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TWENTIETH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES. )

First Regular Session

HOUSE OF REPRESENTATIVES
HOUSE BILL NO. 3109

Introduced by REPRESENTATIVE MA. NINA FRANCESCA P. LACSON

EXPLANATORY NOTE

In times of great economic distress, Filipinos come together as a community to.
alleviate each other's financial burden. This practice has ripened into a decades-old
system, also known as the paluwagan. Paluwagan is a Tagalog word that means “easing
up”- a quite literal denomination of its purpose which is to ease up the each other's

burden.

The concept of paluwagan is not unique in the Philippine setting. Although named
differently at different societies, the concept stays the same. Fach participant gives a fixed
amount as contribution to a pooled fund. The pooled fund will be given to a certain
member who is appointed as the manager of the funds on an agreed date. The money
collected for the period is then given to a person scheduled to receive it. The order of the
payout is usually determined by drawing of lots. The cycle continues until all the

members have received their share.

The Paluwagan system has many benefits. First, it inculcates the habit of saving
among its members. The duty to contribute to the pool regularly promotes accountability

among the members.

Second, it enables access to a lump sum amount of money, even to the poorest of *
the poor. According to a United States Agency for International Development study,

credit access in the Philippines was the most restrictive out of all Association of


Southeast Asian Nations countries in 2015. Since then, certain reforms have been
introduced to improve credit access especially in rural areas. Despite this, access to
credit, insurance, or savings from formal institutions for low-income individuals
remains elusive. There are many contributing factors why financial inclusion remains a -
problem. One of them is what we call the demand barrier. A demand barrier is a factor
that effectively excludes individuals, especially the poor, from accessing financial
services. It can be socioeconomic or cultural elements, such as lack of formal
identification systems, and low levels of financial literacy, lack of awareness of available
services, inappropriateness of certain services to the needs of the low-income sectors.
Lack of financial inclusion in formal institutions causes people to be creative in
addressing their financial necessities, hence the creation of paluwagan. These

community-based financial systems are accessible even to those who are uneducated.

Thirdly, the system promotes a sense of bayanihan. It strengthens social and
financial network within a community through unity, responsibility, and cooperation.

When a member fails to pay, it affects the benefits of other participants in the paluteagan.

‘The advantages of the system are not without downsides. Although paluwagan has
been in existence since time immemorial, the practice remains informal and unregulated.
Anyone can form a group through verbal agreements. It is not regulated by any
governmental body. Department of Trade and industry (DTI) once tagged the paluzwagan ,
system as a form of pyramid scheme, because of the fact that the first person to receive
the pot is actually the one who will get the most benefit from the system. The last persons
to receive the pooled funds have the highest risk in case other participants fail to pay and
the system collapses, Since the system only relies on trust, it also becomes prone to fraud.
Since most paluwagan system is unregistered and undocumented, it is hard to prove

claims of losses and damages in court.

This bills aims to regulate the paluwagan system by creating an independent
agency called Community Paluzoagan Administration. The Administration shall prescribe -
rules and regulations for the creation and registration of paluwagan, and shall exercise the

power of supervision over registered unions. The bill also provides for the creation of the


Paluwagan Insurance Fund, which aims to protect members of insured unions in case of

cessation of business.

The enactment of this bill shall insure that traditionally informal financial systems

such as the paluagan system will fall within the protection of the law.

For the foregoing reasons, the passage of this bill is earnestly sought.

MA. A . LACSON
Manila Teachers Party-list


TWENTIETH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES )

First Regular Session

HOUSE OF REPRESENTATIVES
HOUSE BILL No.3.109

Introduced by MA. NINA FRANCESCA P. LACSON

AN ACT
REGULATING THE ORGANIZATION AND OPERATION OF COMMUNITY
FUND POOLING OR PALUWAGAN GROUPS AND PROVIDING PENALTIES
FOR VIOLATION THEREOF

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

SEC. 1. Title. - This Act shall be known as the “Bagong Paluwagan ng Bayan Act”.

SEC. 2. Declaration of Policies. - It is hereby declared the policy of the State to pursue
a program that emboldens the people to achieve financial autonomy through capacity
building and self-financing activities. The Filipino people shall be encouraged to come
together and undertake self-financing activities to inspire them to cultivate a culture of
entrepreneurship, meet their basic needs, improve their financial resources, and
promote income security.

In this regard, the State shall place great importance on facilitating easy and efficient
access to necessary funds and credits, which are crucial elements in realizing the
people's aspirations towards financial stability and self-reliance.

To achieve this end, the paluwagan, a traditional community fund pooling system for
savings and investments, shall be formalized and strengthened for the protection and
benefit of the people.

Through this system, the people shall have access to affordable credit and financial
assistance, and shall be empowered to engage in entrepreneurial activities and other
forms of self-sustenance.

SEC. 3. Definitions. ~ As used in this Act:


(a) Community Paluwagan refers to a small group of persons with residence or
employment in a defined community, created in accordance with the provisions
laid out in this Act and supervised by the Community Paluwagan Administration
created in Section 4 of this Act, for the noble purpose of instilling a culture of
entrepreneurship, while simultaneously promoting their financial welfare by
providing them with a ready source of credit for provident and productive
objectives; and

(b) Member refers to a person who holds an account in a duly registered paluwagan,
which is evidenced by a member's contribution (hulog) received or held in the
usual course of business and for which it has given or is obligated to give credit to ~
the account of the member.

CHAPTER I
COMMUNITY PALUWAGAN ADMINISTRATION,

SEC. 4, Creation of the Community Paluwagan Administration. - There is hereby created
a Community Paluwagan Administration, herein referred to as the Administration, to be
attached to the Department of Trade and Industry (DTI) for policy and program
coordination, i:

SEC. 5. The Community Paluwagan Administration Board and Its Composition. - The
Community Paluwagan Administration shall be managed by the Community
Paluwagan Administration Board, hereinafter referred to as the Board, which shall
consist of three (3) members, who are broadly representative of the public interest,
appointed by the President of the Philippines upon consultation with and
recommendation of non-government organizations, people's organizations, social
welfare and development associations, and cooperatives. The President of the
Philippines shall designate the Chairperson from among the members of the Board.

