POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

PAWNSHOPS AND COOPERATIVES

A Research

Presented to the Faculty of the College of Finance and Accountancy

Polytechnic University of the Philippines

Sta. Mesa, Manila

In Partial Fulfillment of the Requirements for the

Banking and Financial Institutions

By

Oflear, RayJustine M.

Olivar, Mary Rose

BSBA-FM 2-9S

Prof. Realin Changco Aranza

October 2019
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PAWNSHOPS
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I. INTRODUCTION

Pawnshops play an important role in the country's economic growth and

development. They widen the sources of microcredit and address the immediate and short-

term financial needs of low to middle-income households that banks are not able to do. They

are engaged in the business of lending money on personal property delivered as security for

loans. However, through the years, pawnshops have likewise diversified into the business of

remittance, money changing, bills payment collection services, and providing facilities in the

sale of micro insurance products to households. Thus, they not only provide loans but also

offer to remit, transfer money on behalf of any person/entity, engage in business of buying

and/or selling of foreign currencies, and serve as bills payment centers.

Pawnbrokers are picky about what they'll accept as collateral. Generally, they stick

with something they can sell quickly. Outdated electronics, less expensive jewelry and

broken-down tools will be rejected. These shops often get repeat borrowers who put up the

same item multiple times whenever they need money. While regulated by federal and state

laws, lending rates range from two percent to 25 percent per month, depending on the state.

On top of that, the borrower runs the risk of losing his valuable collateral if he misses a

payment.

If a borrower has a good credit history, he can borrow money from a bank at

reasonable interest rates. However, someone with spotty employment or living in poverty

must go elsewhere to get money in a hurry. Pawnshops lend money based on the value of
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whatever the customer brings in for collateral, and most loans are made for a 30- to 90-day

period.

The country's pawn broking industry was officially regulated in 1973 by then Central

Bank, now the Bangko Sentral ng Pilipinas (BSP), pursuant to Presidential Decree No. 114,

or the "Pawnshop Regulatory Act", and was bound to comply with the rules and regulations

laid down in CB Circular No. 374. Currently, pawnshops are governed by an updated manual

of regulations, Circular No. 656, as amended. Pawnshops can be established either as single

proprietorships, partnerships or corporations within the restrictions of the law. Pawnshops are

required to register with the Department of Trade and Industry (DTI) in case of single

proprietorships and the Securities and Exchange Commission (SEC) for partnerships and

corporations and to secure permits from the local government units (LGUs) where they plan

to operate.

As part of the BSP’s mandate in promoting fair practices and transparency,

pawnshops are obliged to submit necessary documents such as copies of their general ledger

to the BSP’s respective offices at specified period. Whenever crimes and losses happen, they

are also required to submit reports with necessary attachments. Further, to reduce the risk

from fraudulent actions, pawnshops are required to the bonding of accountable

officers/employees with reputable insurance/surety companies accredited by the Insurance

Commissioner, or equivalent self-insurance mechanism acceptable to the BSP. Also, the BSP

has the power to impose sanctions for the violation of the pawnshop rules and regulations

which include warning/reprimand, suspension of Acknowledgment of Registration

(AOR)/Authority to Operate (AO), suspension of branching privilege, disqualification of

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proprietor, partner, director, president, manager or officer-in-charge, monetary policy not to

exceed Php1, 000 per violation, per office, per day and revocation of AOR/AO.

II. GOVERNING LAWS

Pawnshops are likewise covered by Presidential Decree No. 114 also known as

Pawnshop Regulation Act which governs pawnshop establishments and provides definite and

uniform standards for their operation. However, the law is no longer responsive, given the

growing complexities of the pawnshop business. Hence, this bill seeks to lay down amended

requirements and standards that will place operation on a sound and stable basis, deriving the

optimum advantages from them as an additional source of credit and preventing, as far as

practicable, practices prejudicial to public interest.

Form of organization. A pawnshop may be established as a single proprietorship,

partnership or corporation.

Registration and licensing. Any person or entity desiring to engage in the pawnshop

business shall (a) register with the Bureau of Commerce in the case of single proprietorship

or the Securities and Exchange Commission in the case of a corporation or any other

association and (b) secure a license from the appropriate city or municipality having

territorial jurisdiction over the place of establishment and operation.

Requirement of registration with the Central Bank. Any individual, corporation or

association duly registered and licensed to engage in the pawnshop business shall file an
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information sheet, under oath, with the Central Bank before commencement of actual

operations: Provided, however, That pawnshops duly licensed and operating before the

approval of this Decree shall, within six months from the date of effectivity of the same,

register with the Central Bank. For this purpose, the Central Bank shall furnish pawnshops,

upon request, with necessary copies of the prescribed information sheet.

Capital. The minimum paid-in capital of any pawnshop which may be established after the

effectivity of this Decree shall be one hundred thousand pesos (P100,000.00): Provided,

however, That pawnshops established and in operation prior thereto shall comply with the

minimum capitalization required under the provisions of this section within such time as may

be prescribed by the Monetary Board, which time shall, in no case, be less than three years

from the date of effectivity of this Decree.

Citizenship requirement. Upon the effectivity of this Decree, only Filipino citizens may

establish and own a pawnshop organized in the form of a single proprietorship: Provided,

however, That in the case of a partnership, at least seventy percent (70%) of its capital shall

be owned by Filipino citizens: Provided, further, That in thecase of a corporation, at least

seventy per cent (70%) of the voting capital stock shall be owned by citizens of the

Philippines, or if there be no capital stock, at least seventy percent (70%) of the members

entitled to vote, shall be citizens of the Philippines.

