5.5. The SCC shall keep a complete record of all pertinent loan documents,
such as, but not limited to, the original copy of the CTDs subject to
assignment or hold-out agreement; deed of assignment or hold-out
agreement; and written waiver of the depositor required in item “6”
below, which shall be made available for inspection and/or examination
by the Authority; and
8.9.5.6. The loan documents shall include a waiver on the part of the depositor of
his rights under existing law to the confidentiality of his deposits.
8.9.6. Insurance on Real Estate Improvements. The required insurance on

improvements used as collateral for loan should be such as shall be sufficient to
secure seventy percent (70%) of the appraised value of such improvements or if
inadequately insured, the loan value shall correspond to the extent of insurance
taken on such improvements.
8.9.7. Foreclosure and Redemption of Mortgages. The foreclosure of mortgages and

redemption shall be in accordance with existing laws.
Section 8.10. Unsecured Loans. Before granting unsecured loans, SCCs must exercise proper
caution by ascertaining that the borrowers, co-makers, endorsers, sureties and/or
guarantors possess good credit standing and are financially capable of fulfilling
their commitment to the cooperative. SCCs shall require:
8.10.1. Proof of Financial Capacity of Borrower. In addition to the usual personal

information sheet about the borrower, cooperatives shall require that an

application for a credit accommodation against personal security be accompanied

by:
8.10.1.1. A copy of the latest income tax returns of the borrower and his co-maker
duly stamped as received by the BIR, if applicable, or a statement
showing the household income and expenses of the borrower as verified
by the SCC or
8.10.1.2. If the borrower is or will be engaged in business, a copy of the borrower’s

financial statements duly certified by an independent Certified Public
Accountant (CPA) and/or a feasibility study of the project to be financed.
8.10.2. Loan Signatories. Loan documents of credit accommodations against personal

security shall be signed by the principal borrower and at least one (1) co-maker
except the spouse of the borrower. The co-maker shall at all times be a member of
the cooperative.
Section 8.11. Restriction on Directors, Officers and Committee Members. No director or

committee member shall vote on a loan requested by a member of his family,
natural or by affinity to the third degree, or can he become a co-maker, surety or
endorser on any loan contracted by a member with the cooperative. The
application for a loan by a member of the Credit committee shall be subject to the
approval of the Board of Directors.
Section 8.12. Loan Limits/Maturity of Loans.
8.12.1. Loan limit to a single borrower. Loans granted to member-borrowers shall at no

time exceed the following percentages of the net worth of the SCC:
8.12.1.1. Five percent (5%) for individual member-borrower; and
8.12.1.2. Ten percent (10%) for member-borrower and his/her immediate family
member up to the third degree of consanguinity or affinity.
8.12.2. Loan Maturity. Loans granted by a SCC shall have a maximum term of not more
than five (5) years except loans adequately secured by unencumbered real estate
for the purpose of home building and home development which may be granted
with maturity dates not exceeding fifteen (15) years: Provided, That extensions or
renewals of loan shall be in accordance with the provisions of Sec.___.
Section 8.13. Deposits in banks. The SCC shall maintain deposits in at least two (2) banks, but
in no case shall deposits in one bank exceed twenty-five (25%) of the SCC’s net
worth. The CDA may grant exemption from this provision in cases where there is
no or limited number of banks in the city or municipality where the SCC is
located.
Section 8.14. Loans/Credit Accommodations to Directors, Officers and their Related Interests
(DORI)

8.14.1. Dealings of SCCs with any of its directors, officers and their related interests shall
be in regular course of business, and upon terms and conditions not less favorable
to those offered to other member-borrowers.
8.14.2. SCCs shall not indirectly make any loan to any director or officer of such
cooperative, either for himself or as agent or as partner of another person or
entity.
8.14.3. In all cases of accommodation granted to directors and officers, the written
approval of the majority of the directors of the cooperative, excluding the director
concerned, shall be entered upon the records of the cooperative. A monthly aging
report of DORI accounts (individual and aggregate) shall be regularly reported to
the Board. These reports and records shall be made available for inspection by
the Authority.
8.14.4. The office of any director or officer of any SCC who violates the provisions of
these rules on accommodations granted to directors and officers shall
immediately become vacant.
Section 8.15. Sanctions. Any violation of the loan ceilings prescribed in Section 8.12 and the
provisions of Section 8.14 above shall be subject to any or all of the following:
8.15.1. Disqualification of the directors participating in and voting for the approval of the
loan or credit accommodation: Provided that the disqualification maybe lifted by
the AUTHORITY, as the circumstances warrant.
8.15.2. For the duration of each violation, imposition of a fine of one-tenth of one percent
(1/10 of 1%) of the excess over the ceilings per day but not to exceed P________ a
day on:
8.15.2.1. The SCC; and
8.15.2.2. Each of the directors voting for the approval of the loan or credit
accommodation in excess of the ceiling.
8.15.3. The penalty for exceeding the ceiling shall be computed on the average amount of
loans in excess of said ceiling during the same week.
Section 8.16. Submission of Credit Information to a Credit Bureau. SCCs shall regularly
submit information on the credit transactions of a member-borrower to a credit
bureau recognized by the Authority. Information from the credit bureau may be
obtained and used by the SCCs in determining the credit worthiness of a
borrower.
Section 8.17. Past Due Accounts. Any amortization/installment not collected on due date shall
be booked as past due and shall remain in this account until paid.
8.17.1. Loans Receivable-Past Due. These are total collectibles from past due loans of
member-borrowers. Aging of loans receivables should be prepared to determine
status and risk of non-collection of the past due loans. A loan shall remain in this

account until fully paid or until arrangements are formalized for its
renewal/extension /restructuring or collection/foreclosure of collateral.
8.17.2. Loans Receivable – Restructured. The restructuring of loans may be allowed

only upon full payment of interest due or under exceptional conditions. Loans
can at most be restructured twice. The restructuring of loans to directors or
officers should be upon terms not less favorable to those offered to other member-
borrowers.
8.17.2.1. Procedural Requirements. Subject to the restructuring guidelines approved

by the Board of Directors, a loan maybe restructured, the condition of
which shall be contained in a resolution stating, among others the
following:
8.17.2.1.1. The basis of or jurisdiction for the approval;

8.17.2.1.2. Determination of the borrowers capacity to pay, such as viability of
the business; and
8.17.2.1.3. Nature and extent of protection of the SCC’s exposure.
8.17.2.2. Approval Requirements. The approval/disapproval of restructured loans

may be delegated by the Board of Directors to a committee or officers
under existing restructuring guidelines set by the Board of Directors.
Any action taken by the committee or officers shall be confirmed by the
Board of Directors.
8.17.3. Loans Receivable – Loans in Litigation. Loans in Litigation shall remain in this
account during dependency of the legal proceedings until fully
paid/restructured/foreclosed. All expenses incurred in litigation shall be
charged to operations and lodged under Litigation Expense. The corresponding
memorandum entries shall be made on the individual ledger account for
reimbursement by the borrower during redemption of foreclosed properties.
Section 8.18. Loan Portfolio and Other Risk Assets Review System. The SCC shall take
timely and adequate management action to maintain the quality of loan portfolio
and other risk assets. To ensure this, the management shall:
8.18.1. Set up and maintain adequate loan reserves at a level sufficient to absorb the loss
inherent in the loan portfolio and other risk assets;
8.18.2. Establish a system of identifying and monitoring existing or potential problem

loans and other risk assets; and
8.18.3. Evaluate credit policies vis-à-vis prevailing circumstances and emerging portfolio
trends.
Section 8.19. Booked allowance for probable losses on loans (APLL) while the account is in
the non-performing portfolio. The amount of allowance for probable losses
already booked while the account is still in the non-performing portfolio shall be
used to cover required APLL for other accounts.

Section 8.20. Extension/Renewal of Loans. Except for home building and home development
loans, extension of the period of payment of loans shall not exceed one-half (1/2)
of the original period: Provided, That the thirty percent (30%) of the loan shall have
been paid. A second extension may be further granted but not to exceed one-half
(1/2) of the period of the first extension. No further extension shall be granted
after the second extension.
Section 8.21. Write-off of loans as bad debts. The writing off of loans by credit cooperatives
shall be governed by the following regulations:
8.21.1. Writing off of loans by the cooperative shall be made in accordance with the write
off policy approved by the credit cooperative and shall be charged against the
Allowance for Probable Losses on Loans (APLL). In the case of uncollectible
advances, write-offs will be charged as administrative expense;
8.21.2. Credit cooperatives may condone or write-off loan receivables three months after
the loan account has been declared uncollectible.
8.21.3. No loans shall be written off unless the same can be justified by the credit
cooperative as non-collectible.
8.21.4. A loan may be declared uncollectible under any of the following conditions: (a)
the death of a borrower; (b) incapacity to pay or insolvency of the borrower; (c)
unknown whereabout of the borrower despite extra-diligent efforts to find the
same; and (d) exhaustion of all administrative and legal remedies to collect the
receivable. Other documentary requirements may vary depending on the nature,
purpose and recipient of the loans.
8.21.5. Notice for write-off of loans shall be submitted, in the prescribed form, to the
Authority at least thirty (30) days prior to the intended date of write-off. In the
case of loans to directors and officers of the cooperative, prior approval of the
Authority is required.
Section 8.22. “Truth in Lending Act” Disclosure Requirements. Whenever applicable, SCCs
shall conform to the provisions of R.A. 3765, otherwise known as the ”Truth in
Lending Act” (Appendix K) and shall make the true and effective cost of
borrowing an integral part of every loan contract.
Section 8.23. Treatment of Assets Acquired in Settlement of Loans
8.23.1. The property acquired in settlement of loans through foreclosure or dacion en pago
(“payment in kind”) shall be booked or recorded in the amount equivalent to the
balance of the loan (principal for time loans, or principal less interest payment
deducted in advance) or bid (in the case of foreclosure)/agreed purchase price (in
the case of dacion en pago), whichever is lower:

8.23.2. When the booked amount of the asset acquired in settlement of loans exceeds the
appraised value of the acquired property, an allowance for probable losses
equivalent to the excess of the amount booked over the appraised value shall be
set-up.
8.23.3. Non-refundable capital gains tax and documentary stamp tax paid in connection
with foreclosure/purchase of the acquired real estate property maybe included in
the book value of the acquired real estate: Provided That the total book value does
not exceed the appraised value of the acquired real estate: Provided further, That if
the amount to be booked as ROPOA exceeds P5 million, the appraisal of the
foreclosed/purchased asset shall be conducted by an independent appraiser
acceptable to the AUTHORITY.
8.23.4. Any excess in loan balance over the amount booked shall be charged to
“Alllowance for Probable Losses on Loans, if previously provided. Otherwise,
such amount shall be charged to Miscellaneous Expense account.
8.23.5. Claims arising from deficiency judgments rendered in connection with the
foreclosure of mortgaged properties shall be booked when collected as
Miscellaneous Income.
Section 8.24. Appraisal of Properties to be foreclosed or acquired. Before closing or

acquiring any property in settlement of loans and other advances, it must
properly be appraised to determine its true economic value. If the total amount to
be booked as ROPOA exceeds P5 million, the appraisal must be conducted by an
independent appraiser acceptable to the AUTHORITY. An in-house appraisal of
such property shall be made at least every other year: Provided, That immediate
re-appraisal shall be conducted on ROPOAs which materially decline in value.
Section 8.25. Investments. A SCC may at times have funds in excess of its needs for loans to
members that may be invested in safe and sound business activities to maximize
profit.
Section 8.26. Investment Program. A sound investment program shall be the sole
responsibility and accountability of the Board of Directors. The scope of the
program will depend largely on the SCC size and the extent of its surplus funds.
Investment policies should be reduced to writing and should address at least the
following:
8.26.1. Legality. Investments must comply with Article 79 of RA 6938. The Board of
Directors is responsible for determining that they do.
8.26.2. Safety, Liquidity and Yield. Sound investment policies assume a conservative
approach in balancing safety, liquidity and yield. In this connection, liquidity
means the ability to respond quickly to anticipated and unanticipated shifts in the
SCC’s flow of funds. Safety and yield should be carefully weighed prior to
undertaking any investment that could result in a loss to the SCC. If a brokerage
firm is used, the Board of Directors should satisfy itself as to the reliability and
financial soundness of the firm.

8.26.3. Diversification. A policy of diversification shall be employed to maximize

profitability. Such policy is particularly useful for SCC that invest in marketable
securities. The board’s policies should clearly address diversification and
specially note any limitations it may place on the types of investments, quantities
and maturities to be purchased.
8.26.4. Delegation of Authority. The board may delegate specific investment authority to
an executive committee, an investment committee, or a management official.
8.26.5. Valuation/Assessment of Securities. For purposes of fund management, the

market value of securities must be assessed regularly (e.g. monthly, quarterly,
semiannually, or annually).
Section 8.27. Allowable Investments. A cooperative may invest in the following:
8.27.1. Shares or debentures of the federation or union of which it is a member;
8.27.2. Securities issued by cooperatives as may be authorized by law;
8.27.3. Any reputable bank;
8.27.4. Bonds, securities, and other obligations issued by the Government of the
Philippines, or any of its political subdivisions, instrumentalities or corporations
including government owned or controlled corporations, subject to such rules
and regulations as the Authority may provide, in an aggregate amount not
exceeding at any one time ten percent (10%) of the total assets of such
cooperative;
8.27.5. Shares of stocks listed in the Philippine Stock Exchange (PSE) that are non-
speculative in an aggregate amount not exceeding at any one time ten percent
(10%) of the surplus of such cooperative: In this case, prior approval of the
Authority shall be obtained; and
8.27.6. Real estate and improvements, including equipment, which shall not exceed fifty
percent (50%) of the cooperative’s net worth as required in Section 8.02 (B) of this
manual.
Section 8.28. Ceiling on SCC Investments. The SCC shall not invest in any one entity of more
than 20% of the book value of its total assets.

ARTICLE 9.
INTERNAL CONTROL
Section 9.1. Definition of Internal Control. Internal control comprises the plan of
organization and all of the coordinate methods and measures adopted to
safeguard the cooperative’s assets, check the accuracy and reliability of its
accounting data, promote operational efficiency, and encourage adherence to
prescribed managerial policies.
Section 9.2. Components of Internal Control
9.2.1. Accounting Control. This includes a plan of organization, procedures and

records that are concerned with the safeguarding of assets and the reliability of
financial records. Accounting controls are designed to provide reasonable
assurance that:
9.2.1.1. Transactions are executed with authorization;

9.2.1.2. Transactions are recorded as necessary to:
9.2.1.2.1. Permit preparation of financial statements in conformity with GAAP;

9.2.1.2.2. Maintain accountability of assets;
9.2.1.2.3. Access to assets is permitted with management’s authorization; and
9.2.1.2.4. Record accountability for assets to compare with existing assets at
reasonable intervals and take appropriate action whenever there are
differences.
9.2.2. Accounting System. Accounting system pertains to the series of tasks in an entity
by which transactions are processed as a means of maintaining financial records.
If supplemented by internal control, it provides management with reasonable
assurance that assets are safeguarded from unauthorized use or disposition. The
essential purpose of an accounting system is to provide management with the
complete and accurate financial information it needs to conduct sound and
effective operations. The financial statements produced by the system are used
by management to account to the members, creditors, the Authority and the
general public.
9.2.3. Administrative control. This includes, but is not limited to, the plan of
organization and the procedures and records that are concerned with the decision
processes leading to management’s authorization of transactions.
Section 9.3. Internal Control Standards. The following provisions are the minimum internal
control standards for SCCs to attain efficiency and provide checks and balances:

9.3.1. Management Structure. The internal organization should provide for a

management structure with clear accountability, a board of directors with ability
to provide independent check on management and independent audit and
compliance functions, and should follow the “four eyes” principle i.e.,
segregation of various functions, cross checking, dual control of assets and double
signatures. For this purpose, the following records/data shall be compiled and
made available for the inspection of duly authorized examiner:
9.3.1.1. Records showing compliance with independent balancing procedures.

These records should indicate the accounts and the periodic balancing
procedures performed.
9.3.1.2. Statements of actual duties of persons assigned to handle cash and

securities
9.3.1.3. All internal control audit reports or their equivalent.
9.3.1.4. Information/data on the direct and/or indirect equity shareholdings in

connection with any firm, partnership, corporation or other cooperatives
of all the directors, officers as defined should be maintained.
9.3.1.5. Information/data pertaining to the electronic data processing (EDP)

department of the SCC particularly on organization, input controls,
processing controls, output controls, software controls, program and
documentation standards, logs on the operation of mainframes and
peripherals, hardware controls and such other EDP internal control
standards prescribed in existing separate rules and regulations.
9.3.2. Handling of SCC Deposit Accounts
9.3.2.1. Opening and closing of deposit accounts shall be approved or authorized

by the Board of Director;
9.3.2.2. Checks issued by the SCC on cancelled transactions shall immediately be

cancelled/perforated; and
9.3.2.3. Reports on closed accounts and returned checks shall be prepared daily.
9.3.3. Handling of Member Deposit Accounts
9.3.3.1. All new deposit accounts shall be approved or authorized by the

designated officer.
9.3.3.2. Signature cards and deposit ledger sheets shall be authenticated by some
form of validation. Subsequent changes shall also be validated.
9.3.3.3. Signature cards and deposit ledger sheets shall be accessible only to
authorized persons.

9.3.3.4. Deposit tickets shall be occasionally examined at irregular intervals to

determine that postings are made on the actual date deposits are
received.
9.3.3.5. A system to identify member-depositors shall be established.
9.3.3.6. Reports on closed accounts of members shall be prepared on a regular

basis.
9.3.4. Handling of Dormant/Inactive Accounts. Dormant or inactive accounts are

accounts showing no activity (deposit or withdrawals) for a period of two (2)
years. As a matter of policy:
9.3.4.1. SCCs shall review and segregate dormant/inactive account as herein

defined at least once in every semester.
9.3.4.2. It shall exert all efforts to prevent savings accounts from being dormant.
When it becomes apparent that an account is inactive, a short letter
should be sent to the depositor encouraging him to use his account.
9.3.4.3. Dormant/inactive accounts shall be segregated from active files.