Pending the appointments by the President of the Philippines to the Board, an interim
board shall be established to oversee the operations of the Administration. The interim
board shall consist of the Secretary of the Department of Trade and Industry (DTI), the *
‘Commissioner of the Insurance Commission, and the Chairperson of the Securities and
Exchange Commission (SEC), or their designated representatives. The interim board
shall have all the powers and duties of the Board until such time as the initial
appointments have been made by the President of the Philippines. The Secretary of the
DTI shall serve as the interim Chairperson.

SEC. 6. Qualifications of the Board Members. - The Board members shall have the
following qualifications:

(a) Experience in Financial Services - In considering appointments to the Board
under the preceding section, the President of the Philippines shall give
consideration to individuals who, by virtue of their education, training, or ~


experience relating to a broad range of financial services, financial services
regulation, or financial policy, are especially qualified to serve in the Board;

(b) Limitations - Not more than one member may be appointed to the Board from
among individuals who, at the time of the appointment, are involved with any
registered community paluwagan as a trustee, committee member, officer, or
employee.
SEC. 7. Term of Office. - All members of the Board shall have a term of six (6) years: ~
Provided, That for the first appointees, the Chairperson shalll hold office for six (6) years,
one (1) member shall hold office for four (4) years, and one (1) member shall hold office
for two (2) years. In no case shall there be re-appointments.

In the event of death, resignation, or removal of a member, the successor shall only serve
the unexpired portion of the term of the predecessor.

SEC. 8. Functions of the Board. - A majority of the Board shall constitute a quorum. The
Board shall have the following powers and functions:

(a) Adopt such rules as it sees fit for the transaction of its business and to keep
permanent and complete records and minutes of its acts and proceedings;

{b) Require every person appointed or elected by any paluwagan to any position
requiring the receipt, payment, or custody of money or other personal property
owned by a paluwagan, or in its custody or control as collateral or otherwise, to
give a bond in a corporate surety company duly registered in the Philippines.
Any such bond or bonds shall be in a form approved by the Board with a view to
providing surety coverage to the paluwagan with reference to loss by reason of
acts of fraud or dishonesty, including forgery, theft, embezzlement, wrongful
abstraction, or misapplication on the part of the person, directly or through
connivance with others, and such other surety coverages as the Board may
determine to be reasonably appropriate or as elsewhere required by this Act.

Any such bond or bonds shall be in such an amount in relation to the money or other >
personal property involved or in relation to the assets of the paluwagan as the Board may
from time to time prescribe by regulation for the purpose of requiring reasonable
coverage.

In lieu of individual bonds, the Board may likewise approve the use of a form of schedule
or blanket bond which covers all of the officers and employees of a paluwagan whose
duties include the receipt, payment, or custody of money or other personal property for
‘or on behalf of the paluwagan;

()Expend such funds, enter into such contracts with public and private
organizations and persons, make such payments in advance or by way of
reimbursement, acquire and dispose of, by lease or purchase, real or personal .
property, without regard to the provisions of any other law applicable to
executive or independent agencies of the Philippines, and perform such other
functions or acts as it may deem necessary or appropriate to carry out the


provisions of this Act, in accordance with the rules and regulations or policies
established by the Board not inconsistent with this Act;

(d) Submit an annual report to the Congress of the Philippines through the
Committee on Micro, Small and Medium Enterprise Development of the House of
Representatives and the Committee on Trade, Commerce and Entrepreneurship *
of the Senate of the Philippines. Such a report shall summarize the operations of
the Administration and set forth such information as is necessary for the Congress
to review the financial program approved by the Board;

(e) Subject the financial transactions of the Administration to audit by the
Commission on Audit which shall be conducted at the place or places where the
accounts of the Administration are kept;

( Recommend to the Administration the investment and reinvestment of such
portions of the annual operating fees deposited under Section 51, Chapter XIII of
this Act which the Board determines are not needed for current operations. Such
investments may be made only in interest bearing securities of the Government of .
the Philippines. All income derived from such investments and reinvestments
shail be deposited in an authorized government depository bank to the account of
the Administration;

(g) Determine the organizational structure and staffing pattern of the
Administration in accordance with the Revised Compensation and Position
Classification System subject to the evaluation and approval of the Department of
Budget and Management (DBM) and in accordance with the civil service and other
pertinent laws, rules, and regulations;

(h) Formulate policies to promote savings, financial education, and financial
services with digital capacities and connectivity to increase viability of an
established paluwagan; and .

(i) Provide technical assistance to duly registered paluwagan for the efficient
management and operation of their respective systems. This shall include the
conduct of specialized training programs that are carefully crafted to equip
members with vital knowledge, skills, and competencies necessary for their
business operations and for enhancing their entrepreneurial skills.

SEC. 9. Chairperson of the Board. - The Chairperson shall be the spokesperson of the
Board and shall represent the Board and the Administration in its official relations with
other branches of the Government.

The Chairperson shall determine each Board member's area of responsibility and shall
review such assignments bi-annually. It shall be the Chairperson’s responsibility to ~
direct the implementation of the adopted policies and regulations of the Board.

CHAPTER III
COMMUNITY PALUWAGAN


SEC. 10. Creation of a Paluwagan. - Any nine (9) or more persons with residence,
occupation, employment, or activities in a defined community, who desire to form a,
paluwagan shall apply for registration with the Administration. The application shall
specifically state the following:

(a) Name of the paluzwagan;

(b) Location of the proposed paluwagan;

(6) Names and addresses of the members;

(d) Proposed field of membership;

(e) Term of existence, not exceeding fifty (50) years, renewable for another fifty

(60) years upon approval of the Administration;

(Articles of the paluwagan; and

(g) By-Laws.

SEC. 11. Application for Registration. - In order to simplify the organization of the
palucoagan, the Board shall from time to time cause to be prepared a form of application
and a form of bylaws, consistent with this Act, which shall be used by applicants, and
shall be supplied to them on request. Before any application for registration is approved,
an appropriate investigation shall be made for the purpose of determining:

a) whether the paluzwagan conforms to the provisions of this Act;

b) the general character and fitness of members; and

©) economic viability of establishing the proposed paluwagan.