The percentage of foreign-owned voting stock or non-citizens entitled to vote in any

domestic pawnshop existing prior to the effectivity of this Decree, if such percentage is in

excess of thirty per cent (30%) of the voting stock or members entitled to vote of the
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pawnshop shall not be increased but may be reduced, and once reduced, shall not be

increased thereafter beyond thirty per cent (30%) of the voting stock, or number of members

entitled to vote, of the pawnshop.

The percentage of foreign-owned voting stocks in any pawnshop shall be determined by the

citizenship of the individual stockholders in that pawnshop. In the case of corporations

owning shares in a pawnshop, the citizenship of the individual owners of voting stock in such

corporations shall be the basis of computing the percentage.

Amount of loan. Pawnshops may grant such amount of loans as may be agreed upon

between the parties: Provided, That the amount of loan shall, in no case, be less than thirty

per cent (30%) of the appraised value of the security offered for the loan unless the pawner

manifests in writing the desire to borrow a lesser amount.

Rates of interest. No pawnshop shall directly or indirectly stipulate, charge, demand, take or

receive any higher rate or greater sum or value for any loan or forbearance than the rate

allowed by the Usury Law for such transactions. It shall be unlawful for a pawnshop to

divide the pawn offered by a pawner in order to collect greater interest and/or to require the

pawner to pay an additional charge as insurance premium for the safekeeping and

conservation of the article pawned.

In addition to interest charges, pawnshops may impose a maximum service charge of five

pesos (P5.00), but in no case to exceed one per cent (1%) of the principal loan.

Maintenance of records. Every pawnbroker shall keep a memorandum book in which shall

be entered, in ink, at the time of each loan or pledge, an accurate account and description, in
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Pilipino or English with corresponding translation in the local dialect of every pawn, the

amount of money loaned thereon, the date of pawning or pledging the same, the rate of

interest to be paid on the loan, and the name and residence of each pawner, together with a

particular description of such pawner, including his or her nationality, sex, and general

appearance, and no pawnbroker or other person shall alter or erase any entry made in such

book. Every person pawning or pledging any article or thing with a pawnbroker shall sign his

name and give his address to said pawnbroker and such name and address shall be made part

of the record heretofore described in this section: Provided, That a person who is unable to

write shall imprint his thumbmark, and his name shall be written by a competent person, who

shall sign his own name as witness to said thumbmark.

Pawn ticket. Every pawnbroker shall, at the time of every such loan or pledge, deliver to

each person pawning or pledging any article or thing a memorandum or ticket signed by such

pawnbroker and containing the substance of the record required to be kept in such

pawnbroker's memorandum book in section eleven hereof, excluding the description of the

person so pawning or pledging such article or thing, and no compensation of any kind

whatsoever shall be received by any pawnbroker for any such memorandum or ticket.

Redemption. The pawner who fails to pay his obligation on the date it falls due may, within

ninety days from the date of maturity of the obligation, redeem the pawn by payment of the

principal of the debt with interest: Provided, however, That for the purpose of computing

interest due after maturity of the obligation, the basis shall be the sum of the principal of the

obligation and interest earned at the time the obligation matured.

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Disposition of pawn on default of pawner. In the event the pawner fails to redeem the

pawn within ninety days from the date of maturity of the obligation in accordance with the

preceding section, the pawnbroker may sell or otherwise dispose of any article taken or

received by him in pawn: Provided, however, That the pawner shall be duly notified of such

sale on or before the termination of the ninety- day period, the notice particularly stating the

date, hour, and place of sale.

Public auction of pawned articles. No pawnbroker shall sell or otherwise dispose of any

article or thing taken or received in pawn or pledge except at public auction in his place of

business as such pawnbroker or in any other public place within the territorial limits of the

municipality or city where the pawnshop has its place of business, under the control and

direction of an auctioneer with license duly issued by the corresponding authorities, nor shall

any such article or thing be sold or disposed of unless said pawnbroker has published a notice

once in at least two daily newspapers printed in the city or municipality during the week

preceding the date of such sale. In remote areas where the newspapers are neither published

nor circulated notice by newspaper publication shall be substituted by posting notices in

conspicuous public places within the territorial limits of the city or municipality where the

pawnshop has its place of business. Said notice, whether published or posted, shall be in

English, and either in Filipino or in the local dialect, and shall contain the name of the

pawnshop, its owner, address of the establishment, hour, and date of the auction sale.

Closing and removal of business period. No pawnbroker shall close or transfer his place of

business within three months after the expiration of the period for which any article or thing

shall have been taken or received by him at his place of business in pawn or pledge, or before
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any such article or thing shall have been sold or otherwise disposed of in accordance with the

provisions of this Decree: Provided, however, That removal or transfer of a pawnbroker's

place of business from one place to another within the territorial limits of the same city or

municipality may be authorized on condition that the pawnbroker shall publish a notice of

such removal in two local daily papers, one in English, another in Pilipino or in the local

dialect, for a period of not less than three days, the last day of which shall take place five

days before the removal, stating in the notice the date of removal, the address of the premises

to be vacated and of the premises to which the pawnshop will transfer; and that he shall

likewise post in a conspicuous place in both premises one copy of the notice in English and

another in either Pilipino or the local dialect during the period of its publication in the said

local papers.

