1/9/14 The Case of the Central Cooperative Financial System (CCFS) | Erik Villanueva's Blog on the Associative Economy

25th February 2008 The Case of the Central Cooperative Financial

System (CCFS)
The Case of the Central Cooperative Financial System (CCFS)

The CCFS started out as an idea articulated by former Bulacan Governor Roberto M.
Pagdanganan. Bulacan takes pride in having many operational cooperatives. Mr. Pagdanganan’s
faith in the cooperative idea was strengthened by his exposure to the Raiffeisen system in Germany.
He became president of the National Cooperative Movement (NCM), a group of co-op leaders and
some government officials who underwent exposure in Germany under the sponsorship of the
Hanns Seidel Foundation.

As representative of NCM, he was elected chairman of the Philippine Cooperative Center (PCC),
which is composed of national cooperative organizations including NATCCO and some primary co-
ops as well. His initial proposal was for the cooperative rural banks to form the core of a centralized
financial system to be known as the National Consolidated Cooperative Bank (NCCB). Later on, he
included the national cooperative federations in the NCCB concept to form the common
shareholders together with the co-op banks, with government financial institutions as contributors of
preferred equity shares.

Mr. Pagdangnan again revised his proposal, believing that co-ops are not yet ready to operate such
a network. He proposed that the Land Bank of the Philippines should become the temporary apex
bank for co-ops to manage the Centralized Cooperative Financial System (CCFS), with the coop
banks, the coop federations, and primary coops as depositing members and as capital contributors.
Co-ops would maintain their independence and autonomy but have to abide by operating and
financial standards, including auditing systems to be established as part of the services of the
system. Qualified coops would benefit from credit guarantee system, deposit insurance, liquidity
pooling, investment services, and as conduit for loans. The idea was for co-ops under the CCFS to
take advantage of the resources, technical services and facilities of LBP under some form of
apprenticeship in operating a financial system. The Pagdanganan’s concept of the CCFS was
contained in the second edition of his book ‘An Urgent Call for Cooperative Revolution.’

However, NATCCO was already pursuing a different track to cooperative financial integration,
believing that regulations by central monetary authorities in the country impose limitation on the
prospects of cooperative banks. Thus, instead of establishing a cooperative bank, NATCCO
promoted the concept of a centralized financial organization among savings and credit co-ops.
NATCCO has launched the NATCCO Central Liquidity Fund (NCLF), a facility funded from
investments of cooperatives and which member cooperatives can draw from to cover liquidity
requirements.

Others pinned their hopes on the MSCB, which were then already and recruiting into its membership
and deposit base all types of co-ops, including other coop banks. Some even proposed that later on
that co-ops banks that are members of MSCB can later on serve as branches of the MSCB after its
conversion into a national coop bank.

erikvillanueva.blogspot.com/2008/02/case-of-central-cooperative-financial.html 1/4
1/9/14 The Case of the Central Cooperative Financial System (CCFS) | Erik Villanueva's Blog on the Associative Economy

PCC entered into an agreement of understanding with Land Bank and other government agencies
for the establishment of the CCFS. As a center composed of national cooperative organizations,
PCC was seen as the body to coordinate the effort to form the CCFS. A Technical Working Group
chaired by Land Bank was established composed of several government agencies (LBP, CDA,
Quedancor, PDIC) and national cooperative organizations including NATCCO, PFCCO, Bangkoop
and others.

Along the way, national organizations finally concluded that the envisioned CCFS was not consistent
with their existing plans. PFCCO leaders were of the view that supporting CCFS is not consistent
with efforts to strengthen the MSCB as the future Bangko Kooperatiba ng Pilipinas. NATCCO was
particularly concerned about the bundling of liquidity pooling, investment management, deposit and
credit guarantees and other functions under the CCFS as common roof. It proposed that the CCFS
should not include functions that are already being performed by the existing federations. Liquidity
pooling and investment management are already being performed by NATCCO through its regional
federations and at the national level through the NCLF. PFCCO is also operating central fund
projects at the regional level. Some co-op networks such as Bangkoop was warm to the CCFS
concept because they did not have liquidity pooling as a major network activity in the first place.

Another source of reservation about the CCFS is the role of government. Under the proposed
scheme CCFS will not be a legal cooperative entity but will merely be a program managed by Land
Bank. In the proposed governance structure, Land Bank will hold the chairmanship of the
Management Council. The autonomy of cooperatives, according to the opposing view, will thus be
sacrificed in exchange for the efficiency and leverage the Land Bank can supposedly deliver in
behalf of cooperatives that will contribute funds to the CCFS liquidity and investment pool.
According to the opposing view, the CCFS concept prepared by the Land Bank-led Technical
Working Group skirt the process of horizontal trust and confidence-building among cooperatives
and relies instead on the vertical authority of government through the Land Bank.

