USPD SAVINGS AND CREDIT COOPERATIVE
PARTNER’S APPRAISAL and SUPPORT REQUEST

1. Project information

2. Social enterprise description

United Sugarcane Planters of Davao (USPD) Savings and Credit Cooperative started as the savings and credit department of the USPD Multipurpose Cooperative (MPC), an agricultural MPC established in 1991. In 1996, El Niño phenomenon hit the Davao Mill District, the rat and locust infestations that destroyed sugarcane fields, and the unpredictability of sugar prices exposed the vulnerabilities of the members.

This prompted USPD MPC to launch the savings and credit department to teach members the value of saving. USPD Savings and Credit Cooperative was organized and registered with the Cooperative Development Authority (CDA) on September 8, 2003. The cooperative was re-registered with the CDA on December 7, 2009 as a lending cooperative.

The cooperative is engaged in encouraging thrift and savings mobilization among members for capital formation, creating funds in order to grant loans for productive and provident purposes to its members and promoting the cooperative as a way of life for improving the social and economic well-being of its members.

The cooperative and its partners continue to implement programs for the benefit of the members. It also carries out scholarship program to qualified children of members; and has already produced college and vocational graduates from universities and colleges in Mindanao. The commitment of the officers, staff and members to USPD Savings and Credit Cooperative has enabled it to maintain the quality of service it has nurtured through the years.

USPD is already a longtime partner of SEDPI Development Finance, Inc., the financing arm of SEDPI Group of Social Enterprises. They started the engagement in 2011 and remain to have a good working relationship at present.

SEDPI tapped USPD to be part of the DAR-MALP project given the history and the viability of the project in Davao del Sur, a largely agricultural province. The aim was to develop savings, loans and insurance products fit for the agriculture sector.

• Social enterprise opportunity

The Bangko Sentral ng Pilipinas (BSP) defines microfinance as the provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products to the poor and low-income households, for their microenterprises and small businesses, to enable them to raise their income levels and improve their living standards.

Typical microfinance clients are low-income persons that do not have access to formal financial institutions. Microfinance clients are typically self-employed, often household-based entrepreneurs.

In rural areas, they are usually small farmers and fisherfolk as well as others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, and others.

Financial products of microfinance used to be limited to savings and credit. Several financial services have sprung up in the past decade to address the other financial services needs of microfinance clients like insurance, remittance and even housing services.

The National Strategy for Microfinance envisions a viable and sustainable microfinance market that will help provide poor households and microentrepreneurs with greater access to microfinance services.

It calls for a greater role for the private sector and the non-participation of government line agencies in the provision of credit and guarantee programs. Emphasis is on the adoption of market oriented financial and credit policies to ensure viability and sustainability.

It is worthy to note that the Philippines closed the gender gap in terms of financial inclusion which is largely attributed to microfinance institutions.

The microfinance industry in the Philippines has grown into a PhP245 billion industry as of the first quarter of 2019.[1] There are currently 159 banks, 2,861 microfinance NGOs and 3,881 credit cooperatives in the Philippines servicing millions of microfinance clients.[2] As of 2014, there are 4.3 million borrowers and 5.1 million depositors.[3]

Registered microenterprises comprise 97% of total registered businesses in the Philippines. Millions more operate in the informal sector and remains unregistered but are integral part of the local economy especially in rural areas.

USPD is the largest cooperative in Davao del Sur where poverty incidence is 20% in 2012 and improved to 15% in 2018[4]. With the strong local economic performance driving the Philippine economy, and low income households actively seeking pro-poor financial services, USPD could expand its portfolio and ride this momentum.

• Stakeholders

USPD supports nearly 56,000 microenterprises in Davao de Sur. These microenterprises enjoy access to credit to support their livelihood and other financial services such as savings, damayan and insurance that allow them to face external shocks better.

Various impact assessments reveal that there is improvement of quality of life of these microenterprises due to the increase in their income. However, it is also noted that it would take more interventions aside from microfinance that would ultimately lift them out of poverty.

USPD MPC is the mother cooperative of USPD. It is an active member of the Philippine Federation of Credit Cooperatives (PFCCO).

It is also a member of Cooperative Deposit Insurance System (CODIS) a federation of cooperatives which acts as a self-regulating organization mandated to safeguard deposits of individual members with cooperatives. It is also part owner of the Cooperative Insurance System of the Philippines (CISP).

USPD is a proud member of the Model Cooperatives Network (MCN), a federation of FOCCUS cooperatives. FOCCUS stands for Finance Organizations achieving Certified Credit Union Standards. It was an initiative of the World Council of Credit Unions.

3. Proposal details

Vision: A world – class international standard – based cooperative with excellent products & services dedicated to improving members’ social and economic well – being, committed to environmental protection.

Mission:

• To maintain the PLATINUM STATUS.
• To continuously innovate & provide excellent products and services.
• To maintain the personal approach in providing savings and credit services to our members.
• To provide continuous education on the value and habit of saving to members.
• To empower members to become and sustain their entrepreneurial spirit.
• To inculcate the core values of the cooperative.
• To instill in members and communities the importance of protecting the environment.

• Expansion of operations

USPD intends to increase its portfolio through a two-pronged strategy – increase the number of borrowers and increase the amount it extends to existing borrowers. Based on its development plan, It hopes to bring its number of members to hit 70,000 by the end of 2021.