Grant of authority to the Central Bank. The Central Bank is hereby authorized

(a) to issue rules and regulations to implement the provisions contained herein:

(b) to require from pawnshops reports of condition and such other reports necessary to

determine compliance with the provisions of this Decree:

(c) to exercise visitatorial powers whenever deemed necessary; and

(d) to impose such administrative sanctions including the imposition of fines for violations of

this Decree and regulations issued by the Central Bank in pursuance thereto.

Penalties. A fine of not less than one hundred pesos (P100.00) and not more than one

thousand pesos (P1,000.00) or imprisonment for not less than thirty days and not more than
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one year, or both, at the discretion of the court, shall be imposed for violations of the

provisions of this Decree and its implementing rules and regulations:

Provided, That if the violation is committed by a corporation, partnership or an association,

the penalty provided for in this Decree shall be imposed upon the directors, officers,

employees or persons therein responsible for the offense, without prejudice to civil liabilities

arising from the criminal offense.

Matters not covered by this Decree. The provisions of existing law, insofar as they are not

in conflict with any provision of this Decree, shall apply in matters not otherwise specifically

provided for in this Decree.

Separability clause. If any provision or section of this Decree, or the application thereof to

any person or circumstance, is held invalid, the other provisions or sections of this Decree,

and the application of such provisions or sections to other persons or circumstances, shall not

be affected thereby.

Republic Act (RA) No. 9160, as amended by RA 9194, otherwise known as the

“Anti-Money Laundering Act” AMLA which mandates pawnshops to adhere to the

requirements of the said law, e.g., Customer Identification Requirements-Know-Your-

Customer (KYC) Rule, maintain and safely store all record/files containing the full and true

identity of the owners or holders of the accounts involved in the covered transactions and all

other identification documents for five years from the transaction dates, among others.
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III. TYPES AND CLASSIFICATIONS

TYPE DESCRIPTION

A Basic pawnshop business with not more than

ten (10) offices.

Basic pawnshop business with more than ten

B (10) offices with or without BSP-registered

corollary business activities, excluding

remittance operations.

Basic pawnshop business with more than ten

C (10) offices with BSP-registered corollary

business activities, including remittance

operations.

Virtual pawnshop operators or those engaged

D in pawnshop business through electronic

pawning which refers to system and

processes that enable customers to pawn their

personal property through electronic

channels.
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Capital of Pawnshops

TYPE OF LICENSE AMOUNT OF CAPITAL

A P 100, 000

B 1, 000, 000

C 50, 000, 000

D 50, 000, 000

IV. FUNCTIONS

Pawn shops have a variety of different roles and offer a number of services to the

communities they serve. While different pawn shops can offer different services, most of

them share two basic services in common.

The most common thing you can do at a pawn shop is get a loan on your valuable

possessions. While the types of items accepted at various pawn shops can vary considerably,

most pawn shop take jewelry, diamonds, and tools. Other types of valuables some shops

might take are electronics like laptops and TV’s, musical instruments like guitars and flutes,

and some pawn shops will even loan against the title of your car or boat!

The second common service that pawn shops typically offer is the ability to buy

goods at a steep discount as compared to their in-store value. The type of merchandise you

can buy from a pawn shop will depend on the valuables they accept for a loan. There is a
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good chance that if the pawn shop loans on something they will also have similar

merchandise for sale.

That having been said, these aren’t the only services offered at some pawn shops.

Other services that pawnshops offer are:

Check Cashing – not everyone has a checking account and a pawn shop can offer

this kind of service to help their customers handle payroll, tax refund and even personal

checks.

Western Union – While there are a large number of Western Union locations

throughout the country, it’s not uncommon for some pawn shops to also offer it as an

additional financial service to help the community they are in.

Prepaid Credit Cards – While debit cards have become very popular, not everyone

has access to a bank account. To help overcome that problem many pawnshops offer the

ability to establish and maintain prepaid credit cards that you can use for purchasing, bill

payment, or anything else you might need a credit card for other services from pawn shops

Jewelry Repair is often another service that many pawn shops offer. Typically

speaking pawn shop deal with a large amount of gold, platinum and silver jewelry. They may

even have certified jewelers on staff that can help identify and appraise your valuables. But

in addition to that, some pawn shops offer other jewelry services just as sizing and repair of

your items.
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If you need something fixed, it may not be a bad idea to check out a few pawn shops

in your area as they may be able to offer these services at a discount.

V. DEFINITION OF TERMS

a. Pawnshop shall refer to a person or entity engaged in the business of lending money on

personal property that is physically delivered to the pawnshop premises as loan collateral.

The term shall be synonymous and may be used interchangeably, with pawnbroker or

pawnbrokerage.

b. Pawner shall refer to the borrower of a pawnshop.

c. Pawnee shall refer to the pawnshop or pawnbroker.

d. Pawn is the personal property delivered by the pawner to the pawnee as security for a

loan,

e. Pawn ticket is the pawnbroker’s receipt for a pawn and shall not be considered as an

official receipt for amounts collected.

f. Property shall include only such personal property which can be physically delivered to

the control and possession of the pawnee.

g. Voting stock is that portion of the authorized capital which is subscribed and entitled to

vote.
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h. Vital records shall consist of the Loans Extended/ Paid Registers, General

Ledger/Journal, that may be in electronic form, covering the current and at least the

preceding five (5) years of operation, unused accountable forms and permanent records, e.g.,

articles of incorporation/co-partnership, by-laws, stock certificates, etc.

i. Bulky pawns shall refer to household appliances, office machines and the like, which

occupy considerable amount of space i.e., measuring at least 1.5 x 1.5 x 0.5 feet.

j. Premises shall refer to the area where the pawnshop conducts its business and maintains

office. It includes office or storage spaces maintained and/or used by the pawnshop which are

adjacent to the pawnshop’s location.