An application for registration shall be processed within fifteen (15) calendar days
upon submission of complete requirements, otherwise, the said application shall be
deemed approved

The Board may prescribe the payment of a reasonable amount of fees for the processing
of the application for registration under this section.

SEC. 12. Powers and Functions of a Paluwagan. - Upon the approval of the registration of
a paluwagan, a certificate shall be issued by the Administration. The certification shall _
grant the paluwagan the authority to exist as body corporate and as such, subject to the
limitations herein contained, shall be vested with all of the powers and charged with all
of the liabilities conferred and imposed by this Act, which includes the following
powers:

(a) Make contracts;

b) Sue and be sued;


(©) Adopt and use a common seal and alter the same at pleasure;

(d) Purchase, hold, and dispose of property necessary, incidental, or beneficial to
its operations;

(e) Apply for loans, the maturities of which shall not exceed thirty (30) years,
except as otherwise provided herein, and extend lines of credit to its members, in

accordance with the following:

(1) Loans to members shall be made in conformity with the criteria
established in the By-laws of the paluwagan, subject to the following:

(i) A residential real estate loan on a family dwelling, that is or will
be used as the principal residence of a paluwagan member, and
which is secured by a first lien upon such dwelling, may have a
maturity not exceeding thirty (30) years or such other limits as shall
be set by the Board, subject to the rules and regulations of the Board;

(ii) A loan or aggregate of loans to a trustee or member of the
supervisory or credit committee of the paluwagan making the loan
which exceeds Five million pesos (P5,000,000.00) shall be approved
by the board of trustees of the paluwagan: Provided, That the said
trustee or member has no participation in the approval of said loan;

(iii) Loans to other members for which trustees or members of the
supervisory or credit committee act as guarantor or endorser shal!
be approved by the board of trustees of the paluwagan when such
loans standing alone or when added to any outstanding loan or
loans of the guarantor or endorser exceeds the amount of Five
million pesos (P3,000,000.00);

(iv) Loans shall be paid or amortized in accordance with the rules
and regulations prescribed by the Board after taking into account the
needs or conditions of the borrowers, the amounts and duration of
the loans, the interests of the members, and such other factors as the
Board deems relevant;

(v) Loans shall be approved by the credit committee or a loan officer;
(vi) The rate of interest is reasonable; and

(vii) A self-replenishing line of credit to a borrower may be
established to a stated maximum amount on certain terms and
conditions which may be different from the terms and conditions
established for another borrower.


2) A paluwagan shall not commit itself to make any loans for amounts in
excess of the total of the following amounts:

(i) cash available for loan purposes;

(ii) cash which can be readily realized upon the sale or redemption
of permissible investments made by the paluwagan; and

(iii) credit available for loan purposes from government or private
financing institutions.

(3) The treasurer, cashier, paymaster, or employer of the office employing =
amember is required, notwithstanding the provision of any existing law,
rule and regulation to the contrary, to make deductions from one’s salary,
wage, income, or retirement pension pursuant to the terms of one’s loan,
obligations, investments and all other deductions authorized by the
member, to remit such deductions to the paluwagan concerned, and to
collect such reasonable fee for one’s services as may be authorized by rules
promulgated by the Board.

(8) Receive from its members payments, representing member's contribution
(hulog) which shall be evidenced by a certificate of membership;

(g) Invest its funds in accordance with the rules and regulations prescribed by the
Board, in the total amount not exceeding Twenty-Five per centum (25%) of its
paid-in and unimpaired capital;

(h) Borrow, in accordance with such rules and regulations as may be prescribed
by the Board, from any source, in an aggregate amount not exceeding Fifty per
centum (50%) of its paid-in, and unimpaired capital and surplus;

(i) Levy late charges and penalties, in accordance with the by-laws, for failure of
members to promptly meet their obligations to the paluwagan;

(i) Impress and enforce a lien upon a member's contribution (hulog), to the extent
of any loan made and any dues or charges payable by such member;

(k) In accordance with regulations prescribed by the Board:

(1) Sell to members negotiable checks, travelers checks, money orders, and
other similar money transfer instruments, including international and
domestic electronic fund transfers and remittance transfers;

(2) Encash checks and money orders for members for a fee;
(8) Issue credit cards; and

(4) Engage existing digital platforms, or other financial technologies that
may be devised in the future, to enhance or automate financial services for
members;


() In accordance with the rules and regulations prescribed by the Board, to
purchase, sell, pledge, or discount or otherwise receive or dispose of, in whole or
in part, any eligible obligations (as defined by the Board) of its members and to
purchase from any liquidating notes made by individual members of the
liquidating paluwagan at such prices as may be agreed upon by the board of
trustees of the liquidating paluwagan and the board of trustees of the purchasing
paluwagan: Provided, That no purchase may be made under authority of this
paragraph if, upon the making of that purchase, the aggregate of the unpaid ~
balances of notes purchased under authority of this paragraph would exceed five
per centum (5%) of the unimpaired capital and surplus of the paluwagan;

(m) Sell all or a part of its assets to another paluwagan, to purchase all or part of
the assets of another paluwagan and to assume the liabilities of the selling
paluwagan and those of its members subject to regulation of the Board;

(n) Invest in securities that are offered and sold pursuant to Section 3, Chapter I of
Republic Act (RA) No. 8799 or “The Securities Regulation Code”, subject to such
regulation as the Board may prescribe, including a regulation prescribing the
minimum size of the issue at the time of initial distribution, minimum aggregate
sales prices, or both;

(0) Exercise such incidental powers as shall be necessary or requisite to enable it
to carry on effectively the business for which it is incorporated;

(p) Provide additional services for the mutual benefit of its members, upon
approval of the Board: Provided, That such services involve no risk to the assets
of the paluwagan or the funds of its members;

(q) Notwithstanding any other provision of law, to accept investment from a
minimum of nine (9) persons within the defined community for the purpose of
augmenting resources and increasing liquidity to be able to provide credit line for
the development of micro, small and medium-sized businesses. The contributors
shall become members of the paluwagan, and shall be subject to the same terms -
and conditions of membership as other existing members. The paluwagan shall
have the discretion to determine the terms and conditions of the investments,
including the amount and the duration of the investment, and the potential return
on the investment. The paluwagan shall also have the discretion to limit the
amount of investments it will accept; and

(x) Collect member's contribution (hulog) from its members upon admission, and
distribute such member's contribution (hulog), plus any interest and earnings
thereon, to the members after a certain period of time as share in the paluwagan’s
income. The paluwagan shall have the discretion to determine the frequency and
amount of such distributions, based on the paluwagan’s financial performance
and other factors.