Segregated dormant/inactive accounts, including signature cards and
deposit ledger sheet, shall be placed under joint custody of two (2)
responsible officers/employees.
9.3.4.4. A subsidiary ledger control for individual dormant/inactive accounts

shall be maintained.
9.3.4.5. Entries to dormant/inactive account ledgers shall be verified and

approved by a designated officer. His initials shall be placed next to the
entry on the ledger sheet.
9.3.4.6. All inquiries on dormant/inactive accounts shall be coursed to one officer

who should obtain sufficient identification from the inquirer to assure
that he is entitled to the information.
9.3.4.7. A schedule of dormant/inactive account shall be prepared periodically

by an employee other than the bookkeeper and shall tally the same with
the general control account.
9.3.4.8. All transactions affecting dormant/inactive accounts shall be subject to

audit by the internal auditor.
9.3.4.9. A semestral report on deposit accounts transferred to dormant shall be

rendered to management and the Authority.

9.3.4.10. A SCC may impose service charges on and deduct the same from
dormant/inactive accounts, Provided That, after five (5) years reckoned
from the date the account was declared dormant/inactive, the remaining
balance, if any, shall be credited to the reserve fund.
9.3.5. Proper Accounting Records
9.3.5.1. To assure compliance with the attributes of an effective and transparent

cooperative accounting and financial information system, all SCCs shall
follow the generally accepted accounting principles and standards as
spelled out in the Standard Chart of Accounts for Credit and Other Types
of Cooperative with Savings and Credit Services and the accompanying
Accounting Manual (CDA Memo Circular 02-04, Appendix L)
9.3.5.2. A SCC shall adopt the Guidelines for the Operationalisation of the
Cooperative’s Bookkeeping/Accounting System under Memo Circular
94-008
9.3.5.3. SCC shall maintain up-to-date and adequate accounting records. It shall
contain sufficient detail so that an audit trail is established.
9.3.5.4. Prior to approval, all vouchers shall bear the initials of both the person
authorized to prepare and another person authorized to check.
9.3.6. Independent Balancing. Independent balancing shall mean that records posted by
a person or cash held by a teller or cashier shall be balanced or counted by
another person. The following minimum independent balancing procedures shall
be adopted:
9.3.6.1. Monthly reconciliation of general ledger balances against respective

subsidiary and supporting records and documentation by someone other
than the bookkeeper or the person handling the records;
9.3.6.2. Irregular and unannounced count of teller’s cash and checks and other
cash items at least twice a month by the auditor/control officer or by an
officer not connected with cash department unit;
9.3.6.3. Presence of incumbent tellers/cashiers during actual cash count by any

authorized person or during examination by the Authority;
9.3.6.4. Monthly reconciliation of due from banks, cash in bank accounts and due
from/to head office/branches by someone other than the person handling the
records or posting the general ledger entries
9.3.6.5. Periodic verification of securities and collaterals by a person other than

their custodian; and
9.3.6.6. Periodic verification of the accuracy of the interest credits to deposit

liabilities accounts.

9.3.7. Division of Duties and Responsibilities
9.3.7.1. The duties of all the officers and employees shall be segregated, clearly
defined, understood, documented and manualized. No individual shall
have complete authority and responsibility for handling all phases of any
transaction from beginning to end, without checks and balances from
other parts of the organization;
9.3.7.2. The physical handling of a transaction shall be separated from its

recording and supervision as follows:
9.3.7.2.1. A person handling cash shall not be permitted to have access to the
four (4) books of accounts (cash receipt book, cash disbursement book,
general journal and general ledger) and subsidiary ledgers;
9.3.7.2.2. The person posting to the subsidiary ledger should not be allowed to
record to the books of accounts;
9.3.7.2.3. A loan officer/account officer shall not be allowed to receive and

disburse loan proceeds, for and in behalf of the borrowers, and accept
loan payments nor post to the subsidiary loan ledgers
9.3.7.2.4. A loan officer/account officer/collector shall not be allowed to use the

collections of any type in accommodating savings withdrawal;
9.3.7.2.5. The functions of issuing, recording and signing of drafts/checks shall

be separated;
9.3.7.2.6. Checks and other cash items shall be in the custody of an employee
not handling cash and that adequate controls are properly maintained
as to the custody and disposition of funds;
9.3.7.2.7. The receipt of statements from depository banks shall be assigned to

an employee other than the one connected with the preparation,
recording and signing of bank drafts;
9.3.7.2.8. Custodians of securities shall not be allowed to handle security

transactions;
9.3.7.2.9. Collateral appraisal shall be done by an employee/officer who does

not approve loans;
9.3.7.2.10. Incoming checks and other cash items shall be recorded

chronologically in a register by an employee other than the
bookkeeper before they are forwarded for posting purposes;
9.3.7.2.11. Credit reports shall be obtained by a personnel other than loan

officers;

9.3.7.2.12. Mailing of customers’ statements and delinquent notices shall be done

by an employee other than the one who granted the loan or the one
handling the records; and
9.3.7.2.13. Extensive background checking of persons intended to be assigned to

handle cash and securities shall be conducted. Periodic checking after
their employment shall also be made.
9.3.8. Rotation of Duties
9.3.8.1. The full-time personnel handling cash, securities, loan accounts and
bookkeeping records shall be rotated, Provided that the personnel
handling treasury functions shall not be rotated tom positions handling
accounting functions and vice versa;
9.3.8.2. Rotation shall be random, unannounced and long enough to permit

disclosure of any irregularities of manipulations;
9.3.8.3. Prior to rotation proper, turn-over of cash accountabilities and records

shall have been made.
9.3.9. Joint Custody. Joint custody shall mean the requirement of the presence of and
direct observation of a second person in the performance of important tasks and
functions. Both persons shall be equally accountable for the physical protection
of the items and records involved. Persons who are related to each other within
the third degree of consanguinity or affinity shall not be made joint custodians.
Joint custody shall be required on the following:
9.3.9.1. On the Operation of the Vault Compartment.
9.3.9.1.1. Physical protection shall be deemed established through the use of

two (2) locks or combination on a vault compartment.
9.3.9.1.2. Persons who have access to the vault compartment shall not have
access to the key to the entrance leading to the vault compartment.
9.3.9.1.3. Two (2) or more persons shall be assigned to each half of the control so
that operating efficiency is not impaired if the one (1) person is not
immediately available.
9.3.9.2. On the Handling of Cash and Vital Documents

9.3.9.2.1. Cash in vault and in ATM cash dispensers;

9.3.9.2.2. All accountable forms;
9.3.9.2.3. Collaterals;
9.3.9.2.4. Securities;
9.3.9.2.5. Documents of title and/or ownership of properties or fixed assets
9.3.9.2.6. Dormant or inactive deposit ledgers/MIS print-outs and
corresponding signature cards including on-line posting of
dormant/inactive accounts;
9.3.9.2.7. Collection items;
9.3.9.2.8. Vault door and safe combinations;
9.3.9.2.9. Unissued specimen signature books;
9.3.9.2.10. Unissued and captured ATM cards and similar devices;
9.3.9.2.11. Access locks and keys to on-line MIS terminals and similar devices;
and
9.3.9.2.12. Access locks and keys to MIS mainframes and peripherals.
9.3.10. Signing Authorities. The Board of Directors shall approve signing authorities for
the different levels of officers to sign for and in behalf of the SCCs and the extent
of each level of authority shall be clearly defined. These signing authorities shall
include but need not be limited to the following:
• Lending;
• Investment;
• Disbursements;
• Various supervisory reports;
• Checks;
• Certificate of Time Deposits; and
• Contracts or Agreements.
9.3.11. Dual Control. Dual control shall mean the work of one (1) person is to be
verified by a second person to ensure that the transaction is properly authorized,
recorded and settled. The routine and completion of each transaction shall
involve at least two (2) duly authorized individuals. Except as herein provided,
the following accounts/transactions shall be under dual control:
9.3.11.1. Checks - The signature of at least two (2) officers should be required in
the issuance of checks. The board of directors may, however, prescribe a
predetermined amount by which one (1) senior officer can sign checks,
subject to appropriate control measures;
9.3.11.2. Certificates of Time Deposit
9.3.11.2.1. The board of directors of a SCC is given the discretion to determine

the number of signatories for the issuance of certificates of time
deposits (CTDs);
9.3.11.2.2. For this purpose, all SCCs shall submit to the Authority their
respective internal control measures for the issuance of the Certificate

of Time Deposits (CTDs), the minimum of which shall include the

following activities:
9.3.11.2.2.1. Joint custody of unissued CTD forms;

9.3.11.2.2.2. Accounting for all unissued/cancelled CTDs;
9.3.11.2.2.3. Signature requirement for the issuance of CTDs;
9.3.11.2.2.4. Counterchecking of issued CTDs against the teller’s
proofsheets/validated slips; and
9.3.11.2.2.5. Recording of CTD transactions
9.3.11.3. Borrowings. The signature of at least two (2) authorized officers should
be required.
9.3.11.4. Due to and Due From Accounts. All transactions giving rise to Due to or
Due from accounts and all instruments of remittances evidencing these
transactions shall be approved by two (2) authorized officers.
9.3.12. Number Control
9.3.12.1. Sequence number controls shall be incorporated in the accounting system

and shall be used in registering promissory notes, in issuing official
checks and in other similar situations.
9.3.12.2. The Audit Committee shall be responsible for and monitor the sequence
number controls.
9.3.12.3. The following are the forms, instruments and accounts that shall be
number-controlled:
• Promissory notes;
• Savings deposit accounts and passbook;
• CTDs;
• Signature Cards;
• Official and provisional receipts;
• Share Certificate;
• Loan accounts;
• Expense and check vouchers; and
• MIS batch transmittal slips of documents.
9.3.13. Confirmation/Verification of Accounts. At least once a year, the internal auditing

staff shall confirm by direct verification with SCC members/clients the following:
9.3.13.1. Balances of loans and credit accommodations of borrowers;

9.3.13.2. Deposit account balances particularly new deposit accounts, inactive or
dormant accounts and closed accounts;
9.3.13.3. Outstanding balances of borrowings and other liabilities; and
9.3.13.4. Outstanding balances of receivables/payables.