VI. OTHER RELATED TOPICS

Trusted Pawnshops in the Philippines

People have always looked for creative ways to get a quick buck. Most people simply

ask their friends, but there will come a time when you will need to sacrifice something of

value for you to get the money you need.

Pawnshops have always been relied upon for such a crisis. Here’s Primer’s list of the

5 most trusted pawnshops in the Philippines, in no particular order:

1. Tambunting Pawnshop

Tambunting Pawnshop is the country’s oldest pawnshop. First opened in 1906,

they’ve served the Filipino for over 100 years. The pawnshop accepts jewelry and gadgets

such as mobile phones, tablets, cameras, laptops, iPods, watches, etc. They also provide other
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services like money exchange, remittance, airline ticketing, insurance, electronic loading, and

banking.

2. M Lhuillier

M Lhuillier is one of the country’s largest pawnshops. Known recently for its Kwarta

Padala, M Lhuillier is pretty much the go-to for most Filipinos looking to pawn off any

valuables for cash. Nowadays, the pawnshop is more than just a simple place to pawn off

your jewelry; they’ve expanded their services to include remittance, insurance, quick cash

loans, money changing, and even food products.

3. Cebuana Lhuillier

The “son” of M Lhuillier. Philip Jones Lhuillier, son of M Lhuillier founder Henry,

started his own pawnshop around the 1980s. Cebuana Lhuillier is often confused with M

Lhuillier, but has always been a trusted name by Filipinos when they are in a pinch. Apart

from pawning services, they have also expanded to include remittance, microfinance

(insurance and loans), banking, and a rewards program.

4. Palawan Pawnshop

As the name suggests, Palawan Pawnshop started in Palawan in the mid-1980s

(Puerto Princesa City to be exact). Like most pawnshops, they started with pawn brokering

but later expanded to include money remittance, currency exchange, e-loading, bills

payment, and accident insurance.

5. PawnHero Pawnshop
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PawnHero.ph is an online pawnshop where anyone can submit a pawn request

anytime, anywhere. Unlike brick-and-mortar pawnshops, PawnHero offers a lower, fixed

interest rate (at 2.99%) which is up to half of what traditional pawnshops in the Philippines

offer. They also guarantee zero service charges and no hidden costs or penalty fees for late

payment or loan renewals.

Pawnhero.ph also offers a higher appraisal value for a wider variety of items than

currently accepted by traditional pawnshops. This includes musical instruments, jewelry,

gadgets, luxury goods, equipment, and much more. You can get this app on Google Play for

free.

6. Villarica Pawnshop

Founded by Paz R. Villarica on 1954, the first branch of Villarica Pawnshop opened

in Quiapo, Manila. Today, Villarica pawnshop has grown to a trusted pawnshop for 26 years,

with about 600 branches all over the Philippines.

Advantages of Sangla

1. Instant Access to Cash

Sangla allows quick access to money when you need it. Filipinos use pawn loans for

various purposes, usually to get through Petsa de Peligro, add to the capital for a small

business, and financial emergencies in the family.

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In fact, the latest Bangko Sentral ng Pilipinas (BSP) national financial inclusion

survey notes that pawnshops are among the most well-known and accessible places where

people perform financial transactions, including obtaining loans.

Aside from their presence all over the Philippines, pawnshops also have longer

operating hours than banks. Online pawnshops and some physical pawnshops (select

Cebuana Lhuillier and M Lhuillier Pawnshop branches) serve customers 24/7. Others like

Palawan Pawnshop and RD Pawnshop are open seven days a week and even on some

holidays. So when the urgent need for cash arises—even in the wee hours—you can easily

pawn a valuable item at the nearest pawnshop.

2. Easy and Fast Pawning Process

Pawnshops allow their customers to borrow money quickly, unlike government

offices and banks that take several weeks to approve loans.

Sangla simply involves presenting your collateral to a pawnshop for appraisal, filling

out a form, signing a pawn ticket (also called papel de ahensya) and the plastic-wrapped

pawned item, and receiving a copy of the pawn ticket and the cash. In just a matter of

minutes, you can walk away with the money borrowed from a pawnshop.

3. No Credit Checks

Credit investigations and background checks are a common practice among banks

and government lenders to determine a borrower’s ability to repay a loan. That isn’t the case

with pawnshops. There’s no credit check and approval process. Rather, both parties simply
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agree on the price and redemption date for the collateral. The loan amount depends not on the

borrower’s credit score but on the appraised value of the item being pawned.

Pawnshops don’t bear the risk of a borrower failing to repay the loan, as they can

simply sell the collateral and still earn money from doing so.

4. No Effect on Credit History

If you fail to pay back what you owe, it won’t hurt your credit history and credit

score. The only consequence is that the pawnshop will get to keep your pawned item.