No person, association, partnership or corporation shall do business, or hold itself out as
doing business, as a paluwagan, or shall use the term “paluwagan” or any other title or


name tending to give the public the impression that it is engaged in the operations and
activities of a paluwagan, unless so authorized under this Act.

SEC. 13. Duties of the Paluwagan. - In accordance with the rules prescribed by the Board,
each paluwagan shall pay to the Administration an annual operating fee which may be
composed of one or more charges identified as to the function or functions for which it
is assessed.

The fee assessed under this section shall be determined according to a schedule, or
schedules, or other method determined by the Board to be appropriate, which gives due
consideration to the expenses of the Administration in carrying out its responsibilities
under this Act and the ability of the paluwagan to pay the fee.

The Board shall, among other things, determine the periods for which the fee shall be
assessed and the date or dates for the payment of the fee or increments thereof.

All operating fees shall be for the account of the Administration and may be expended
by the Board to defray the expenses incurred in carrying out the provisions of this Act
including the examination and supervision of the paluwagan. :

CHAPTER IV
MEMBERSHIP

SEC. 14. Membership. - Each member of a paluwagan shall invest an amount which
represents capital contribution, and pay the installments thereon, as may be prescribed
by the Bylaws.

SEC. 15. Membership Field. - The membership of any paluwagan shall be limited to a
defined community, which shall be set out in the by-laws.

SEC. 16. Additional Membership Eligibility. - No individual shall be eligible for
membership ina paluwagan on the basis of the relationship of the individual to another
person who is eligible for membership in the paluwagan, unless the individual is within
the second degree of consanguinity of the member.

SEC. 17, Retention of Membership. - Except as provided in this Act, once a person
becomes a member of a paluwagan in accordance with this title, that person or
organization may remain a member of that paluwagan until the person or organization
chooses to withdraw from the membership.

SEC. 18. General Membership Meeting, - The annual meeting of each paluwagan shall
be held at such place as its bylaws shall prescribe. Special meetings may be held in the _
manner indicated in the bylaws.

Unless the Articles or bylaws of the paluwagan provide for a greater number, a quorum
shall consist of the majority of the members of the paluwagan. The members shall also
be entitled to vote by proxy, when so authorized by the bylaws.


SEC. 19. Expulsion of Members. - A member may be expelled for cause by a vote of the
majority of all of the members of the board of trustees, ratified by the vote of the majority

of all of the members of a paluwagan present at a special meeting called for the purpose, .

but only after opportunity has been given to the member to be heard.

The board of trustees of a paluwagan may, by a majority vote, there being a quorum,
adopt and enforce a policy with respect to expulsion from membership based on non-
participation by a member in the affairs of the paluwagan.

In establishing its policy, the board of trustees shall consider a member's failure to vote
in the paluwagan elections, failure to obtain or pay one’s loan from the paluwagan,
among others. If such a policy is adopted, a written or digital notice of the policy and the
effective date of such policy shall be mailed to cach member of the paluwagan at the
member's current address appearing on the records of the paluwagan within ten (10)

days from the adoption of such policy. In addition, each new member shall be provided

a written notice of any such policy prior to or upon applying for membership.

The term “cause” under this section shall mean a substantial or repeated violation of the
membership agreement of the paluwagan; a substantial or repeated disruption,
including dangerous or abusive behavior to the operations of a paluwagan; or fraud,
attempted fraud, or other illegal conduct that a member has been convicted of in relation
to the paluwagan, including the employees conducting business on behalf of the
paluwagan.

Expulsion of a member pursuant to this section shall not operate to relieve the member
from any civil or criminal liability to the paluwagan.

SEC. 20. Due Process. ~ Subject to the policy adopted herein, if a member shall be subject _

to expulsion, such member shall be notified in advance of the proceedings for expulsion,
along with the reason for such expulsion. Such notice shall be provided in person, by
mail to the member's address, or, if the member has elected to receive electronic
communications from the paluwagan, may be provided electronically.

A member shall have thirty (30) days from the date of receipt of such notification to
request for a hearing from the board of trustees of the paluwagan. If a member does not
request for a hearing during the 30-day period as described, the member shalll be expelled
after the expiration of the 30-day period.

If a member requests for a hearing during the 30-day period as described, the board of
trustees of the paluwagan shall provide the member with a hearing within thirty (30)
days from receipt of the request. After such hearing, the board of trustees of the
paluwagan shall hold a vote within fifteen (15) days whether or not to expel the member.
Ifa member is expelled pursuant to the decision of the Board, the notice of the expulsion
of the member shall be provided to the member in person or by mail to the member's
address, in written form or, if the member has elected to receive electronic
communications from the paluwagan, may be provided electronically.


‘The expulsion of a member pursuant to this Act shall be done individually, on a case-by- +
case basis, and neither the Administration nor any paluwagan may expel a class of
members.

SEC. 21. Reinstatement. - A member expelled under Section 19 of this Act shall be given
an opportunity to request for reinstatement of membership; and may be reinstated by
either a majority vote of a quorum of the trustees of the paluwagan; or a majority vote
of the members of the paluwagan present at a meeting called for such purpose.

CHAPTER V
MANAGEMENT

SEC. 22. Management of the Paluwagan. - The management of a paluwagan shall be by
a board of trustees, a supervisory committee, and a credit committee. The board of
trustees shall consist of an odd number of trustees, at least five (5) in number, to be
elected annually by and from the members as the bylaws provide. Any vacancy
occurring in the board of trustees shall be filled through appointment by the remaining
members of the board of trustees: Provided, That the appointee shall only serve the
unexpired term of the member being substituted.

At their first board meeting, the board of trustees shall appoint corporate officers
specified in the bylaws, which shall include a President, Secretary, and Treasurer.
Corporate officers may be compensated in accordance with the industry standard. The
bylaws shall specify the specific duties of each corporate officer.