9.3.14. Records Preservation System. A SCC shall be required to establish a records

preservation system for the off-site storage of duplicate vital records, which can
be used for reconstruction purposes in the event of a catastrophe. The vital
records center is defined as any location far enough from the SCC’s office to avoid
the simultaneous loss of both sets of records in the event of disaster.
9.3.14.1. At least the following records, as of the most recent month end, must be
stored:
9.3.14.1.1. A list of share and/or deposit and loan balances for each members’
accounts
9.3.14.1.2. Multiple loans of one account will be listed separately
9.3.14.1.3. Information sufficient to enable the SCC to locate each member, such
as address and telephone number, shall also be included, unless the
board of directors determine that such information is readily available
from another source.
9.3.14.1.4. A financial report which lists all of the SCC’s assets and liability
accounts
9.3.14.1.5. A list of the SCC’s banks, insurance policies and investments. This
information may be marked “permanent” and be updated only when
changes are made.
9.3.14.1.6. Records must be stored every three (3) months, within thirty (30) days
after the end of the 3 month period. Previously stored records may be
destroyed when the current records are stored.
9.3.14.1.7. A records preservation log will be maintained showing what records

were stored, where the records were stored, when the records were
stored, and who authorized the records for storage.
9.3.14.1.8. Stored records may be in any format that can be used to reconstruct
the SCC’s records. Format includes paper originals, machine copies,
microfilm or fiche, magnetic tape, etc.
9.3.14.1.9. SCC that have some or all of their records maintained by an off-site
data processor are considered to be in compliance for the storage of
those records.
9.3.15. Security Program. Each SCC shall be required to institute a written security
program to protect the cooperative office from robberies, burglaries, larcenies and
embezzlements; to prevent destruction of vital records as defined herein and to
assist in the identification of persons who commit such crimes.
9.3.16. Change in Internal Control Measures. Any change in the internal control
measures shall be submitted to the Authority not later than thirty (30) days prior

to the implementation. For newly established SCCs, the requirement shall be

submitted not later than a month from the start of operations.
Section 9.4. Independence of the Internal Auditor
9.4.1. The position of internal auditor shall be created and provided for in the by-laws
of the SCCs indicating the duties and responsibilities thereto. The scope and
objectives of internal audit shall likewise be defined.
9.4.2. The internal auditor shall not be a member of the audit committee.
9.4.3. The internal auditor shall report directly to the audit committee.
9.4.4. The internal auditor shall not install nor develop procedures, prepare records or
engage in other activities which he normally reviews or appraises.
9.4.5. The internal auditor shall not be related to any officer and employee of the SCCs
up to the fourth degree of consanguinity or affinity.
Section 9.5. External Auditor
9.5.1. SCCs shall engage the services of an independent certified public accountant duly
recognized/accredited by the CDA to audit their books of accounts at least once a
year;
9.5.2. The same individual external auditor, whether on his/her individual capacity or
as partner of a firm, shall not undertake the external audit of the concerned
cooperative for three (3) consecutive years.
9.5.3. SCCs which have engaged their respective external auditors for a consecutive
period of three (3) years or more as of date the effectivity of this Manual, shall
have a one-year period from said date within which to either change their
external auditors or rotate the lead and/or concurring partner.
9.5.4. A SCC shall not engage the services of an external auditor whose partner or
auditor-in-charge of audit engagement during the preceding year has been hired
or employed by the SCC as Chief Executive Officer, Chief Financial Officer,
Controller, Chief Accounting Officer or any position of equivalent rank.
9.5.5. It shall not also engage the services of an external auditor who is a
member/officer of the SCC to which he/she belongs to or of any
federation/union to which the SCC is affiliated.
9.5.6. The external auditor shall not be related to any officer and employee of the SCCs
up to the fourth degree of consanguinity or affinity
9.5.7. When warranted, the AUTHORITY may, at the expense of the SCC require the
external auditor to undertake a specific review of a particular aspect of the
operations of the SCC. The report shall be submitted to the AUTHORITY and to

the audited SCC simultaneously, within thirty (30) calendar days after the
conclusion of the review.
Section 9.6. Disclosure of external auditor’s adverse findings.
9.6.1. To enable the AUTHORITY to take timely and appropriate remedial action, the
external auditor must report to the AUTHORITY within thirty (30) calendar days
after discovery, the following cases:
9.6.1.1. Any material finding involving fraud or dishonesty (including cases that
were resolved during the period of audit);
9.6.1.2. Any potential losses the aggregate of which amounts to at least one
percent (1%) of the paid-up share capital; and
9.6.1.3. Inability of the auditor to confirm that the claims of the creditors can still
be covered by the SCC’s assets.
9.6.2. The external auditor shall report directly to the AUTHORITY within fifteen (15)
calendar days the occurrence of the following:
9.6.2.1. Termination or resignation as external auditor, prior to the expiration of

the contract, and stating the reason thereof;
9.6.2.2. Discovery of a material breach of cooperative laws or these rules and

regulations such as, but not limited to:
9.6.2.2.1. Net worth to risk assets ratio; and

9.6.2.2.2. Loans and other risk assets review and classification using portfolio at
risk.
9.6.2.2.3. Findings on matters of cooperative governance that may require
urgent action by the AUTHORITY.
9.6.2.3. The management of the SCC shall be informed of the adverse findings
and the external auditor’s report to the AUTHORITY, include its
explanation and/or recommended corrective action.
9.6.2.4. The management of the SCC shall be given the opportunity to be present
in the discussions between the AUTHORITY and the external auditor
regarding the audit findings, except in circumstances where the external
auditor believes that the entity’s management is involved in fraudulent
conduct.
Section 9.7. Miscellaneous Provisions on Internal Control

9.7.1. Loan applications and related documents shall be verified to ensure their
authenticity particularly the name, residence, employment and current reputation
of the borrower and co-maker, if any;
9.7.2. No employee shall be permitted to process transaction affecting his own account;
9.7.3. Tellers and other employees shall be prohibited from preparing deposit slip,
withdrawal slip or other forms for the customers;
9.7.4. At any given time, tellers shall be allowed to have under their custody only up to
a specific maximum amount of accountability as may be determined by the Board
of Directors of the SCC. All cash in excess of this maximum amount shall be
turned over to the cashier as the maximum limit is breached;
9.7.5. All checks received by the tellers shall be immediately stamped “For Deposit” to a
specific deposit account of the SCC. These checks shall be deposited on the same
day, except those which were received after the close of banking hours of the
SCC’s depository bank/s. Such checks shall be kept under the joint custody of
Board-designated officers who shall see to it that the same are promptly
deposited on the following business day;
9.7.6. All SCC shall have a sound personnel policy; and
9.7.7. All accountable officers and employees shall be bonded.
Section 9.8. Other Internal Control Principles
9.8.1. Financial Management. Effective financial management is the basis for meeting
sound financial objectives. By properly utilizing SCC resources, good
management balances the extension of SCC services with the achievement of safe
and sound operations. It provides for a fair return to members in the form of well-
designed services and reasonable interest on share capital. At the same time, it
allows for continued growth of the SCC and enhances and protects members’
equity. Financial management embraces a number of SCC programs. Of
particular significance are the following:
9.8.2. Savings and Share Capital Build-up Program. Savings and share capital
accounts are the primary source of SCC funds. Meeting the members’ thrift needs
is a major consideration when deposit and share capital policies are established.
The SCC must also, however, weigh the cost of these funds and match these
accounts with assets of similar maturities. For example, if a SCC’s assets are
mostly in long-term loans, deposit account policies should strive to offer deposit
accounts with extended maturity and restricted withdrawal features. On the other
hand, if a SCC’s assets are mostly in short-term loans, the SCC might offer just
regular savings and short-term time deposit accounts.
9.8.3. Interest on Share Capital and Savings Deposits. Realistic interest on share capital
and savings policies should also be established. When setting these rates, the
board should carefully consider the SCC’s funding needs and market conditions.
In the interest of sound financial management, the Board should avoid increasing

interest on share capital in order to achieve rapid share growth. Such growth
often results in excess liquidity which in turn can adversely affect earnings. The
board shall set policies on savings deposit and interest on share capital with
regards to payments, interest and methods of computation as provided for in
Sections ____ and _____of this manual.
9.8.4. Lending Program. A sound-lending program is essential to the achievement of a

SCC’s purpose. It enables a SCC to meet members’ needs while at the same time
achieving the board’s financial objectives. A realistic approach should be taken in
balancing members’ needs with SCC resources. The program should take into
account a SCC’s financial structure and funds flow, its short- and long-range
goals and objectives, and local economic conditions.
9.8.5. Loan Collections. Collection of loans is a vital part of a lending program.