Pawnshops in the Philippines don’t—and aren’t required to—report their customers’

credit information to the credit bureaus. Only banks, cooperatives, telecommunications

companies, and insurance providers are required to do so.

5. Safe Transactions with Licensed Pawnshops

The BSP is the government agency that regulates pawnshops in the Philippines. It

implements strict rules among pawnshops to ensure fair, ethical, and legal money lending

practices.

If you transact with a pawnshop registered with the BSP, you’re assured that it won’t

close down anytime soon and won’t run away with your collateral (or money if you paid an

advance interest).

The BSP keeps a directory of licensed pawnshops and those that are delisted. On the

BSP website, search for the “List of BSP-Supervised Pawnshops” and “List of Delisted

Pawnshops.”
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Disadvantages of Sangla

1. High Pawn Loan Interest Rates

The cost of redeeming collateral is high because pawnshops charge high interest

rates. For the major pawnshops in the Philippines, monthly loan interest rates are typically at

3% or 4% (See table below). Others charge higher monthly rates at 10%. The annual interest

rates for pawn loans range from 40% to 240%. These are higher than the annual rates of

government loans (around 10%) and low-interest personal loans from banks (17% to 30%).

On top of the principal loan and interest, borrowers also have to pay a service charge

to the pawnshop. It seems minimal at five pesos or less per transaction, but if you often

borrow from a sanglaan, the costs definitely add up.

2. Low Appraisal

If you’ll pawn a valuable item for the first time, manage your expectation—the

pawnshop won’t lend you the amount equivalent to the full value of your collateral.

Pawnshops in the Philippines appraise items for pawning at low prices, usually less than half

of the actual cost, as this Quartz article notes.

Also, the loan amount can get further slashed if the pawnshop charges an advance

interest. This means the full interest, or a percentage of it, will be deducted upfront from the

loan proceeds.

3. Too Short Loan Terms

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When you get a pawn loan, you have only 30 days to pay it back and redeem your

collateral. That isn’t a problem if you’re sure you can repay the amount within the time limit.

But what if you can’t?

Pawnshops generally allow customers to renew their sangla up to a 90 to 120-day

grace period. If you extend your loan term, the cost of borrowing gets more expensive.

You’ll keep paying the monthly interest on the loan until it’s fully repaid.

4. Risk of Losing or Damaging Pawned Item

If you still can’t repay within the pawnshop’s grace period, it can keep your pawned

item and put it up for auction or sale. It’s a huge loss if your collateral has sentimental value

(like a wedding ring or heirloom) or is a high-value asset (like a house, car, or motorcycle).

Even if you don’t default on your pawn loan, there’s a risk that your jewelry or

gadget can get damaged while it’s in the possession of the pawnshop

5. Risk of Getting Scammed

Beware of any type of sangla that asks for your ATM card, bank account details, or

ID as collateral. This is a typical feature of a loan shark that preys on Pinoys who desperately

need to borrow money through Sangla ATM schemes. Such a scam is dangerous because,

with access to your personal and financial information, scammers can easily withdraw all the

money and perform other transactions without your knowledge.

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COOPERATIVES
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I. INTRODUCTION

A cooperative can be define in various ways; but we can derive it from the word

cooperation. The term cooperation is derived from the Latin word cooperari, where the word

co means “with” and operari means, “to work”. Thus cooperation means working together.

Therefore, those who want to work together with some common goals of building a business

or organization can be called as “cooperatives”. It works on the principle of self-help as well

as mutual help.

According to Cooperative Development Authority (CDA). A cooperative is a duly

registered association of persons with a common bond of interest, who have voluntarily

joined together to achieve a lawful common social or economic end, making equitable to

contribution to the capital required and accepting a fair share of the risks and benefits of the

undertaking in accordance with universally accepted cooperative principle.

PRINCIPLES

Open and voluntary membership. Membership in a cooperative is voluntary and available

to all individuals regardless of their social, political, racial or religious background or beliefs.

Democratic control. Cooperatives are democratic organizations. Persons elected or

appointed in a manner agreed upon by the members administer their affairs. Members of

primary cooperatives have equal voting rights on a one-member-one-vote principle.

Limited interest in capital. Share capital shall receive a strictly limited rate of interest.
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Division of net surplus. Net surplus arising out of the operations of a cooperative belongs to

its members and shall be equitably distributed for cooperative development common

services, indivisible reserve fund, and for limited interest on capital and/or patronage refund

in the manner provided by law.

Cooperative education. All cooperatives shall make provision for the education of their

members, officers and employees and of the general public based on the principles of

cooperation.

Cooperation among cooperatives. All cooperatives, in order to best serve the interest of

their members and communities, shall actively cooperate with other cooperatives at local,

national, and international levels.

II. GOVERNING LAWS

Republic Act 9520, also known as the “Philippine cooperative code of 2008”, defines

a cooperative as, “an autonomous and duly registered association of persons, with a common

bond of interest, who have voluntarily joined together to achieve their social, economic, and

cultural needs and aspirations by making equitable contributions to the capital required,

patronizing their products and services and accepting a fair share of the risks and benefits of

the undertaking in accordance with universally accepted cooperative principles.”