SEC. 23. Composition of the Supervisory and Credit Committees. - The Committee
members shall be appointed by the board of trustees and shall consist of not less than
three (3) members nor more than five (5) members.

‘A record of the names and addresses of the executive officers, members of the
supervisory committee, credit committee, and loan officers, shall be filed with the
Administration within ten (10) days after their election or appointment.

SEC. 24. Compensation. - No member of the board of trustees or of any other committee
shall, as such, be compensated. Per diems, health, accident, similar insurance protection,
and the reimbursement of reasonable expenses incurred in the execution of the duties of
the position shall not be considered compensation. .

SEC. 25. Meetings of the Board of Trustees. - The board of trustees shall meet at least
once a month and shall have the general direction and control of the affairs of the
paluwagan. Minutes of all meetings shall be kept by the Secretary.

The board of trustees shall have the following powers and functions:

(a) Act upon applications for membership or appoint employees from among the
members of the paluwagan, which shall include an internal auditor, and a loan
officer;


(b) Provide adequate fidelity coverage for officers and employees having custody
of or handling funds according to regulations issued by the Board;

(0 Fill by appointment vacancies on the board of trustees until successors elected
at the next annual meeting shall have qualified;

(d) Have charge of investments including the right to designate an investment
committee of not less than two to act on its behalf;

(e) Subject to any limitations of this Act, determine the interest rates on loans, the
security, and the maximum amount which may be loaned and provided in lines _
of credit;

(8) If the bylaws so provide, appoint one or more loan officers and delegate to these
officers the power to approve or disapprove loans, lines of credit, or advances
from lines of credit;

(g) Subject to the limitations of this title and the bylaws of the paluwagan, provide
for the hiring and compensation of officers and employees;

(h) If the bylaws so provide, appoint an executive committee of not less than three
trustees to act on its behalf and any other committees to which it can delegate
specific functions;

(i) Prescribe conditions and limitations for any committee which it appoints;

(j) Review at each monthly meeting a list of approved or pending applications
for membership received since the previous monthly meeting together with such
other related information as it or the bylaws require;

(k) Provide for the furnishing of the written reasons for any denial of a
membership application to the applicant upon the written request of the
applicant;

()) Establish and maintain a system of internal controls consistent with the _
regulations of the Administration;

(

(n) Perform all other functions that are necessary and proper to carry out all the
purposes and powers of the paluzvagan, subject to regulations issued by the
Board.

) Establish lending policies; and

CHAPTER VI
COMMITTEES


SEC. 26. Committee Meetings. - The committees created by the board of trustees shall
hold such meetings as the business of the paluzvagan may require, at least once a month.

SEC. 27. Functions of the Supervisory Committee. - The supervisory committee shall have
the following functions:

(a) Make or cause to be made an annual audit, and submit a report of that audit to
the board of trustees and a summary of the report to the members at the next *
annual meeting of the paluwagan;

(b) Make or cause to be made such supplementary audits as it deems necessary or
as may be ordered by the Board, and submit reports of the supplementary audits;

(©) By a unanimous vote, recommend to the board of trustees the suspension of
any officer of the paluwagan or any member of the credit committee, for a
maximum period of thirty (30) days or until the next members’ meeting,
whichever comes first, at which meeting any such suspension shall be acted upon
by the members; and

(d) Call, by a majority vote, a special meeting of the members to consider any *
violation of this Act, the charter, or the bylaws, or any practice of the paluwagan
deemed by the supervisory committee to be unsafe or unauthorized.

Any member of the supervisory committee may be suspended by a majority vote of the
board of trustees. The members shall decide, at a meeting held not less than seven (7)
nor more than fourteen (14) days after any such suspension, whether the suspended
committee member shall be removed from or restored to the supervisory committee.

The supervisory committee shall cause the passbooks and accounts of the members to be
verified with the records of the treasurer from time to time, at least once every two (2)
years. As used in this section, the term “passbook” shall include any book, statement of
account, or other record approved by the Board for use by the paluwagan.

SEC. 28. Functions of the Credit Committee. - The Credit Committee shall have the
following functions:

{a) Appoint and delegate to loan officers the authority to approve applications;
and

(b) Review all applications not approved by the loan officer. The approval of a
majority of the members who are present at the meeting when such review is
undertaken shall be required to reverse the loan officer’s decision: Provided, That
a majority of the full committee is present.

CHAPTER VII
REGULATION,


SEC. 29. Regulation of the Paluwagan. - The Board may prescribe rules and regulations
for the administration of this Act. Any duly registered paluwagan shall be subject to
such rules, regulations, and orders as the Board deems appropriate and, except as
otherwise specifically provided in such rules, regulations, or orders, shall be vested with
or subject to the same rights, privileges, duties, restrictions, penalties, liabilities,
conditions, and limitations that would apply to all paluwagan under this Act. .

SEC. 30. Power to Revoke and Suspend. - The Board may suspend or revoke the
registration of any paluwagan, or place the same in involuntary liquidation and appoint
an authorized liquidating agent therefor, upon its finding that the organization is
bankrupt or insolvent, or has violated any of the provisions of its charter, its bylaws, this
Act, or any regulations issued thereunder.

The Board, through such persons as it shall designate, may examine any paluwagan in
voluntary liquidation and, upon its finding that such voluntary liquidation is not being
conducted in an orderly or efficient manner or in the best interests of its members, may
terminate such voluntary liquidation and place such organization in involuntary
liquidation and appoint a liquidating agent therefor.

Such liquidating agent shall, subject to the control and supervision of the Board and
under such rules and regulations as the Board may prescribe, have the following powers
and authorities:

{a) Receive and take possession of the books, records, assets, and property of every
description of the paluwagan in liquidation;

(b) Sell, enforce collection of, and liquidate all such assets and property, to
compound all bad or doubtful debts, and to sue in one’s name or in the name of
the paluwagan in liquidation, and defend such actions as may be brought against
such liquidating agent or against the paluwagan;

(©) Receive, examine, and pass upon all claims against the paluwagan in
liquidation, including claims of members on member accounts;

(d) Make distribution and payment to creditors and members as their interests
may appear; and

(c) Execute such documents and papers and to do such other acts and things
deemed necessary or desirable to discharge the duties hereunder.