Effective loan collection contributes to a SCC’s ability to sustain loan services and
to maintain a sound financial position. The board of directors should establish
collection policies designed to keep loan delinquency to a minimum. While these
policies may differ from one SCC to another, the following characteristics should
be evident: prompt and accurate delinquent loan reporting to the board; timely
and consistent follow-up actions; utilization of outside collection sources when
internal efforts fail to produce results; and maintenance of collection records.
While loan collections may be delegated to a committee or staff member(s), the
board has the responsibility of exercising close control over the program.
9.8.6. Borrowings. SCC borrows funds from their creditors on a temporary basis.
Properly planned, borrowing can stimulate growth, help meet financial objectives
through a period of tight money, and satisfy seasonal or other temporary needs. It
should not be a substitute for an effective thrift promotion program or a stop-gap
attempt to replenish funds. The board shall recommend for the approval of the
general assembly, borrowing policies, which include the conditions under which
borrowings may be allowed. It shall approve and confirm all borrowings by the
SCC in accordance with the approved policies. It may delegate the authority to
negotiate such borrowings to the executive committee, financial officer, or general
manager. The board’s borrowing and repayment plans should be coordinated
with all other aspects of financial management.
9.8.7. Funds Management. Also referred to as asset/liability management, funds

management is the continuing arrangement and rearrangement of both sides of a
SCC’s balance sheet to obtain reasonable profits and provide for adequate
liquidity and safety. It focuses on short-run adjustments of assets and liabilities to
compensate for variations in the flow of funds. In the long run, a SCC’s success
depends on reconciling the different elements involved in obtaining and using
funds. Since a SCC must have sufficient liquid assets to meet loan demand,
deposit withdrawals, share capital refund due to resignation and other short term
liabilities, a funds management program is vital irrespective of the SCC’s size.

9.8.7.1. The basis for applying funds management strategy is a thorough

knowledge of the makeup of a SCC’s field of membership; the nature of
its assets and liabilities; and the economic and competitive environment
in which it operates. Funds management techniques should be applied
with a full understanding of the characteristics of the individual SCC.
9.8.7.2. The following are considered essential elements of an effective funds

management program:
9.8.7.2.1. Regular evaluation of the SCC’s asset and liability structure;
9.8.7.2.2. Regular assessment of asset yields and liability costs;
9.8.7.2.3. Adequate planning for current and future liquidity needs; and
9.8.7.2.4. An on-going determination that policies are sufficient to efficiently

structure assets and liabilities in order to meet changing economic
conditions.
9.8.8. Management Information System. A necessary ingredient for sound financial

management is a workable management information system.
9.8.8.1. Reports containing basic financial information should be prepared and

reviewed on a regular basis.
9.8.8.2. Report formats and content will vary from one SCC to another,
depending on the characteristics of each and its funds management
methods.
9.8.8.3. The reports should, however, contain at least the following information:
9.8.8.3.1. Budgetary projections of income, expenses, and profitability.
9.8.8.3.2. Asset yields and liability costs.
9.8.8.3.3. Liquidity needs and sources of funds available to meet those needs,
including the remaining maturities of all assets and liability accounts.
9.8.8.3.4. Economic and competitive conditions in the cooperative’s market area.
Section 9.9. Standard Audit System for Cooperatives (SASC). As mandated under Article 81
of RA 6938, SCCs shall be annually subjected to a financial audit by an external
and independent auditor duly accredited and recognized by the Authority.
9.9.1. Audit Report. The auditor shall submit to the audit committee a report of the
audit which shall contain a statement of the assets and liabilities of the
cooperative, including earnings and expenses, amount of net surplus as well as
losses and bad debts, if any. The audit committee shall forthwith furnish the
Board of Directors a copy of the audit report. Thereafter, the Board of Directors

shall present the complete audit report to the general assembly in its next
meeting.
9.9.2. Audited financial statement may either be submitted together with the
cooperative’s Annual Report as required under Article 54 of RA 6938 or
submitted separately within one hundred twenty (120) days after the closing of
the calendar year. The audited financial statements submitted shall meet the
following requirements:
9.9.2.1. Standard format in the presentation of the audited financial statements

with comparative figures of the immediately preceding year;
9.9.2.2. Strict observance of the notes to Financial Statements and other

disclosures as required by Section A of the SFAS No. 1;
9.9.2.3. Indirect method presentation of the Statement of Cash Flows and

Statement of Changes in Statutory Funds with comparative figures of the
immediately preceding year;
9.9.2.4. Summary of auditor’s findings, to include financial ratios and

recommendations; and
9.9.2.5. Statement of representation of the external auditor to the AUTHORITY
9.9.3. Non-liability of Defamation. An auditor is not liable to any person for

defamation based on any act done, or any statement made by him in good faith in
connection with any matter he is authorized or required to do or pursuant to the
Code.
ARTICLE 10.
PERFORMANCE STANDARDS FOR SCCs (COOP-PESOS)
Section 10.1. Financial Transparency
10.1.1. Transparent Information. A policy of transparency and openness must always be

maintained whereby books of accounts, general assembly and board resolutions
and committee reports are properly kept and made accessible to members and
regular financial statements are periodically prepared and made known to
members, the Authority and other parties interested in the cooperative’s
operations.
10.1.2. Financial Information System. Attributes of an effective and transparent

cooperative accounting and financial information system:
10.1.2.1. Clear and understandable for sound decisions and timely actions;
10.1.2.2. Fairly stated where accounting policies shall be properly defined and
accounting rules shall be consistently applied.

10.1.2.3. Timely information shall be available on a regular basis to both the

management and the members of the board of directors on a regular basis
(e.g. monthly).
10.1.2.4. Accessible to the concerned user and usable to the management and/or
the board of directors.
10.1.2.5. Comparable information that will allow the cooperative to compare

results over time and among peer institutions.
10.1.3. Standard Chart of Accounts. All SCCs shall adopt the Standard Chart of
Accounts and its accompanying Accounting Manual for Credit and Other Types
of Cooperatives with Credit Services prescribed under Memorandum Circular
No. 02-04, series of 2002 (Appendix L) issued by the AUTHORITY. The use of the
common account title in their financial statements will facilitate comparison of
their financial performance over time and across peers. The Accounting Manual
which defines and prescribes the accounting systems and procedures to be
adopted, will enable cooperatives to come up with a coherent and reliable set of
information to be used in accomplishing the chart of accounts.
Section 10.2. Performance Standards
10.2.1. Indicators on management compliance to administrative requirements. These

indicators comprise a set of questions that shall give information on the
cooperative compliance with the legal and administrative requirements
(Appendix O).
10.2.1.1. Compliance with Administrative and Legal requirements. This includes a

set of questions that looks at whether the SCC complies with the various
legal requirements imposed by various institutions, i.e. CDA, BIR, Local
Government Unit and DOLE.
10.2.1.2. Organizational Structure and Linkage. This includes questions on the

cooperative’s governance and membership structure, on affiliations and
linkages with cooperative federations and other organizations involved in
the promotion and development of cooperatives.
10.2.1.3. Operation and Management. This includes indicators that determine

presence or absence of the necessary system, policies and procedures for
efficient and effective management of the SCCs including questions
related to the Board of Directors and the cooperative management.
10.2.1.4. Plans and Programs. This includes the parameters that determine
whether the SCC has a development plan and an approved annual plans
and budget. This also looks at whether the SCC reviews its performance
vis-à-vis the projections in its business plan.
10.2.2. Indicators on Financial Performance (Appendix P)
10.2.2.1. Portfolio Quality. This provides the managers and Board of Directors of

SCCs appropriate tools in monitoring the quality and the level of risks of
the loan portfolio of the cooperatives. This should be closely monitored
inasmuch as the loan portfolio constitutes the bulk of the SCC’s assets. In
view of this, it is also important that the risk of default is adequately
protected. Protection is measured by comparing the adequacy of the
allowance provided for loan losses against the amount of delinquent
loans. The status of the health of the portfolio of the cooperative will
either propel the cooperative to grow or imperil the whole sustainability
program of the cooperative. Two indicators are included in this group.
These are:
• Portfolio at Risk
• Allowance for Probable Losses on Loans
10.2.2.2. Efficiency. This focuses on the operational and administrative efficiency

of the delivery of financial services, i.e., loans and savings products to its
members. Indicators under this category determine the ability of the SCC
to generate sufficient income to cover expenses on operations. Efficiency
is important because it affects the profitability of the SCC’s portfolio and
the return on members’ shares. Six (6) ratios/indicators are included in
this group:
• Asset Yield Operational

• Self-Sufficiency
• Rate of Return on Members’ Share
• Loan Portfolio Profitability
• Cost per peso loan
• Administrative Efficiency
10.2.2.3. Stability. This determines whether financial services can be delivered to

its members in a sustained manner. One way to do this is to increase the
institutional capital of the cooperative instead of purely relying on the
member’s share capital. This will allow the SCC to maintain sufficient
liquidity to meet the financial needs of its members in a timely manner.
Where the cooperative leadership commits itself to ascertain the
sustainability in the cooperative structure, the membership of the
cooperative will also be serious in strongly supporting their own
cooperatives. Listed below are three (3) ratios/indicators under this
category:
• Solvency
• Liquidity
• Net Institutional Capital
10.2.2.4. Operations. This highlights the new thrust for Philippine SCCs. The
indicators and standards in this group call for minimizing dependence on
external borrowings and greater emphasis on mobilizing voluntary
savings from its members. Strong emphasis on mobilizing voluntary
savings will enable cooperatives to have a continuous and cheaper
sources of funds for its operations and, at the same, provide its members
an alternative investment mechanism for their excess funds. This will

result in the SCC’s less dependence on external borrowings and lower

financial costs. The indicators are:
• Performance of Membership Growth

• Trend in External Borrowings
10.2.2.5. Structure of Assets. This helps ascertain the quality and the structure of
the assets of the cooperative. These indicators and standards determine
the extent of the share of the cooperative’s various assets to its total assets
and assess the effective use of these assets to generate revenues. The
following four (4) indicators are:
• Non-earning Assets / Total Assets