The Cooperative Development Authority (CDA) is a government agency which

registers all types of cooperatives in the Philippines. In order to qualify, you must have at-

least 15 members in your proposed cooperative. The proposed business name, which should

include the word “cooperative”, must be submitted to the CDA office, and all other necessary
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requirements such as the economic survey, articles of cooperation and its by-laws and the

names of the cooperative’s directors.

In response to the Constitutional mandate, Congress of the Philippines (legislature)

passed the Cooperative Code (Republic Act 6938) and Cooperative Development Authority

(CDA) Charter (RA 6939) on March 10, 1990. The Cooperative Code provides for the

general concepts and principles; organization and registration; membership; administration;

dissolution; capital; recovery and funds; audit, inquiry and members right to examine;

allocation and distribution of net surplus; and special provisions relating to agrarian reform

cooperatives, public cooperatives, cooperative banks, credit cooperative and cooperative

insurance societies, among others.

The RA 6939 created the CDA, the agency that promotes the viability and growth of

cooperatives as instruments of equity, social justice and economic development. The law

provides its powers, functions, and responsibilities; the governing body; budget and funds;

and rule making power, among others.

In 2008, RA 6938 was amended by RA 9520, with the inclusion of provision on

representative assembly, subsidiary cooperative, financial service cooperative, to cite a few

amendments, while keeping the provisions of RA 6938 basically intact.

The policy of the state, as far as cooperative is concerned, is well-amplified in the

Cooperative Code which states, “ to foster the creation and growth of cooperatives as

practical vehicle for promoting self-reliance and harnessing people power towards the

attainment of economic development and social justice. The State shall encourage the private
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

sector to undertake the actual formation and organization of cooperatives and shall create an

atmosphere that is conducive to the growth and development of these cooperatives.”

To operationalize the policy, the government including all its branches, subdivisions,

instrumentalities, and agencies are all called to “ensure the provision of technical guidance,

financial assistance and other services to enable said cooperatives to develop into viable

movement that is free from any conditions that may infringe upon the autonomy or

organizational integrity of cooperatives.”

Purposes of Cooperatives. A cooperative may be organized and registered for any or all of

the following purposes:

"(1) To encourage thrift and savings mobilization among the members;

"(2) To generate funds and extend credit to the members for productive and provident

purposes;

"(3) To encourage among members systematic production and marketing;

"(4) To provide goods and services and other requirements to the members;

"(5) To develop expertise and skills among its members;

"(6) To acquire lands and provide housing benefits for the members;

"(7) To insure against losses of the members;

"(8) To promote and advance the economic, social and educational status of the members;
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

"(9) To establish, own, lease or operate cooperative banks, cooperative wholesale and retail

complexes, insurance and agricultural/industrial processing enterprises, and public markets;

"(10) To coordinate and facilitate the activities of cooperatives;

"(11) To advocate for the cause of the cooperative movements;

"(12) To ensure the viability of cooperatives through the utilization of new technologies;

"(13) To encourage and promote self-help or self-employment as an engine for economic

growth and poverty alleviation; and

"(14) To undertake any and all other activities for the effective and efficient implementation

of the provisions of this Code.

III. TYPES OF COOPERATIVES

Cooperatives may fall under any of the following types, in addition to others which

may be determined by the Cooperative Development Authority (CDA):

Credit Cooperative. Promotes and undertakes savings and lending services among its

members. It generates a common pool of funds in order to provide financial assistance to its

members for productive and provident purposes.

Consumers Cooperative. The primary purpose is to procure and distribute commodities to

members and non-members.

Producers Cooperative. Undertakes joint production whether agricultural or industrial. It is

formed and operated by its members to undertake the production and processing of raw
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

materials or goods produced by its members into finished or processed products for sale by

the cooperative to its members and non-members. Any end product or its derivative arising

from the raw materials produced by its members, sold in the name and for the account of the

cooperative, shall be deemed a product of the cooperative and its members.

Marketing Cooperative. Engages in the supply of production inputs to members and

markets their products.

Service Cooperative. Engages in medical and dental care, hospitalization, transportation,

insurance, housing, labor, electric light and power, communication, professional and other

services.

Multipurpose Cooperative. Combines two or more of the business activities of these

different types of cooperatives.

Advocacy Cooperative. A primary cooperative which promotes and advocates

cooperativism among its members and the public through socially-oriented projects,

education and training, research and communication, and other similar activities to reach out

to its intended beneficiaries.

Agrarian Reform Cooperative. Organized by marginal farmers majority of which are

agrarian reform beneficiaries for the purpose of developing an appropriate system of land

tenure, land development, land consolidation or land management in areas covered by

agrarian reform.
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Cooperative Bank. Organized for the primary purpose of providing a wide range of

financial services to cooperatives and their members.

Dairy Cooperative. One whose members are engaged in the production of fresh milk which

may be processed and/or marketed as dairy products.

Education Cooperative. Organized for the primary purpose of owning and operating

licensed educational institutions notwithstanding the provisions of Republic Act No. 9155,

otherwise known as the Governance of Basic Education Act of 2001.

Electric Cooperative. Organized for the primary purposed of undertaking power

generations, utilizing renewable energy sources, including hybrid systems, acquisition and

operation of subtransmission or distribution to its household members.

Financial Service Cooperative. One organized for the primary purpose of engaging in

savings and credit services and other financial services.

Fishermen Cooperative. Organized by marginalized fishermen in localities whose products

are marketed either as fresh or processed products;

Health Services Cooperative. Organized for the primary purpose of providing medical,

dental and other health services.