Subject to the control and supervision of the Board, and under such rules and regulations
as the Board may prescribe, the liquidating agent of a paluwagan in involuntary
liquidation shall cause notice to be given to creditors and members to present their
claims and make legal proof thereof. Such notice shall be published once a week for three
(3) successive weeks in a newspaper of general circulation in the place in which the
paluwagan in liquidation maintained an office or branch for the transaction of business
on the date it ceased unrestricted operations.


Upon certification by the liquidating agent in the case of an involuntary liquidation, and
upon such proof as shall be satisfactory to the Board in the case of a voluntary
liquidation, that distribution has been made and that liquidation has been completed, as
provided herein, the Board shall cancel the charter of such paluwagan. The corporate
existence of the paluwagan shall continue for a period of three (3) years from the date of
such cancellation of its charter. During this period, the liquidating agent, or the duly
appointed successor, or such persons as the Board shall designate, may act on behalf of
the paluwagan for the purpose of paying, satisfying, and discharging any existing
liabilities or obligations, collecting and distributing its assets, and doing all other acts
required to adjust and wind up its business and affairs, and may sue and be sued in its
corporate name.

After the expiration of five (5) years from the date of cancellation of the charter of a
paluwagan, the Board may, in its discretion, destroy any or all books and records of such
paluwagan in its possession or under its control.

CHAPTER VIII
PALUWAGAN INSURANCE FUND,

SEC. 31. Paluwagan Insurance. ~ The Board, as hereinafter provided, shall insure the
member accounts of all paluwagan to the extent of amount as they may determine.

Applications for such insurance shall be in such form as the Board shall provide and shall
contain the following terms to be agreed upon by the applicant:

{a) To pay the reasonable cost of such examinations as the Board may deem
necessary in connection with determining the eligibility of the applicant for
insurance: Provided, That examinations required under this Act shall be so
conducted that the information derived therefrom may be utilized for insurance
purposes;

(b) To permit and pay the reasonable cost of such examinations as, in the”
judgment of the Board, may from time to time be necessary for the protection of
the fund and of other insured paluwagan;

(0) To provide protection and indemnity against burglary, defalcation, and other
similar insurable losses, of the type, in the form, and in an amount at least equal
to that required by the laws under which the paluwagan is organized and
operates;

(d) To maintain such special reserves as the Board, by regulation or in special
cases, may require for protecting the interest of members or to assure that all
insured paluwagan maintain regular reserves as may be required by the Board;

(e) To pay the premium charges for insurance imposed by this Chapter; and

(8 To comply with the requirements of this chapter and of regulations prescribed
by the Board pursuant thereto.


Before approving the application of any paluwagan for insurance of its member accounts, -
the Board shall consider the following:

(a) The history, financial condition, and management policies of the applicant;

(b) The economic advisability of insuring the applicant without undue risk of the
fund;

(©) The general character and fitness of the applicant's management;
(a) The convenience and needs of the members to be served by the applicant; and

() Whether the applicant is a paluwagan organized for the purpose of creating a
source of credit for entrepreneurial or productive purposes.

The Board shall disapprove the application of any paluwagan for insurance of its”
member accounts if it finds that its reserves are inadequate, its financial condition and
policies are unsafe or unsound, its management is unfit, insurance of its member
accounts would otherwise involve undue risk to the fund, or its powers and purposes
are inconsistent with the promotion of a culture of entrepreneurship, and the creation of
a source of credit for provident or productive purposes.

Upon the approval of any application for insurance, the Board shall notify the applicant
and shall issue to it a certificate evidencing the fact that it is, as of the date of issuance of
the certificate, an insured paluwagan under the provisions of this title.

SEC. 32, Insurance Premium Charges. - All paluwagan shall, at such times as the Board
prescribes, pay to the fund a premium charge of not less than one-fifth of one per centum -
(1/5 of 1%) of Total Guaranteed Contribution of the paluwagan.

The term “Guaranteed Contributions” shall pertain to funds enjoying insurance coverage
as_prescribed by the provisions delineated in this section. These contributions shall yield
guaranteed income and offer inherent withdrawal flexibility for members.

Minimum Fixed Contribution shall be maintained by all paluwagan and shall refer to
funds not covered by the insurance coverage. It shall not be withdrawable until the
membership to the paluwagan is terminated.

SEC, 33. Payment of Insurance. - Payment of an insured account to any person by the
Administration shall discharge the Administration of the liability of insurance. The
Administration may withhold payment of such portion of the insured amount of any
member in a closed paluwagan as may be required to provide for the payment of any
liability to the closed paluwagan or its receiver, which is not offset against the claim due
from such paluwagan, pending the determination and payment of such liability by such
member or any other person liable therefor.

SEC. 34. Prohibitions on Insured Paluwagan. - No insured paluwagan may be sponsored
by or accept financial support, directly or indirectly, from any government-sponsored
enterprise. This provision shall not be construed as prohibiting any employee of a
government-sponsored enterprise from becoming a member of a paluwagan.


SEC. 35. Reports of Condition. - Each insured paluwagan shall make reports of condition
to the Board upon dates which shall be selected by them. Such reports of condition shall
be in such form and shall contain such information as the Board may require.

The reporting dates selected for reports of condition shall be the same for alll insured
paluwagan except that when any of said reporting dates is a nonbusiness day for any
paluwagan, the preceding business day shall be its reporting date.

The total amount of the member accounts of each insured paluwagan as of each reporting
date shall be reported in such reports of condition in accordance with regulations
prescribed by the Board.

Each report of condition shall contain a declaration by the president, vice president,
treasurer, or any other officer designated by the board of trustees of the reporting
paluwagan to make such declaration, that the report is true and correct to the best of
such officer’s knowledge and belief.

Unless such requirement is waived by the Board, the correctness of each report of
condition shall be attested by the signatures of three of the officers of the reporting
paluwagan with the declaration that the report has been examined by them and to the
best of their knowledge and belief is true and correct.

‘The Board may call for such other reports as it may from time to time require. The Board
may require reports of condition to be published in such manner, not inconsistent with
any applicable law, as it may direct.

