Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS ci
First Regular Session a

114
wouseenino.__ 1114

EXPLANATORY NOTE

Adhering with the declared policy of the state to promote a more focused program
of poverty eradication, the objective of this proposed legislation is to pursue a more
focused poverty eradication program wherein every poor Filipino family will be
empowered to meet its basic needs including income security.

The bill seeks the creation of micro-enterprise development institutions (MEDIs) to
tap vast opportunities to promote, enhance and protect the interests of the poor not only
to access credit but as well as to have access in all related microfinance services, such as
insurance, health care, education, housing, and other value added services to help
eradicate poverty in the Philippines.

The MED! will provide the poor immediate relief assistance, resettlement, social
and livelihood services and a broader financial package including human and business
development services enabling them to operate their own productive economic activities.

Not only that, but of equal importance is that the establishment of MEDIs shall help
generate micro-enterprises and open new market opportunities for the existing
microfinance (MF) retailers such as rural banks, cooperatives and non-government
organizations (NGOs). In fact, the Land Bank of the Philippines has continued to increase
its lending to micro-enterprises in recognition of their role as the lifeblood of the economy.

With the considerable number of NGOs currently involved in retail microfinance,
this measure aims to create an appropriate policy environment for their active
Participation for the provision of financial and non-financial services to poor
entrepreneurs.

This means expanding microfinance to include micro-insurance, education, social
housing, and health care in partnership with government agencies, and the provision of
human development services like leadership and entrepreneurial skills training.
Additionally, this also means the inclusion of business mentoring, or the provision of
services on business development solutions that will help micro-entrepreneurs to
graduate to being small or medium-based entrepreneurs.


The proposed legislation also aims to strengthen partnership between government
and microfinance-NGO sector to better implement social reform programs particularly in
regard to the national efforts to revenue generation and socio-economic development

In sum, the proposed law shall cover MF-NGOs, to be known as Micro-Finance
Development Institutions (MEDIs) which shall be organized as non-profit institutions, to be
credited by proper government authorities. They shall be subject to a tax of 2% of their
gross income as contribution to the People’s Development Trust Fund created and
established under Republic Act No. 8425, otherwise known as the “The Social Reform
and Poverty Alleviation Act.” The 2% tax on gross income will be in lieu of all taxes
whether imposed by the National or Local Governments.

Hence, the immediate passage of this bill is earnestly sought.

FERDINAND YG . ROMUALDEZ


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

: 1
House sitno,__ 1114

Introduced by Hon. FERDINAND MARTIN G. ROMULADEZ

AN ACT
GOVERNING THE CREATION AND ACCREDITATION OF MICRO-ENTERPRISE.
DEVELOPMENT INSTITUTIONS, AND FOR OTHER PURPOSES

Be it enacted by the Senate and the House of Representatives in Congress
assembled.

Section 1. Title. This Act shall be known and cited as the “Micro-Enterprise
Development Institution Act of 2010."

Sec. 2. Declaration of Policy. It is hereby declared the policy of the State to
Pursue a more focused program of poverty eradication wherein every poor Filipino family
shall be empowered to meet its minimum basic needs including income security.

In pursuance of this policy, the government shall work in partnership with
qualified institutions in the private sector for the poor to have more access to micro-
finance, micro-insurance, health care, micro-housing, business development such as
leadership training and entrepreneurial skills training, and human development services to
help the poor achieve a level of sustainability and empowerment and adopt measures to
Promote a spirit of generosity and selfless giving among individuals and institutions that
would help support all programs directly involved in poverty eradication.

Sec. 3. Coverage. The scope of coverage of this Act shalll apply to non-stock and
non-profit micro-enterprise development institutions duly qualified and accredited as
provided herein


Sec. 4. Definition of Terms. For purposes of implementing this Act, the following

definitions shall apply:

a)

b)

°)

qd)

e)

Micro-Enterprise Development Institution (MEDI) refers to a non-stock and
non-profit corporation organized to implement a micro-enterprise
development strategy, as defined in letter (b) hereof: Provided, That no part
of the net income of a MEDI inures to the benefit of its member, trustee,
director or officer: Provided, further, that the administrative expenses shall
in no case exceed thirty percent (30%) of the total expenses within a
taxable year: Provided, finally, that the administrative expenses shall
conform with the rules and regulations to be prescribed by the Department
of Finance upon the recommendation of the Bureau of Internal Revenue.

Micro-Enterprise Development Strategy refers to a social reform program to
empower the poor to manage risks and vulnerabilities and thereby improve
their asset base and expand access to micro-finance services, such as
micro-credit, micro-insurance, micro-savings, health care and micro-housing
through a broad package of financial, business and human development
services and other non-financial services, including education to enable
them to live a productive life.

Poor refers to individuals and families whose income fall below the poverty
threshold as defined by the National Economic and Development Authority
or cannot afford in a sustained manner to provide their minimum basic
needs of food, health care, education, housing and other essential amenities
Of life.

Social Reform refers to the continuing process of addressing the basic
inequities in Filipino society through a systematic, unified and coordinated
delivery of socio-economic programs or packages.

Micro Finance refers to the provision of a broad range of financial services
exclusively for the poor to improve the asset base of households and


‘expand their access to savings and enable them to raise their income levels
and living standards.

f) Accrediting Entity refers to the entity as designated under Section 8 of this
Act.