Housing Cooperative. Organized to assist or provide access to housing for the benefit of its

regular members who actively participate in the savings program for housing. It is co-owned

and controlled by its members.

 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Insurance Cooperative. Engaged in the business of insuring life and poverty of cooperatives

and their members.

Transport Cooperative. Includes land and sea transportation, limited to small vessels, as

defined or classified under the Philippine maritime laws, organized under the provisions of

this Code;

Water Service Cooperative. Organized to own, operate and manage waters systems for the

provision and distribution of potable water for its members and their households.

Workers Cooperative. Organized by workers, including the self-employed, who are at same

time the members and owners of the enterprise. Its principal purpose is to provide

employment and business opportunities to its members and manage it in accordance with

cooperative principles.

CATEGORIES OF COOPERATIVE

On the other hand, cooperatives are categorized according to membership and

territorial considerations:

In terms of membership –

Primary – Members are natural persons

Secondary – Members are primaries

Tertiary – Members are secondary cooperatives

 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

In terms of territory, cooperatives shall be categorized according to areas of

operations which may or may not coincide with the political subdivisions of the country.

Capital. The minimum paid-up share capital is now PhP15,000 (the minimum under the old

law is only PhP2,000), subject to increase by the CDA upon consultation with the

cooperative sector and the NEDA.

The par value of shares of a primary cooperative shall not exceed PhP1,000.

No member of primary cooperative other than cooperative itself shall own or hold more than

10% of the share capital of the cooperative.

Membership. New members may only be admitted to the cooperative after undergoing Pre-

Membership Education Seminar. There are two kinds of members:

1. Regular members. Entitled to all the rights and privileges of membership, including the

right to vote and be voted upon.

2. Associate members. Has no right to vote nor be voted upon and shall be entitled only to

such rights and privileges as the bylaws may provide. However, an associate member shall be

considered a regular member if: (a) he has been a member for 2 continuous years; (b) he

patronizes the cooperative as its member; and (c) he signifies his intention of becoming a

regular member.

A member shall be liable for the debts of the cooperative to the extent of his

contribution to the share capital of the cooperative.

 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Tax Treatment of Cooperative. Cooperatives which do not transact any business with non-

members or the general public shall not be subject to any taxes and fees imposed under the

internal revenue laws and other tax laws. Cooperatives transacting business with both

members and non-members shall be subject to another set of rules, but transactions with

members shall remain to be non-taxable.

Audit. Audit shall be conducted by an external auditor, who must be a member of good

standing of the Philippine Institute of Certified Public Accountants, accredited by the CDA

and the Board of Accountancy.

Penal Provisions. Anyone who uses the word “Cooperative” without being registered with

the CDA is punishable by imprisonment (5 years) and a fine (PhP20,000). Electric

cooperatives registered with the National Electrification Administration (NEA) are exempt

and may not register with the CDA.

Any person who willfully attempt in any manner to evade or defeat tax in violation of

the tax treatment/privileges provided under the Code is punishable by imprisonment (2 years

but not more than 4 years) and a fine (not less than PhP30,000 but not exceeding

PhP100,000), without prejudice to a separate action to collect the taxes.

There are other penalties provided, including violations of the reportorial

requirements of cooperatives.

IV. FUNCTIONS OF COOPERATIVES

 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Functions of a Federation of Cooperatives. A federation of cooperatives shall undertake

the following functions:

"(a) To carry on any cooperative enterprise authorized under Article 6 that complements

augments, or supplements but does not conflict, complete with, nor supplant the business or

economic activities of its members;

"(b) To carry on, encourage, and assist educational and advisory work relating to its member

cooperatives;

"(c) To render services designed to encourage simplicity, efficiency, and economy in the

conduct of the business of its member cooperatives and to facilitate the implementation of

their bookkeeping, accounting, and other systems and procedures;

"(d) To print, publish, and circulate any newspaper or other publication in the interest of its

member cooperatives and enterprises;

"(e) To coordinate and facilitate the activities of its member cooperatives;

"(f) To enter into joint ventures with national or international cooperatives of other countries

in the manufacture and sale of products and/or services in the Philippines and abroad; and

"(g) To perform such other functions as may be necessary to attain its objectives.

"A federation of cooperatives may be registered by carrying out the formalities for

registration of a cooperative.
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

"Registered cooperatives may organize a federation according to the type of business activity

engaged in by the cooperatives.

Under Philippine Development Plan (2011-2016), Cooperatives are expected to

provide a significant contribution in the objectives of creating a) rapid, inclusive and

sustained economic growth, b) financial inclusion, and c) reduction of poverty.

As a help-help organization, with proper monitoring and support of the government,

cooperatives can contribute to rapid economic growth because of the power of cooperatives

to mobilize savings and capital which can serve as inputs in the production of goods and

services of the less privileged members of the society.

Cooperatives which are engaged in deposit mobilization and capital formation have

been proven potent grassroots organizations in providing micro entrepreneurs, who are most

often denied by formal financial institutions, access to capital. The development of micro and

small entrepreneurs which accessed financial services from cooperatives create a rapid,

inclusive and sustained economic growth, particularly in rural and agricultural areas.

The strength of the Philippine financial sector as mentioned in the Philippine

Development Plan (2011-2016) showed a steady improvement on the balance sheet of the

banking industry, the issuance and listing of corporate bonds, and the active participation of

the medium and large cooperatives which comprise 9% of the total registered cooperatives in

the country in the strengthening of the financial sector.