Because of these reservations, PCC decided not to sign the final memorandum of agreement with
Land Bank regarding the CCFS. Some of PCC member organizations however have signed the
agreement. The PCC Board instead issued a resolution ‘lauding the efforts that went into the
formation of the CCFS’ and ‘to work for the improvement of the CCFS through its members’ who are
CCFS members.

While co-op networks such as NATCCO and MSCB were already growing, the CCFS bogged down
in debates about its legal personality (whether it should be registered as a co-op or as remain as a
program or department of Land Bank). Even with Land Bank’s support, and even as it eventually
registered itself as a cooperative (and therefore technically as a federation) it was able to mobilize
only a small fraction of the financial contributions that NATCCO’s Central Liquidity Fund and MSCB
had mobilized from their respective membership. There were those who express optimism that a
convergence between NATCCO, MSCB, and the CCFS project is foreseeable. Co-ops would
probably continue to belong to separate financial systems catering to the same market.

erikvillanueva.blogspot.com/2008/02/case-of-central-cooperative-financial.html 2/4
1/9/14 The Case of the Central Cooperative Financial System (CCFS) | Erik Villanueva's Blog on the Associative Economy

By that time, popular protests had ousted President Joseph Estrada and installed Gloria Macapagal-
Arroyo as President. Mr. Pagdanganan, an ally of President Arroyo, was appointed Presidential
Adviser on Cooperatives and later as Acting Chairman of the Cooperative Development Authority.

He was later transferred as Secretary of Agrarian Reform and then as President of the Philippine
International Trading Corporation, now supervising the distribution of medicines for the poor. By this
time, the Land Bank was already mulling over the transfer of management of the CCFS to a co-op
network.

Building trust and the role of history and tradition

The national organizations did not reject the CCFS idea. In fact, they sought to revise some features
of the proposed system to harmonize it with their existing activities. However, they found the final
design inconsistent with their goals.

There is another dimension to the different attitudes of the co-op networks to the CCFS. Historically,
some networks are most comfortable with government intervention. Others could not reconcile
themselves to the idea of developing a network that pin its success on the support of the
government or its instrumentalities (the Land Bank as manager of the system and other government
financial institutions as capital contributors). This attitude historically evolved from their self-reliant
development as networks in the face of failures of government cooperative development programs.

Cooperatives face the problem of rationally optimizing the efficiency of the distribution system they
have set up. Succeeding in this regard means cooperatives must integrate or organize themselves
as a network. If we believe that co-op members and their leaders are rational, then forming or
joining networks would require just explaining and demonstrating its advantages. In the Philippines,
this would not be as straightforward.

Co-ops performing mainly savings and credit activities in the Philippines come from different
historical traditions. One significant tradition is spawned by the cooperative development programs
of the 1970s, mainly in the agricultural sector. These co-ops are integrated into cooperative rural
banks (CRBs).

On the other hand we have the savings and credit co-ops spawned by more or less independent
initiatives. They have proved to be more viable and today co-ops with net worth of over 100 million
pesos belong to this group. They oppose government attempts to marshal the formation of co-op
networks and structures.

Both tendencies value their respective historical traditions. Despite the failures of government-led
cooperative development in the 1970s, leaders developed during that period look back to that
period as a time when government was coming in an appropriate way, only that some officials and
bureaucrats and leaders spoiled the entire scheme through inefficiency and corruption.

Leaders of the “private” co-ops see a fundamental flaw in an approach that pin success on

erikvillanueva.blogspot.com/2008/02/case-of-central-cooperative-financial.html 3/4
1/9/14 The Case of the Central Cooperative Financial System (CCFS) | Erik Villanueva's Blog on the Associative Economy

government intervention support, which in the context of a political culture marked by patronage
would mean an erosion of co-op independence and autonomy. They also tend to acquire an
ideologically purist attitude that view business innovations in co-ops with suspicion.

It is not enough to approach co-ops, as potential network participants, on the basis of rational
economic interest. And although divisions according to historical traditions are important since they
relate to the very rationale of the co-op existence, they must be overcome eventually. Yet it is
important to recognize that trust and common values with other co-op traditions can be built by
affirming each other’s identity and roots. Economic rationality of networks must be translated (or
packaged if you will) as a set of common values and ideology because that is an important
dimension of the language and outlook of co-ops or of their leaders. Co-op network building must
ALSO be recognized as a process of social movement building based on common values and
ideology, and not just as a rational economic process.
Posted 25th February 2008 by erik villanueva
Labels: cooperative banking, cooperatives, financial services, Philippine Cooperative Center,
Roberto M. Pagdanganan

0 Add a comment

Enter your comment...

Comment as: Google Account

Publish Preview

erikvillanueva.blogspot.com/2008/02/case-of-central-cooperative-financial.html 4/4