• Total Deposits / Total Assets
• Net Loans Receivables / Total Assets Total
• Members’ Share Capital / Total Assets
Section 10.3. Computation of COOP-PESOS. The equivalent raw score for both the COOP
and PESOS indicators are given the appropriate rating. The overall rating will be
computed using a 20 percent weight for the COOP rating and 80 percent weight
for the PESOS rating. A sample-rating sheet is shown in Appendix Q. The
evaluator, in assessing the performance of the SCC, will use the sample-rating
sheet.
Section 10.4. Overall Rating. The raw score for each of the components is given an equivalent
rating. The resulting rating for each of the component is given the appropriate
weight to arrive at the overall rating. The following rating scale is used:
10.4.1. Rating 1 (96 to 100) – VERY GOOD. The SCC has strong performance that
consistently provides safe and sound operations. SCCs in this group comply with
cooperative rules and regulations and are resistant to external shocks and
financial disturbances. They are also able to withstand unexpected adverse
changes in business environment. These institutions do not need supervisory
concern.
10.4.2. Rating 2 (90 to 95) – GOOD. The SCC shows satisfactory performance that
consistently provides safe and sound operations. SCCs in this group are able to
withstand business fluctuations well. However, there are some areas of concern
that require important attention which if unchecked, can potentially develop into
conditions of greater concern. Supervisory response is limited to minor
adjustments to ensure that operations continue to be satisfactory and sustainable.
10.4.3. Rating 3 (80 to 89) – FAIR. The SCC’s performance is flawed to some degree and
is a supervisory concern. Results of key performance measures indicate that safe
and sound operations may be adversely affected. SCCs in this group are only
nominally resistant to adverse business conditions and may deteriorate if
identifiable areas of weakness are not corrected immediately.
10.4.4. Rating 4 (70 to 79) – POOR. The SCC has poor performance and is of serious
supervisory concern. The SCC’s performance if left unchecked would lead to
conditions that could threaten its viability. A high potential for failure is present

but is not yet imminent. SCCs in this group require very close supervisory
attention.
10.4.5. Rating 5 (below 70) – VERY POOR. The SCC has unsatisfactory performance and
is in need of immediate remedial attention. SCCs in this group have a very high
probability of failure and will likely require liquidation.
ARTICLE 11.
MISCELLANEOUS
Section 11.1. Confidential Information.
11.1.1. Directors, officers, employees or members of SCCs or of the Authority shall not
disclose any information relating to member-borrowers and the operations of the
SCC that are confidential in nature unless the disclosure of information is in
accordance with the performance of his/her official duties and functions.
11.1.2. All deposits of whatever nature or shares with a SCC are considered absolutely
confidential in nature, and may not be examined, inquired or looked into by any
person or government official, bureau or office, except upon written permission of
the member, or when the examination is conducted by the Authority, or in cases
of impeachment, or upon order of a competent court.
Section 11.2. Cooperative Premises and Property and Equipment. The following rules shall
govern the premises and other fixed assets of SCCs:
11.2.1. Appreciation or increase in book value. Appreciation or increase in book value of

SCC premises and other fixed assets is not allowed.
11.2.2. Ceilings. The total investment of a SCC in real estate and improvements thereof,
including equipment shall not exceed fifty percent (50%) of the cooperative’s net
worth. The investment shall include all real estate and equipment necessary for
the cooperative’s immediate use in the transaction of its business. In determining
compliance with such ceiling, the following are considered eligible investments:
11.2.2.1. Cooperative Premises – Land, Buildings, Furnitures, Fixtures and

Equipment including improvements and depreciation thereof, owned
and used by the cooperative in the conduct of its business including staff
houses, recreational facilities and landscaping costs, net of accumulated
depreciation.
11.2.2.2. Real properties, equipment or other chattels purchased by the SCC in its
name for the benefit of its officers and employees, net of depreciation and
in the case of land or other non-depreciable property, net of payments
already made to the SCC by the officers and employees for whose
benefits the property was bought, where such property has not yet been
fully paid and ownership has not yet been transferred to them.
11.2.2.3. The cost of real estate leased in whole or in part by the SCC from a

corporation, other than a corporation primarily engaged in real estate in

which the SCC has equity, equivalent to the amount obtained by applying
the percentage of the equity of the SCC in the lessor to the cost of that
portion of the property being leased, or the amount of equity in the lessor,
whichever is lower.
11.2.3. Reclassification of real and other properties owned or acquired as SCC premises.
11.2.3.1. Real and other properties owned or acquired (ROPOA) reclassified as

SCC premises shall be booked at cost: Provided, That only such acquired
asset or a portion thereof that will be immediately used or earmarked for
future use may be reclassified and booked as SCC premises.

11.2.3.2. Prior to the reclassification of the ROPOA accounts to SCC premises,

prior approval of the AUTHORITY shall be secured before effecting the
reclassification and the SCC shall submit, in case of future use,
justification and plans for its expansion/use.
Section 11.3. Branching. The following rules shall govern the opening and operation of SCC
branches:
11.3.1. Opening of SCC Branch.
11.3.1.1. A well and adequately capitalized SCC may open a branch either:
11.3.1.1.1. Outside its principal office but within its area of operation as provided
for in the current article of cooperation and by-laws or;
11.3.1.1.2. Outside its area of operation as provided for in the article of

cooperation and by-laws.
11.3.1.2. Ninety (90) days prior to the opening, the SCC shall submit a certification
to the CDA that the SCC has complied with the requirements specified in
the succeeding section.
11.3.2. Requirements for Branching
11.3.2.1. An SCC may establish a branch in accordance with the preceding section
upon submission of the following:
11.3.2.1.1. Amendment of article of cooperation and by-laws if the proposed

branch is outside the area of its operation
11.3.2.1.2. Establishment of appropriate internal control measures for the branch
11.3.2.1.3. Approval of the GA, as certified by the Chairman and the Secretary
11.3.2.1.4. Certified true copy of the resolution of the BOD authorizing the
establishment of the proposed branch indicating the proposed site
11.3.2.1.5. Facilities and services to be offered of the branch
11.3.2.1.6. Organization set-up showing the staffing pattern of the proposed

branch
11.3.2.1.7. Installation of the necessary security devices

11.3.2.1.8. Duly notarized sworn statement of the members of the Board and the
General Manager that the SCC has no existing nor continuing major
violations with regard to the provisions of this Manual.
Section 11.4. Satellite Offices. For purposes of this section, satellite offices shall not be
considered as branches. As such, they shall only be considered as loan collection
and disbursement points and shall not be allowed to retain cash and other records
in their premises. All collections and records of daily transactions shall be turned
over at the end of the business day to the head office or branch to which the
satellite office is attached. In cases where the collections cannot be physically
turned over within the business day, such collections may be deposited to an
authorized bank account.
Section 11.5. Supervision and Examination of SCCs
11.5.1. Frequency of Examination. The AUTHORITY shall conduct, at least once a year
and at such other times as it may deem necessary and expedient, an examination,
inspection or investigation of the books and records, business affairs,
administration and financial condition of any SCC to determine compliance with
existing laws, circulars, rules and regulations, and other issuances.
11.5.2. Examination of Members of Deputized Federation/Union
11.5.2.1. The CDA may, in accordance with the approved accreditation criteria,
deputize a cooperative federation and/or union to conduct the
examination of their member primaries.
11.5.2.2. In cases where a SCC is a member of two or more deputized federations

and/or unions, such cooperative shall choose only one (1) deputized
federation and/or union where it will be subject to supervision and
examination.
11.5.2.3. The CDA shall regularly monitor and validate the performance of
deputized federations and/or unions with regards to its supervision and
examination functions.
11.5.3. Examination of Non-members of Deputized Federation/Union. SCCs that are not

members of a deputized cooperative federation and/or union will be supervised
and examined by the CDA until such time that the SCC becomes a member of a
deputized cooperative federation and/or union.
11.5.4. Supervision and Examination Fees. SCC shall pay to the Authority a supervision
and examination fee equivalent to 1/20th of 1% of the SCC’s Average Assessable
Assets (AAAs). The term “AAAs” shall be the sum of the end-of-month total
assessable assets divided by the number of months in operation during the
particular assessment period. The term “Total Assessable Assets” shall refer to
total assets (end-of-month total assets per balance sheet), after deducting cash on
hand and cash in bank.
11.5.4.1. The Authority shall bill the SCC for the full amount of the supervision

and examination fees.
11.5.4.2. Within thirty (30) days from receipt of the bill, the SCC shall make the
corresponding remittance to the Authority. Non-payment of the fees
within the prescribed period shall subject the concerned SCC to the
sanctions prescribed in Appendix I of this Manual and fines and
penalties, thereon, shall be payable to the CDA.
ARTICLE 12.
GENERAL PROVISIONS ON SANCTIONS
Section 12.1. Sanctions. Any violation of the provisions of this manual shall be subject to the
applicable sanctions as provided for below and Article124 of RA 6938, whenever
applicable.
Section 12.2. Definition of Unsafe or Unsound Practice. A SCC may be deemed to be