For the year 2013, the reporting cooperatives posted an aggregate ending balance of

PhP97 Billion time/savings deposits, paid-up capital of PhP71 Billion, and net surplus of
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

PhP13 Billion, all of which contributed to the inclusion of the marginalized sector in the

financial market.

The Philippines missed by almost 50% the reduction of extreme poverty by 2015 the

MDG targets and commitments. The extreme poverty reduction was only from 33% (1991)

to 16% (2015). The target of eliminating extreme poverty by 2015 was missed. However, the

provision of technical, financial, and institutional development assistances to micro and small

cooperative, on which a large portion is composed of agriculture and agrarian reform

cooperatives, are projected to contribute to the creation of rural and agricultural enterprises

that will reduce extreme poverty in the rural and far-flung areas.

V. DEFINITION OF TERMS

Cooperative - is a duly registered association of persons with a common bond of interest,

who have voluntarily joined together to achieve a lawful common social or economic end,

making equitable to contribution to the capital required and accepting a fair share of the risks

and benefits of the undertaking in accordance with universally accepted cooperative

principle.

Credit Cooperative – is one that promotes and undertakes savings and lending services

among its members. It generates a common pool of funds in order to provide financial

assistance and other related financial services to its members for productive and provident

purposes;

Consumer’s Cooperative – is one the primary purpose of which is to procure and distribute

commodities to members and non-members;

 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Producer’s Cooperative – is one that undertakes a joint production whether agricultural or

industrial. It is formed and operated by its members to undertake the production and

processing of raw materials or goods produced by its members into finished or processed

products for sale by the cooperative to its members and non-members. Any end product or its

derivative arising from the raw materials produced by its members, sold in the name and for

the account of the cooperative, shall be deemed a product of the cooperative and its

members;

Marketing Cooperative – is one which engages in the supply of production inputs to

members and markets their products;

Service Cooperative – is one which engages in medical and dental care, hospitalization,

transportation, insurance, housing, labor, electric .light and power, communication,

professional and other services;

Multipurpose Cooperative – is one which combines two (2) or more of the business

activities of these different types of cooperatives;

Advocacy Cooperative – is a primary cooperative which promotes and advocates

cooperativism among its members and the public through socially-oriented projects,

education and training, research and communication, and other similar activities to reach out

to its intended beneficiaries;

Agrarian Reform Cooperative – is one organized by marginal farmers majority of which

are agrarian reform beneficiaries for the purpose of developing an appropriate system of land
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

tenure, land development, land consolidation or land management in areas covered by

agrarian reform;

Cooperative Bank – is one organized for the primary purpose of providing a wide range of

financial services to cooperatives and their members;

Dairy Cooperative – is one whose members are engaged in the production of fresh milk

which may be processed and/or -marketed as dairy products;

Education Cooperative – is one organized for the primary purpose of owning and operating

licensed educational institutions, notwithstanding the provisions of Republic Act No. 9155,

otherwise known as the Governance of Basic Education Act of 2001;

Electric Cooperative – is one organized for the primary purpose of undertaking power

generation, utilizing renewable energy sources, including hybrid systems, acquisition and

operation of sub-transmission or distribution to its household members;

Financial Service Cooperative – is one organized for the primary purpose of engaging in

savings and credit services and other financial services;

Fishermen Cooperative – is one organized by marginalized fishermen in localities whose

products are marketed either as fresh or processed products;

Health Services Cooperative – is one organized for the primary purpose of providing

medical, dental and other health services;

 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Housing Cooperative – is one organized to assist or provide, access to housing for the

benefit of its regular members who actively participate in the savings program for housing. It

is co-owned and controlled by its members;

Insurance Cooperative – is one engaged in the business of insuring life and property of

cooperatives and their members;

Transport Cooperative – is one which includes land and sea transportation, limited to small

vessels, as defined or classified under the Philippine maritime laws, organized under the

provisions of this Code.

Water Service Cooperative – is one organized to own, operate and manage water systems

for the provision and distribution of potable water for its members and their households.

Worker’s Cooperative – is one organized by workers, including the self-employed, who are

at the same time the members and owners of the enterprise. Its principal purpose is to provide

employment and business opportunities to its members and manage it in accordance with

cooperative principles;
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

REFERENCES:

 https://www.termpaperwarehouse.com/essay-on/Pawnshop-Operation/194456

 http://www.bsp.gov.ph/banking/pawndir.pdf

 https://www.senate.gov.ph/lisdata/52874664!.pdf

 http://www.thegreenbook.com/function-of-pawnshop-and-pawnbrokers.htm

 https://www.pawnnerd.com/what-does-a-pawn-shop-do-exactly/

 https://primer.com.ph/business/2016/09/19/list-of-trusted-pawnshops-in-the-

philippines/

 https://www.moneymax.ph/loans/articles/sangla-pawn-loan/

 https://pnl-law.com/blog/cooperatives-in-the-philippines-an-introduction/

 http://cda.gov.ph/

 https://lawphil.net/statutes/repacts/ra2009/ra_9520_2009.html

 http://www.cda.gov.ph/resources/issuances/philippine-cooperative-code-of-

2008/republic-act-9520

 https://pnl-law.com/blog/introduction-to-the-philippine-cooperative-code-of-2008/