Mergers: An option for cooperatives (from the Manila Bulletin article dated December 6, 2011) By Teodoro P. Estacio

 

MANILA, Philippines – Mergers – the combination of two or more cooperatives into a new, bigger and competitive cooperative. The methodology is new to the cooperative sector, in fact, I have yet to hear honest to goodness mergers.

This, however, is quite popular among corporations especially those that prefer to make their operations fully integrated and profitable. It may not be popular in the country but is popular among first world countries where cooperativism is far more advanced and can even compete with the capitalist system e.g. Germany and Japan.

Recently, in an effort to rehabilitate about 15 (out of 40 cooperative banks operating at the moment nationwide,) the Bangko Sentral ng Pilipinas has encouraged them to merge and consolidate their operations. This, hopefully will resolve the issues of inadequate capital and inefficiency of services and will also be able to help them cope with the demands of its membership.

The cooperative banks, with a consolidated resources amounting to P15.9 billion in capital, if not given the support that they need now could just become an addition to the long list of distressed cooperatives in the country. As in the past, it is not surprising to find cooperative funds lost in the possession of their elected treasurer of coops going into bankruptcy due to huge bad debts resulting from delinquencies of members themselves.

Raising the required capitalization to P100 million and minimum risk based capital adequacy ratio of 15% makes Philippine cooperative banks more stable and able to expand their services to its members.

Such encouragement though must not only apply to cooperative banks but to many community and institutional-based cooperatives whose financial ratios are questionable, whose liquidity is tight and whose management is in theory controlled by a few.

The Cooperative Development Authority (CDA) reported that currently there are 4,812 savings and credit cooperatives; 1,369 consumer cooperatives, 1,409 producers cooperatives; 911 marketing cooperatives; 1,806 service cooperatives providing power distribution, potable water and irrigation system, public and private transportation service; and 60,000 registered agricultural and non-agricultural cooperatives.

A closer look at these cooperatives would show their operations need improvement, their financials need tighter scrutiny and their compliance to CDA reportorial requirements remain a constant challenge.

Unlike its counterpart in first world countries whose cooperatives welcome mergers and acquisitions to widen their financial base and benefit from economies of scale, Philippine coops are satisfied operating independently even if each one faces bigger challenges in credit granting, collection of receivables, bad debts and inadequate savings from members.

Hence you see several coops run like a family corporation, where annual general assem

blies are postponed, and no financial reports published for the information of its members.

The new law, Republic Act No. 9520, gives cooperative greater opportunities to serve their members, not only in terms of financial assistance, but also in undertaking more productive activities geared toward the economic upliftment of their members. The new law defined the many services that can be adopted by the cooperatives.

San Dionisio Credit Cooperative of Paranaque is a good example as they adopted through the years, various non-credit services for the benefit of their members. Among them is the establishment of their own Botika ng Bayan, a small scale Housing Development and the establishment of a primary school for the dependents of their members.

Hopefully, when coops merge, there will be a wider base for the selection of officers, an opportunity to improve the ranks of its officers. Best practices of one can easily be adopted by the merged coop. Lastly, the increase in membership as well as its capital base will further strengthen the coops ability to develop new services and ensure that funds are invested creatively.