Handling the COVID-19 pandemic in the Philippines: the experience of cooperatives
OIC and NICO are savings and credit cooperatives (SACCOs) in the Mindanao region in the Philippines. The Philippines has been in lockdown since March 14; in early April we spoke with Floriano Hilot, CEO of OIC, and Nick Tabyas, Managing Director of NICO, to understand how SACCOs are coping with the current situation and the plans that they are making for the long term.
The challenges facing SACCOs and its members currently due to a lockdown
Since the lockdown, the SACCO branches are operating on a skeletal workforce that works for just four hours a day. This hampers service continuity and repayment of loans, collection and withdrawal of deposits are now the biggest challenges facing SACCOs. Members have to cross various checkpoints to reach their branch and not all of them have access to an ATM to withdraw cash. OIC has also suspended collector visits for monthly installment or deposit collections. Meanwhile, the government has given a one-month moratorium for loans. The deposit collection has dropped to almost 20% of the average. At the moment, OIC has also suspended providing non-consumption loans.
Though some of the members are salaried and have their income secured, they are not repaying and are relying on the moratorium extended by the government. For farmer members growing fruits and vegetables, even though their service falls under essential commodities, the farmer members are unable to send their produce to the cities as they would have to cross and collect passes at numerous checkpoints.
How the two SACCOs are currently handling this crisis
The General Assemblies of the SACCOs have been indefinitely postponed during lockdown. Usually, the dividend and patronage refund is only released after the general assembly in May. Given the circumstances, both SACCOS have released this fund earlier to ensure members have money during the lockdown crisis. Additionally, members of NICO are encouraged to open an ATM account for ease in withdrawing funds.
Much before the directive from Cooperative Development Authority (CDA), NICO announced a moratorium for March and April for loan repayments. NICO is identifying the members who have been impacted the most, specifically the daily wage earners. The contribution of this segment to NICO’s loan portfolio is significant. OIC is also trying to identify impacted members by talking to each of them personally. For the impacted members, depending on the extent of impact, OIC is looking at increasing the loan term by 6 to 12 months.
SACCOs also need to change their systems for loan extension and preventing the loans from being marked as delinquent because of the grace period in repayment. To help members impacted during the lockdown, OIC is also expanding its microenterprise programs to focus on providing livelihood opportunities to its members (such as poultry farming in their backyards).
For their employees, both SACCOs continue to pay salaries in full. In fact, to help the employees cope better, the 13th month pay (which is generally given in May) has already been released by NICO in full and partially by OIC. Employees are also allowed to use the benefit of the moratorium.
The main challenges expected once the lockdown is lifted
The biggest worry for both SACCOs is loan delinquency once the moratorium period is over. During the lockdown period, neither of the SACCOs has seen panic withdrawals, mainly because of the hassle in going to a branch. However, post-lockdown the worry is that many members will withdraw their long-term savings, leading to low liquidity for the SACCOs. OIC has an existing credit life with a commercial bank and is applying for an additional credit line with a federation of cooperatives.
The SACCOs are hoping for some soft loans to get extended to them to deal with the situation, but no such announcements have been made by the Government yet.
The main focus of SACCOs after the lockdown
The primary focus will be on loan recovery and coping with increases in delinquency. Digitalization of processes will be another focus. OIC has identified a vendor and will work on getting a core banking system implemented.
In Feb 2020, NICO and OIC have launched an integrated risk solutions anchored on savings with support from the ILO’s Social Finance Programme. OIC thinks that members will see the benefit of such a product more than ever and expects the product to be picked up in the next six months.
Regulator’s directions
As per the CDA directive, cooperatives are strongly urged to use the community development fund (which is 3% of the net surplus) for the benefit of the cooperative communities. The projects are those identified in the Social Development Plan, with the exception of those undertaken in response to COVID-19, to reinforce prevention and control actions by the government. Food packages, alcohol, soap, vitamins and other essentials may be distributed to community members who are in dire need help.
The optional fund, which is 7% of net surplus, may also be used by the cooperative for the benefit of members and employees. If the cooperative does not intend to use the optional fund or the amount is not adequate for aid, the expense can be accounted for as a direct expense. CDA has also advised cooperatives to extend emergency loans with low or no interest to members in need.
While the directive of the CDA offers some guidance, no official financial assistance has been announced or provided by the government to the cooperatives yet.