engaging in an unsafe or unsound practice if it has deficiencies or less-than-
satisfactory rating in the COOP-PESOS that, if not corrected, may materially or
adversely affect the financial health of the cooperative.
Section 12.3. Monetary Penalty. The rules and procedures of this Section shall apply to
proceedings to assess penalties against any person or cooperative for violation of
the provisions of the “Manual of Rules and Regulations for Savings and Credit
Cooperatives” or any regulation, circular or order issued by the CDA pursuant
thereto, in connection with the conduct of the affairs of the SCC.
12.3.1. Assessment of fines
12.3.1.1. General Provision. Unless specifically provided for in this manual, any
violation of the provisions of this manual or any regulation, circular or
order issued by the CDA pursuant thereto, in connection with the
conduct of the affairs of the SCC, shall be subjected to the following
penalties.
12.3.1.2. Amount of Penalty
12.3.1.2.1. Minor offense. Any person who violates any provision of the Manual
or any rule, regulation, or order issued by the CDA pursuant thereto,
shall pay a penalty of not more than P100 for each calendar day the
violation continues.
12.3.1.2.2. Less grave offense. Any person who recklessly violates any provision
of the Manual or any rule, regulation, or order issued by the CDA
pursuant thereto; and engages in any unsafe or unsound practice in
conducting the affairs of a SCC; or breaches any fiduciary duty; which
violation, practice or breach is part of a pattern of misconduct; or
causes or is likely to cause more than a minimal loss to such
institution; or results in pecuniary gain or other benefit to such person,

shall pay a penalty of not less than P100 but not more than P500 for
each calendar day of such violation, practice or breach continues.
12.3.1.2.3. Grave offense. Any person who knowingly and willfully violates any
provision of the Manual or any rule, regulation, or order issued by the
CDA pursuant thereto; or engages in any unsafe or unsound practice
in conducting the affairs of a depository institution; or breaches any
fiduciary duty; and knowingly or recklessly causes a substantial loss
to such institution or a substantial pecuniary gain or other benefit to
such person by reason of such violation, practice or breach, shall pay a
civil penalty not to exceed:
12.3.1.2.3.1. In the case of a person other than a SCC, P1,000 per day for each
day the violation, practice or breach continues; or
12.3.1.2.3.2. In the case of a SCC, an amount equal to P5,000 or one percent of

the total assets, whichever is lower, of such institution for each
day the violation, practice or breach continues.
12.3.1.3. Mitigating and Aggravating Factors. In assessing the amount of the

penalty, the CDA shall consider the gravity of the violation, the history of
previous violations, the respondent's financial resources, good faith, and
any other matters as fairness and justice may require.
12.3.2. Filing of Appeal. The amount of penalty to be imposed shall be assessed upon the
receipt by the person/s or SCC of a Notice of Assessment sent by the CDA, which
shall become final and executory unless the person or persons involved requests
for reconsideration or submits a written appeal to the CDA within seven (7) days
from receipt of the Notice.
12.3.3. Failure to file an Appeal for Reconsideration. Failure of a person or SCC to file
an appeal for consideration required by this section within the time provided
constitutes a waiver of his or her right to appeal and contest the allegations in the
notice of disapproval. A final order issued by the CDA Board of Administrators
based upon a respondent's failure to answer is deemed to be an order issued
upon consent.
12.3.4. Effective date of, and payment under, an order to pay. Penalties assessed
pursuant hereto are due and payable within 60 days after an order to pay, issued
after the hearing or upon default, is served upon the person/s or cooperative,
unless the order provides for a different schedule of payment. A surcharge of ten
percent (10%) shall be imposed on the assessed amount of penalty that was not
paid on the prescribed deadline.
12.3.5. Collection of penalties. The CDA may collect any penalty assessed pursuant to
this Section by agreement with the respondent, or the CDA may bring an action
against the person/s or SCC to recover the penalty amount in the appropriate
courts.
Section 12.4. Removal from Office of Erring Directors and Officers

12.4.1. Determining Factors. In determining whether an officer or director should be

removed, prohibited or suspended, primary consideration shall be made by the
CDA as to whether the SCC, officer or director took appropriate action to stop, or
to prevent the recurrence of, a violation described herein:
12.4.2. Grounds for Removal. The following grounds shall be present before an officer or
director can be removed from office:
12.4.2.1. Whenever the CDA determines, after due notice and hearing, that such director
or officer has, directly or indirectly:
12.4.2.1.1. Violated any law, rules and regulation, circular or any order issued by
the CDA or any written agreement between the SCC and the CDA; or
12.4.2.1.2. Engaged or participated in any unsafe or unsound practice; or
12.4.2.1.3. Committed or engaged in any act, omission, or practice which

constitutes a breach of the director’s or officer’s fiduciary duty; or
12.4.2.1.4. Knowledge that another director or officer is committing or has

committed any of the acts enumerated above; and
12.4.2.2. By reason of the violation, practice, or breach:
12.4.2.2.1. The SCC has suffered or will probably suffer financial loss or other
damage; or
12.4.2.2.2. The interests of the SCC’s members have been or could be prejudiced;
or
12.4.2.2.3. The director or officer has received financial gain or other benefit by
reason of such violation, practice, or breach; and
12.4.2.3. Such violation, practice, or breach:
12.4.2.3.1. Involves personal dishonesty on the part of the director or officer; or
12.4.2.3.2. Demonstrates willful or continuing disregard for the safety or

soundness of the SCC.
12.4.3. Notice of Intention. Notice of intention to remove from office shall immediately
be served to the director or officer concerned. Such notice shall contain a
statement of the facts constituting grounds for removal, and shall fix a time and
place at which a hearing will be held thereon.

12.4.4. Conduct of Hearing. The hearing shall be fixed for a date not earlier than thirty
days nor later than sixty days after the date of service of such notice, unless an
earlier or a later date is set by the CDA at the request of the concerned director or
officer, and for good cause shown.
12.4.5. Voluntary Consent. Unless the director or officer shall appear at the hearing in
person or through a duly authorized representative, the director or officer shall be
deemed to have consented to the issuance of an order of such removal.
12.4.6. Issuance of Order. If during the hearing, the CDA shall find that any of the
grounds specified in such notice have been established, the CDA may issue the
orders of suspension or removal from office, or prohibition from participation in
the conduct of the affairs of the SCC, as it may deem appropriate.
12.4.7. Effectivity of Order of Removal from Office. After due notice and hearing, the
order of removal from office shall become effective and executory thirty (30) days
after service upon the SCC and the director or officer concerned (except in the
case of an order issued upon consent, which shall become effective at the time
specified therein). The order shall remain effective and enforceable except to such
extent as it is modified, terminated, or lifted by the CDA.
Section 12.5. Prohibition and Suspension
12.5.1. Grounds for Prohibition and Suspension. In addition to the issuance of a written
notice of intention to remove from office, the CDA may issue an order to suspend
and/or prohibit the director or officer concerned from further participating, in
any manner, in the conduct of the SCC’s affairs under the following conditions:
12.5.1.1. If such action is deemed necessary for the protection of the SCC and the
interests of its members; or
12.5.1.2. Whenever a director or officer is charged in a court of law with the

commission of or participation in a:
12.5.1.2.1. Crime involving dishonesty or breach of trust which is punishable by

imprisonment; or
12.5.1.2.2. Criminal violation of any provision of the Cooperative Code or any

other existing law that may pose a threat to the interests of the SCC’s
depositors and or may threaten to impair public confidence in the
SCC.
12.5.2. Prohibited Acts. For as long as the prohibition or suspension or removal from
office order remains in effect, any person or persons subject to such order issued
by the CDA, shall not:
12.5.2.1. Continue or commence to hold any office in nor participate, in any

manner, in the conduct of the affairs of the SCC and

12.5.2.2. Exercise any voting rights and privileges in the SCC.
12.5.3. Effectivity of Prohibition or Suspension Order. Any prohibition and suspension

order issued shall become effective upon receipt and shall remain in effect and
enforceable until such time that the CDA dismisses the charges contained in the
notice, unless specifically provided for in the order.
12.5.4. Appeals.
12.5.4.1. Within thirty days from service of any notice of suspension or order of
removal, the director or person concerned may request in writing an
opportunity to appear before the CDA to show that the continued service
to or participation in the conduct of the affairs of the SCC by such director
or officer does not, or is not likely to, pose a threat to the interests of the
member-depositors or threaten to impair public confidence in the
depository institution.
12.5.4.2. Upon receipt of any such request, the CDA shall fix a time (not more than
thirty days after receipt of such request, unless extended at the request of
such party) and place at which the director or officer may appear,
personally or through counsel, before a duly-designated officer of the
CDA to submit written materials (or, at the discretion of the CDA, oral
testimony) and oral argument.
12.5.4.3. Within sixty days from such hearing, the CDA shall notify the parties
concerned whether the suspension or prohibition from participation in
any manner in the conduct of the affairs of the SCC will be continued,
terminated, or otherwise modified, or whether the order removing the
director or officer from office has been rescinded or otherwise modified.
12.5.4.4. Such order shall be given to all parties concerned and contain a statement
of the basis for the CDA’s decision.
Section 12.6. Cease and Desist Order
12.6.1. Notice of Charges. If, in the opinion of the CDA, a SCC is:
12.6.1.1. Engaging or has engaged or is about to engage, in an unsafe or unsound