Reports required under this section shall be so prepared that they can be used for
insurance purposes.

SEC. 36. Unsafe and Unsound Practice. - If the Board shall find that any unsafe or
unsound practice or violation specified in this Act has been established and has not been
corrected within the time above prescribed by the Board in which to make such
correction, the Board may order that the insured status of the paluwagan be terminated
on a date subsequent to such finding after due notice and hearing. The Administration
may publish a notice of such termination and the paluwagan shall give notice of such
termination to each of their members at the last address of record on the books of the
paluwagan, in such a manner and at such at time as the Board may find to be necessary ~
and may order for the protection of the members.

‘The Board may treat the failure of any insured paluwagan to obtain an outside,
independent audit for any fiscal year for which such audit is required as an unsafe ot
unsound practice.

SEC. 37. Accounting. - Accounting principles applicable to reports or statements
required to be filed with the Board by each insured paluwagan shall be uniform and
consistent with generally accepted accounting principles.

SEC. 38. Report to an Independent Auditor. - Each insured paluwagan which has
engaged the services of an independent auditor to audit such institution for the past _


two (2) years shall transmit to such auditor a copy of the most recent report of condition
made by such paluwagan, and a copy of the most recent report of examination received
by such paluwagan.

SEC. 39. Requirements Governing Insured Paluwagan. - Insured paluwagan must meet
net worth standards, lending limits, and investment restrictions to be eligible for
insurance. The Administration shall have the power to establish and enforce these
standards and restrictions.

SEC. 40. Termination of Insured Paluwagan Status. ~ The Board shall have the power to
terminate a paluwagan’s insured status if it fails to meet the requirements for insurance.

SEC. 41. Special Assistance to Avoid Liquidation. - The Board shall have the power to
provide special assistance to a paluwagan in danger of insolvency to help them avoid
liquidation. The Board shall have the power to recommend appropriate action including
changes in management or operations.

SEC. 42. Nondiscriminatory Provision. - Insured paluwagan shall not discriminate in the
provision of financial services based on factors such as race, religion, national origin, sex,
marital status, or age.

SEC. 43. Board Disapproval of Directors, Committee Members, and Senior Executive -
Officers of Insured Paluwagan. - The Board shall have the power to disapprove
individuals who have been proposed to serve as directors, committee members, or senior
executive officers of insured paluwagan. It may disapprove such individuals if they have
been convicted of a crime with the penalty of prision mayor or higher.

SEC. 44. Prompt Corrective Action. - The Administration shall have the power to take
prompt corrective action to address problems of insured paluwagan before they become
insolvent. The Administration shall establish standards for prompt corrective action,
which shall include mandatory corrective actions for a paluwagan that fails to meet
certain thresholds. The Administration shall also have the power to require additional
supervisory actions or take conservatorship or liquidation actions as necessary to the
continued economic viability of the paluwagan. i:

SEC. 45. Certified Statement. - For each calendar year, in the case of an insured
paluwagan with total assets of not more than Fifty million pesos (P50,000,000.00), and
bi-annually for an insured paluwagan with more than Fifty million pesos
(P50,000,000.00), an insured paluwagan shall file with the Board, at such time as the
Board prescribes, a certified statement showing the total amount of insured member's
contributions at the close of the relevant period, and the amount of insurance charge due
to the Fund for that period, based on the prescribed computation as may be provided by
the Board.

The Treasurer of the paluwagan shall certify, with respect to each statement required to
be filed with the Board pursuant to this section, that, to the best of the said Treasurer's
knowledge and_ belief the statement is true, correct, complete, and in accordance with
this Act.


CHAPTER IX
TAXATION

SEC. 46. Grant of Tax Exemption. - Notwithstanding the provisions of any law or
regulation to the contrary, a paluwagan shall enjoy the following tax exemptions:

(a) Any paluwagan shall be exempt from payment of tax in respect to all income
it receives, including interest on its deposits with any financial institution and
loan transactions with members: Provided, however, That income derived from
any of its properties, real or personal, or any activity conducted for profit,
regardless of the disposition thereof, is subject to the corresponding internal
revenue taxes imposed under the National Internal Revenue Code (NIRC) of 1997,
as amended: Provided, further, That the exemption from income tax shall not
include those taxes wherein the paluwagan is only constituted as the withholding
or remitting agent;

(b) Interest on member's contribution with any paluwagan as well as the shares of
its members from the net income of the paluwagan shall be exempt from income -
tax;

(©) Any paluwagan duly registered with the Administration shall be exempt from
the payment of value-added tax and documentary stamp tax, in relation with its
operations and transactions with members;

(a) Any paluwagan, regardless of the amount of accumulated reserves and
undivided net savings shall be exempt from payment of local taxes. Fees and
charges assessed by the cities or municipalities on the application of mayor's or
local business permits, and other licenses and approvals shalll in no case exceed
Three thousand pesos (P3,000.00).

CHAPTER X
CONFIDENTIAL NATURE OF CAPITAL CONTRIBUTIONS,

SEC. 47. Prohibition Against Inquiry into or Disclosure of Contributions. - All capital
contributions or all money deposited with a paluwagan in the Philippines are hereby
considered as of an absolutely confidential nature and may not be examined, inquired
or looked into by any person, government official, bureau or office, except upon written
permission of the member, or in cases of impeachment, or upon order of a competent
court in cases of bribery or dereliction of duty of public officials, or in cases where the
money deposited or invested is the subject matter of litigation.

Itshall be unlawful for any official or employee of a paluwagan to disclose to any person
any information concerning said capital contributions, except in the cases mentioned in -
the preceding paragraph of this Section. Any official or employee of an Association who
violates this section shall be punished under RA 1405 or the Law on Secrecy of Bank
Deposits, as amended.


CHAPTER XI
OFFENSES AND PENALTIES

SEC. 48. Penal Clause. - Penalties shall be imposed for violation of the following ©
prohibited acts:

(a) Refusal to Make Reports or Permit Examination. - Any trustee, officer, or
employee of any paluwagan within the purview of this Act who, being required
in writing by the Administration, willfully refuses to file the required report or
permit any lawful examination into the affairs of such paluwagan shall be
punished by a fine of not less than Fifty thousand pesos (P50,000.00) nor more
than One hundred thousand pesos (100,000.00) or by imprisonment of not less
than one (1) year nor more than five (5) years, or both, in the discretion of the
court.