9) Fund Balance refers to the difference between total assets and total liabilities
of the required capitalization for registration as a MEDI.

Sec. 5. Form of Organization. A MEDI as defined in Section 4 (a) hereof shall
be established as a non-stock and non-profit corporation in accordance with the
Securities and Exchange Commission (SEC) rules and regulations. It shall be governed
by a Board of Trustees who shall receive no compensation.

Sec. 6. Capital Requirements. A MEDI shall have a fund balance of Twenty
Million Pesos (Php20,000,000.00), or in the case of newly organized MEDIs, an initial
fund of Ten Million Pesos (Php10,000,000.00).

Sec.7. Powers and Functions of the MEDI. The MEDI shall exercise such
Powers and functions and undertake such activities in accordance with the policies,
programs and services provided in this Act.

The MEDI may likewise engage in all poverty eradication activities as allowed for
non-stock and non-profit corporations under Batas Pambansa Bilang 68 otherwise known
as “The Corporation Code” and other relevant laws and issuances.

The accredited MEDI shall not undertake deposit taking activities, engage in the
insurance business and carry out fund management activities without the necessary
licenses and authority from the relevant regulatory agencies.

For the purpose of implementing this provision, deposit taking does not include
taking of funds from current or prospective borrowers for the purpose of equity build-up of
an individual borrower's own loans.


Sec. 8. Accrediting Entity. The National Anti-Poverty Commission (NAPC) in
consultation with the Department of Finance (DOF), Department of Trade and Industry
(DTI), Bangko Sentral ng Pilipinas (BSP) and other concerned agencies and institutions,
public and private, shall establish an appropriate accrediting entity to perform the
functions provided under this Act.

The accrediting entity shall be assisted by a Secretariat in the performance of its
functions.

Sec. 9. Powers and Functions of the Accrediting Entity. The accrediting entity
established under this Act shall have the following functions and responsibilities:

a) _ Institute and operationalize a system of accreditation for MEDIs;

b) Issue Certificate of Accreditation as a MEDI to a non-stock and non-profit
corporation applicant: Provided, that, the certificate of accreditation shall be
valid only for such period as may be prescribed under the implementing
ules and regulations of this Act.

No application shall be processed for accreditation as a MEDI unless it
secured a valid registration or license with the government agency that

exercises regulatory function over such corporation;

©) Monitor the performance of the MEDIs to ensure compliance with the
provisions of this Act and its implementing rules and regulations;

d) — Suspend or revoke any certificate of accreditation upon determination that a
MEDI no longer meets the criteria for accreditation;

e) Require regular submission of reports by MEDIs;

f) Collect reasonable accreditation and monitoring fees from a MEDI which
shall be used for the accrediting entity's operational requirements;


9)

h)

Submit an annual report to the President of the Philippines and the
concerned committees of Congress; and

Perform such other functions as may be necessary to accomplish the
purposes and objectives of this Act.

Sec. 10. Taxation of Accredited MEDIs. The taxation of MEDIs shall be as

follows:
a)

b)

c)

The MEDIs shall pay two percent (2%) of the gross income in lieu of all
national and local taxes which shall be remitted to the National
Government. The tax proceeds shall form part of the disbursable portion of
the Peoples Development Trust Fund established under Republic Act No.
8425 otherwise known as the “Social Reform and Poverty Alleviation Act.”

The term ‘gross income” means gross receipts less sales returns,
allowances, discounts and other costs of services. The term ‘cost of
services’ shall mean all direct costs and expenses necessarily incurred to
provide the services required by the customers and clients including salaries
and employee benefits of personnel, consultants and specialists directly
rendering the service and cost of facilities directly utilized in providing the
service and cost of supplies. Interest expenses on borrowings for lending
services of a MEDI shall be deductible from gross receipts as part of cost of
services in arriving at gross income. The term gross income shall exclude
donations,

Donations to the MEDI shall be fully deductible from the gross income of the
donor subject to the conditions of Section 34 (c) of Republic Act No. 8424,
as amended, otherwise known as the National Internal Revenue Code of
1997: Provided, however, that the accreditation of the MEDI by the
accrediting entity under this Act shall be sufficient.

Donations to the MEDI shall be exempt from donor's tax subject to the
qualifications of Section 101 of Republic Act No. 8424, as amended,
otherwise known as the National Internal Revenue Code of 1997: Provided,


that, for purposes of utilization, accreditation granted under this Act shall be
‘sufficient.

d) The transaction of the MEDI and its clients shall be exempt from
documentary stamp tax.

Sec. 11. Implementing Rules and Regulations. The NAPC, in coordination with
the DOF, BIR, BSP, DTI and other concerned government agencies and Non-
Government Organizations (NGOs), shall formulate the Implementing Rules and
Regulations of this Act within ninety (90) days after its approval and shall take effect
fifteen (15) days after its publication in a newspaper of general circulation in the
Philippines.

Sec. 12. Separability Clause. The provisions of this Act are hereby declared to
be separable. If any provision of this Act shall be held unconstitutional, the remainder of
the Act not otherwise affected shall remain in full force and effect.

Sec. 13. Repealing Clause. All executive orders, rules and regulations, or parts
thereof, which are contrary to or inconsistent with this Act are hereby repealed, amended

or modified accordingly.

Sec. 14. Effectivity. This Act shall take effect after fifteen (15) days from its
publication in at least two (2) national newspapers of general circulation.

Approved,