Internally mobilized savings from clients and SEDPI line of credit are the two main sources of fueling USPD’s growth. It’s current credit line is PhP25 million of which, about PhP4.5 million is outstanding.

4. Social performance management

• Social performance

The National Baseline Survey on Financial Inclusion reported that 47% of Filipinos borrow money. However, an astounding 72% of them access loans from informal sources – from family, friends and unregistered money lenders.

Only 15 out of a 100 Filipinos can borrow from formal financial institutions. A third of this access loans from MFIs such as USPD.

USPD offers low interest rates compared to informal lending sources such as loan sharks and five-six. Clients need not provide collateral as security for the loan and need not submit a lot of documentary requirements or fill out voluminous forms.

Savings and insurance products allows the poor to smoothen consumption and are better able to face external shocks.

• Environmental performance

Microenterprises have low negative impact on the environment. USPD also does not support enterprises that have negative effect to the environment.

• Financial performance

Assets or total resources is steadily growing at a pace of 14%-24% per annum. The rate of growth is slowing down but this is still faster than the GDP growth rate of the overall economy.

Net income is also steadily growing from 2014 to 2018 and the return on assets also grows at the same steady pace. Return on assets measures the efficiency of an organization in utilizing its resources to produce profit.

The standard for return on assets is a rate higher than inflation. In the past five years, USPD posted positive return on assets and is a little above the inflation rate which signals positive real growth.

Operational self sufficiency (OSS) measures the ability of an organization’s income streams to cover all expenses. A 100% OSS means that an organization reached breakeven level. The standard for OSS is greater than 120% which means that USPD was able to surpass the standard in the past three years.

Portfolio at risk is a portfolio quality measure that shows the likelihood or probability of a loan not to be repaid. The industry standard for portfolio at risk is 5% which represent the total amount of portfolio that may not be collected. The cooperative’s portfolio at risk is high but as can be observed, this high portfolio at risk doesn’t translate to losses nor increase in bad debt.

This means that borrowers get delayed in repaying their loans but will ultimately be able to repay their loans in full. Most agriculture-led economies show this trend since harvest does not precisely match loan terms.

• Repayment track record

The total loan amount exposed to USPD as of October 2, 2019 is PhP4,500,000. Since the partnership with SEDPI started, USPD has consistently paid its loans on time. Aside from the existing loans, USPD already finished paying off 7 loan agreements since SEDPI lent to it in 2011 with total loan releases of PhP43 million.

There were no instance that USPD asked for delay in deposit of post dated checks. It maintained perfect repayments 100% of the time.

5. Social investment participation

• Qualifications

• Investment information

 The loans are extended to USPD without any collateral but with post dated checks as security. SEDPI does not offer any collateral nor guarantee of the investment. Social investors bear the risk.

To participate, you need to enter into a joint venture with SEDPI and it will joint venture contribution certificate. Payouts coming from repayments on principal and interest will be reflected in the social investor’s SEDPI wallet. Once in the SEDPI wallet, the amount no longer earns. Notify SEDPI if you wish to reinvest the amount in the SEDPI wallet.

The interest rate is computed based on diminishing balance method to reflect proper effective interest. In this method, the interest is only charged to the outstanding balance of the loan given a specific period. Sample computation shown in the table below:

• Fees

There is a 3% entry fee to participate in the joint venture. If one intends to contribute PhP100,000, they should deposit additional PhP3,000 for the entry fee and for a total of PhP103,000.

If the joint venture contribution is redeemed or pre-terminated before two years, a 3% exit fee will be charged on the amount to be withdrawn since SEDPI will provide funds to replace the lost capital. For example, if PhP100,000 will be withdrawn, PhP3,000 will be charged to the amount which will mean that the net proceeds will be PhP97,000.

All remittance fees, if any, related to deposit, redemption and pre-termination shall be charged on the account of the social investor.

• Other conditions

Social investors may only invest in this joint venture to USPD a maximum of PhP500,000. This is to encourage portfolio diversification and at the same time avoid concentration of portfolio to a few.

SEDPI will provide a digital joint venture contribution certificate as proof to the social investor that can be viewed online. They must also have attended Vince Rapisura’s or SEDPI training events on financial literacy online or classroom setting.

6. Procedure

• New social investors

New social investors can accomplish online application form by visiting SEDPI Social Investments Online. They must apply for SEDPI membership online and will be asked to provide personal information.

All social investors are required to at least elect one beneficiary for the account. The ownership of the investment will be transferred to the beneficiary if something happens to the social investor.

They will also be asked to upload a copy of their government-issued ID in compliance with Know Your Client provision of the Anti Money Laundering Act (AMLA).

Upon successful completion of membership application form, they will receive an email containing login credentials and procedures on how to deposit initial investment.

When deposit is made to SEDPI bank account for the investment, the social investor will log in to SEDPI Social Investments Online and select advice for additional investment where they will input investment details and upload proof of remittance of their deposit.

• Existing social investors

Existing social investors shall log in to SEDPI Social Investments Online using their credentials and select advice for additional investment where they will input investment details and upload proof of remittance of their deposit.

• Bank account details

The following are the bank account details of SEDPI.

[1] BSP Financial inclusion report, first quarter 2019.

[2] BSP Financial inclusion report, first quarter 2019.

[3] Mix market

[4] Philippine statistics authority