practice in conducting its business; or
12.6.1.2. Violating or has violated, or is about to violate, a law, rule, or regulation,

or any condition imposed in writing by the CDA in connection with the
granting of the License to Operate as a Savings and Credit Cooperative,
the CDA may issue and serve upon the SCC a notice of charges in respect thereof.
The notice shall contain a statement of the facts constituting the alleged violation
or violations or the unsafe or unsound practice or practices.
12.6.2. Schedule of Hearings. The CDA shall fix a time and place at which a hearing will
be held to determine whether an order to cease and desist should be issued

against the SCC. Such hearing shall be fixed for a date not earlier than thirty
days nor later than sixty days after service of such notice unless an earlier or a
later date is set by the CDA at the request of any party so served.
12.6.2.1. Issuance of Cease and Desist Order Upon Hearing. The CDA may issue
and serve upon the SCC an order to cease and desist from any violation
or practice and to take affirmative action to correct the conditions
resulting from any such violation or practice under any of the following
situation:
12.6.2.1.1. During the hearing, the party or parties so served consent to the
issuance of a cease-and-desist order or the CDA finds that the
violation or unsafe or unsound practice specified in the notice of
charges has been established; or
12.6.2.1.2. The SCC, through its duly designated representative, failed to appear
at the scheduled hearing.
12.6.2.2. Affirmative Action. The CDA may require the SCC to take affirmative
action to correct or remedy any conditions resulting from any violation or
practice with respect to which such order is issued including an order for
the SCC or any other person to:
12.6.2.2.1. Make restitution or provide reimbursement, indemnification, or

provide provisions against loss if:
12.6.2.2.1.1. Such depository institution or any other party was unjustly

enriched in connection with such violation or practice; or
12.6.2.2.1.2. The violation or practice involved a reckless disregard for the law
or any applicable regulations or prior order of the CDA
12.6.2.2.2. Restrict the growth of the institution;

12.6.2.2.3. Place limitations on the activities or functions.
12.6.2.2.4. Dispose of any loan or asset;
12.6.2.2.5. Rescind agreements or contracts;
12.6.2.2.6. Employ qualified officers or employees (who may be subject to
approval by the CDA); and
12.6.2.2.7. Take such other actions as the CDA determines to be appropriate.
12.6.2.3. Effectivity. A cease-and-desist order shall become effective (30) thirty

days after the issuance of such order (except in the case of a cease-and-
desist order issued upon consent, which shall become effective at the time
specified therein), and shall remain effective and enforceable as provided
therein, except to such extent as it is stayed, modified, terminated, or set
aside by action of the CDA.
12.6.3. Temporary Issuance of Order without Hearing. Pending the holding and
completion of a hearing as provided for above, the CDA may issue a cease and

desist order that shall become effective upon receipt of such order by the SCC,
should it determine that:
12.6.3.1. The violation or threatened violation or the unsafe or unsound practice or

practices, as specified in the notice of charges served upon the SCC, or the
continuation thereof, is likely to:
12.6.3.1.1. Cause insolvency or significant dissipation of assets or earnings of the

SCC, or
12.6.3.1.2. Weaken the condition of the SCC or otherwise prejudice the interests
of its member-depositors.
12.6.3.2. The SCC’s books and records are incomplete or inaccurate that:
12.6.3.2.1. The Authority is unable, through the normal supervisory process, to

determine the financial condition of that SCC; or
12.6.3.2.2. The details or the purpose of any transaction or transactions may have
an adverse material effect on the financial condition of the SCC.
12.6.4. Effectivity of Temporary Order without Hearing. Any temporary cease and
desist order issued under the aforementioned provision is in force and in effect:
12.6.4.1. Unless set aside, limited, or suspended by a court of law; or
12.6.4.2. Until the earlier occurrence of any of the following circumstances:
12.6.4.2.1. The completion of the proceedings initiated in Section 5.4.4 above in

connection with the notice of charges; or
12.6.4.2.2. The date the CDA determines that the circumstances or violations for
which the Order has been issued, no longer exist.
12.6.5. Failure to Comply. Should the SCC fail to comply with the cease-and-desist
order, the CDA may file for injunction with an appropriate court of law to enforce
such order.

ARTICLE 13.
TRANSITORY PROVISIONS
Section 13.1. Transitory Provisions. All primary credit and other types of cooperatives with
savings and credit services shall, from the effectivity date of this Manual, conform
with the provisions of this Manual of Rules and Regulations in accordance with
the following schedule:
Specific Provisions Timetable for Compliance

1. Funding of Statutory Reserves On top of the current provision, set aside
cash to cover the unfunded reserves. The
yearly amount to be set aside should at least
be 20% of the unfunded reserves until fully
funded.
2. Deposit Cash Reserve Level (2%) and Within two (2) years
Compliance to Required Composition of
Liquidity Reserve Fund
3. Provisioning of Allowance for Probable Year 1: at least 30% of the total requirement;
Losses on Loans Year 2: at least 70%; and
Year 3: 100%
4. Compliance on “License to Operate” as per Within one (1) year from the issuance of the
Article ___ Section __. provisional license to operate
5. Amendments of By-Laws and Articles of Within two (2) years from the effectivity of
Cooperation to conform with the pertinent this Manual.
provisions of the Manual.
Section 13.2. Repealing Clause. All CDA issuances, rules and regulations applicable to SCCs
that are inconsistent with the provisions of this Manual are hereby repealed or
modified accordingly.
Section 13.3. Effectivity. This Manual of Rules and Regulations shall take effect. Upon
approval by the President of the Philippines or his duly designated representative
and fifteen (15) days after publication in the Official Gazette or in two (2)
newspapers of general circulation.

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MANUAL OF RULES AND REGULATIONS FOR SAVINGS AND CREDIT

ARTICLE 1. SCOPE AND LIMITATIONS 6

SECTION 1.1. COVERAGE 6

ARTICLE 2. ORGANIZATION OF SCCS 7

SECTION 2.1. DEFINITION OF SAVINGS AND CREDIT COOPERATIVE (SCC). 7

SECTION 3.1. OFFICERS OF THE SCC. 11

SECTION 4.1. COMPENSATION OF DIRECTORS, OFFICERS AND COMMITTEE MEMBERS. 15

ARTICLE 5. REPORTORIAL REQUIREMENTS 17

SECTION 5.1. REQUIRED REPORTS. 17

Manual of Rules and Regulations for SCCs 1

SECTION 6.1. DEFINITION OF NET WORTH. 20

ARTICLE 7. DEPOSIT AND BORROWING OPERATIONS 24

SECTION 7.1. MINIMUM DEPOSIT. 24

ARTICLE 8. LOANS AND INVESTMENT 27

SECTION 8.1. FINANCIAL SERVICE. 27

Manual of Rules and Regulations for SCCs 2

SECTION 8.20. EXTENSION/RENEWAL OF LOANS. 35

ARTICLE 9. INTERNAL CONTROL 38

SECTION 9.1. DEFINITION OF INTERNAL CONTROL. 38

ARTICLE 10. PERFORMANCE STANDARDS FOR SCCS (COOP-PESOS) 52

SECTION 10.1. FINANCIAL TRANSPARENCY 52

ARTICLE 11. MISCELLANEOUS 56

SECTION 11.1. CONFIDENTIAL INFORMATION. 56

ARTICLE 12. GENERAL PROVISIONS ON SANCTIONS 60

SECTION 12.1. SANCTIONS. 60

ARTICLE 13. TRANSITORY PROVISIONS 67

Manual of Rules and Regulations for SCCs 3

SECTION 13.1. TRANSITORY PROVISIONS. 67

Manual of Rules and Regulations for SCCs 4

MANUAL OF RULES AND REGULATIONS FOR SAVINGS

Manual of Rules and Regulations for SCCs 5

Section 1.2. Definition of Terms

1.2.1. Credit accommodation includes borrowings of members and advances made by

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• Encouraging thrift and savings among its members;

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2.2.2. A minimum amount of TWO MILLION AND FIVE HUNDRED THOUSAND

2.2.2.1. In the case of a new cooperative, a Depository Bank Certificate of deposits

Section 2.3. Provisional License to Operate

2.4.3.1. Amended Articles of Cooperation and By-laws;

2.4.3.3. Certificates of training/seminar of officers and employees on cooperative

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management by accredited federation/union;

2.4.3.4. Certificates of attendance of the special seminar on financial

2.4.3.5. List of management officers and their respective designations and

2.4.3.6. Biodata sheets, National Bureau of Investigation (NBI) and Bureau of

2.4.3.7. Chart of Organization. (The chart shall show the names of

2.4.3.8. Manual of Operations embodying the policies and operating procedures;

2.4.3.10. Copy of Contract for the use of the SCC’s premises;

2.4.3.12. Copy of the Bonds of accountable officers/employees. This may be

2.4.3.13. Excerpts of the minutes of meetings confirming all transactions relative to

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be appointed to any of said positions in the SCC;

2.4.3.18. Other documents/papers which may be required by the Authority.

Section 2.8. Prohibitions.

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3.2.1. Qualifications and Disqualifications of BOD. Persons elected or appointed as

3.2.2. Minimum Qualifications of a SCC Board Director.

• Cooperative Values as defined in the International Cooperative

3.2.3. Grounds for Disqualification of a SCC Board Director. Without prejudice to

3.2.3.1. Permanently disqualified:

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