(b) False Statement. - The willful making of a false or misleading statement ona *
material fact before the Administration or any of its authorized representatives
shall be punished by a fine of not less than One hundred thousand pesos
(P100,000.00) nor more than Two hundred thousand pesos (P200,000.00), or by
imprisonment of not more than (5) years, or both, at the discretion of the court.

(©) Proceedings upon Violation of this Act and Other Laws, Rules, Regulations,
Orders or Instructions. - Whenever a paluwagan willfully violates any of the
provisions of this Act or any other order, instruction, rule or regulation issued by
the Administration, the person or persons responsible for such violation shall,
unless otherwise provided in this Act, be punished by a fine of not less than Fifty
thousand pesos (50,000.00) nor more than Five hundred thousand pesos
(P500,000.00) or by imprisonment of not less than two (2) years nor more than ten *
(10) years, or both, at the discretion of the court.

SEC. 49. Administrative Sanctions. - Without prejudice to the criminal sanctions against
the culpable persons, the Administration may, at its discretion, impose upon any
paluwagan their trustees and/or officers, for any willful violation of its charter or by-
laws, willful delay in the submission of reports or publications thereof as required by
law, rules and regulations; any refusal to permit examination into the affairs of the
paluwagan, any willful making of a false or misleading statement to the Board or its
committees or its representatives; any willful failure or refusal to comply with, or
violation of any law, or any order, instruction or regulation issued by the Board, or any
commission of irregularities, or conducting business in an unsafe or unsound manner as
may be determined by the Board, the following administrative sanctions, whenever *
applicable:

(a) Fines in amounts as may be determined by the Board to be appropriate, but in
no case to exceed One thousand pesos (P1,000) a day for each violation, taking into
consideration the attendant circumstances, such as the nature and gravity of the
violation or irregularity and the size of the paluwagan;


(b) Suspension of operations or authority to accept new contributions, grant new
loans, and make new investments;

(c) Suspension of authority to enter into new contracts; and
(d) Revocation of registration;

Resignation or termination from office shall not exempt such trustee or officer from
administrative or criminal sanctions. The Board may, whenever warranted by
circumstances, preventively suspend any trustee or officer of a paluwagan pending an
investigation: Provided, That should the case be not finally decided by the
Administration within a period of one hundred twenty (120) days after the date of
suspension, said trustee or officer shall be reinstated: Provided, further, That when the
delay in the disposition of the case is due to the fault, negligence or petition of the trustee .
or officer, the period of delay shall not be counted in computing the period of suspension
herein provided.

Whether or not there is an administrative proceeding, if the institution, trustees, or
officers concerned continue with or otherwise persist in the commission of the indicated
practice or violation, the Board may issue an order requiring the institution, trustees, or
officers concerned to cease and desist from the indicated practice or violation, and may
further order that immediate action be taken to correct the conditions resulting from such
Practice or violation. The cease and desist order shall be immediately effective upon
service on the respondents.

CHAPTER XII
CAPACITY-BUILDING

SEC. 50. Capacity-Building. - The Board is authorized to directly conduct, provide grants
to or enter into contracts with colleges or universities, state or local educational agencies,
or other appropriate public or private non-profit organizations to implement programs
for the training of persons engaged, or preparing to engage, in the operation of a
paluwagan, and in related counseling programs.

The Board is likewise authorized to establish a program of experimental, developmental,
demonstration, and pilot projects, either directly or by grants to public or private
nonprofit organizations, or by contracts with such organizations or other private
organizations, designed to promote more effective operation of a paluwagan, and related _
consumer counseling programs.

In carrying out its authority under this paragraph, the Board shall consult with officials
of appropriate agencies responsible for the administration of similar programs and
projects.

Additionally, the Board shall, in collaboration with public and private sector partners as
needed, conduct microcredit, financial literacy, and entrepreneurship programs for the
public ona continuing basis.

CHAPTER XIII


MISCELLANEOUS PROVISIONS

SEC. 51. Utilization of Registration and Annual Fees for the Community Paluwagan
Administration. -

(2) All registration fees, annual fees, and other associated charges collected from
paluwagan groups shall be designated as ‘Initiation Fund' herein, to serve as the
initial fund to establish the Administration.

(b) The Initiation Fund shall be dedicated to the operational and administrative .
needs of the Administration, including staff salaries, capacity building, regulatory
oversight, and program development.

(©) The Administration shall prudently manage and utilize the Initiation Fund in
a transparent and accountable manner, adhering to all relevant financial and
administrative regulations.

(d) The Administration shall regularly report to the appropriate oversight
committee regarding the status, utilization, and impact of the Initiation Fund.

SEC. 52. Implementing Rules and Regulations. - There shall be a Committee of five (5)
members which shall formulate the rules and regulations necessary to implement the
provisions of this Act within sixty (60) days from the approval of this Act.

The Committee shall be composed of the following:

(a) DTI Secretary as Chairperson;

(b) SEC Commissioner as Vice-Chairperson;

(©) Representative from the academe who must be a financial expert as member;

(d) Representative from a financial institution, whether public or private as member; and
(e) Lawyer as member.

‘The Secretary of the DTI and the Commissioner of the SEC shall have the authority to
appoint a designated representative. The representatives from the academe and financial .
institution, and the lawyer shall be appointed by the Chairperson upon recommendation
of organizations or advocates of financial inclusion. The rules and regulations issued
pursuant to this section shall take effect thirty (30) days after its publication in a
newspaper of general circulation.

SEC. 53. Separability Clause. - If any provision of this Act or the application thereof to
any persons or circumstances shall be held unconstitutional, the remainder of this Act
and the application of such provisions to other persons and circumstances not otherwise
affected shall remain in full force and effect.


SEC. 54. Repealing Clause. - All laws, decrees, proclamations, issuances, or ordinances
that are contrary to or inconsistent with the provisions of this Act are hereby amended,
repealed or modified accordingly.

SEC. 55. Effectivity. - This Act shall take effect fifteen (15) days after its publication in the
Official Gazette or in a national newspaper of general circulation.

Approved,