HOUSE OF REPRESENTATIVES
Quezon City

Fifteenth Congress
First Regular Session

COMMITTEE REPORT. no, 233

Submitted by the Committee on Small Business and Entrepreneurship Development on

Recommending its approval in substitution of HB Nos. 213 and 1114

Sponsor/s: Reps. Teodoro A. Casifio, Neptali M. Gonzales Il, Teodorico T. Haresco, Jr,
Emmeline Y. Aglipay, and Ferdinand Martin G. Romualdez

Mr. Speaker:

The Committee on Small Business and Entrepreneurship Development to which were
referred House Bill Nos. 213 introduced by Rep. Neptali M. Gonzales Il entitled:

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

and House Bill No. 1114 introduced by Rep. Ferdinand Martin G. Romualdez, entitled:

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

has considered the same and recommends that the attached Houké) bit No. 4688
entitled;

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

be approved in substitution of HB No. 213 and HB No. 114 with Representatives Neptali M.
Gonzales ti, Ferdinand Martin G. Romualdez , Teodoro A. Casifio, Teoderico T. Haresco, Jr.,
Emmeline Y. Aglipay, Philip A. Pichay, Bernadette R. Herrera-Dy, Augusto D. Syjuco, Jr.


Christopher S. Co, Rodel M, Batocabe, Alfredo A. Garbin, Ma. Jocelyn V. Bernos and Rufus 6.
Rodriguez as authors thereof.

Respectfully submitted,

— eos ACwE
HON. TEODORO A, CASINO.

Chairperson
Committee on Small Business and Entrepreneurship Development

‘THE HONORABLE
‘The Speaker


Republic of the Philippines
HOUSE OF REPRESENTATIVES
‘Quezon City

FIFTEENTH (15") CONGRESS:
4* Regular Session

HOUSE BILLNo.__ 4688

(In substitution of House Bills No. 213 and 1114)

Introduced by Representatives Neptall M. Gonzales ll, Ferdinand Marlin G. Romualdez,
Teddy A. Casifio, Teodorico T. Haresco, Emmeline Y. Aglipay, Philip A. Pichay,
Bemadette R. Herrera-Dy, Augusto D. Syjuco, Jr., Christopher $, Co, Rodel M. Batocabe,
Alfredo A_Garbin, Ma_Jocelyn V. Bemos and Rufus B. Rodriguez

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

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

Section 1. Title. This Act shall be known as the “Micro-Enterprise Development
Institution Act of 2011."

‘Section 2. Deciaration of Policy. It is hereby declared the policy of the State to
Pursue a program of poverty eradication wherein poor Filipino families shall be
encouraged to undertake entrepreneurial activities to meet its minimum basic needs
including income security. In pursuance of this policy, the goverment shall support and
work in partnership with qualified institutions in the private sector providing general and
other entrepreneurial services to the poor,

Section 3. Definition of Terms. For purposes of implementing this Act, the
following definitions shall apply:

a) MICRODEV Accraditation Center reters to the entity created under Section 7 of

this Act;

©) Micro-Enterprise Development Strategy refers to a social reform program to

empower the poor, 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 productive
lives;

©) 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;

d) Net Worth refers to the difference between total assets and total liabilities of an
entity;

e) Poor refers to individuals and families whose income fall below the poverty
threshold as defined by the National Economic and Development Authority or
those who cannot afford in a sustained manner to provide their minimum basic
needs of food, health care, education, housing and other essential amenities of
life as defined by Republic Act No. 8425, otherwise known as the "Social
Reform and Poverty Alleviation Act’;

f) Regulatory Authorities refer to the entities as designated under Section 9 of this
Act; and

9) 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:

Section 4. Recognition of Micro-Enterprise Development Institutions
(MIRCRODEVs). Micro-Enterprise Development Institutions (MICRODEVs) are hereby
Tecognized as institutions mandated to implement a micro-enterprise development
Strategy. MICRODEVs shall be operated as non-stock and non-profit corporations in
accordance with the Securities and Exchange Commission (SEC) rules and regulations
and provisions of Title XI (Non-Stock Corporations) of Batas Pambansa Big. 68, otherwise
known as “The Corporation Code of the Philippines.” These shall be governed by a Board
of Trustees whose members shall not receive compensation: Provided, That no part of
the net income of MICRODEVs inure to the benefit of the members, trustees, directors or
officers: 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 Intemal Revenue.

Section 5. Powers and Functions of 2 MICRODEV. A MICRODEV shall
exercise such powers and functions and undertake such activities in accordance with the
policies, programs and services provided in this Act. It shall:

a) provide the poor access to reasonable and affordable credit and related
‘services including micro-finance, micro-insurance, health care and micro-

housing;

b) provide business development opportunities such as leadership training and
2


entrepreneurial skills training; and

©) provide 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 alt programs directly involved in poverty eradication.

Any accredited MICRODEV shalt 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 af 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. A MICRODEV shall be a net lender at all times,
wherein net loans mean total loans minus total equity build-up.

Section 6. Capital Requirements. A MICRODEV shall have a net worth of
Twenty Million Pesos (P20,000,000.00), or in the case of newly organized MICRODEVs,
an initial net worth of Ten Million Pesos (P10,000,000.00).

Section 7. Creation and Composition of the Accrediting Entity. An accrediting
entity to be known as the MICRODEV Accreditation Center shail be created under the
National Anti-Poverty Commission (NAPC) to perform the functions provided hereof. It
shall be composed of the following:

a) The President of the NAPC or designated representative;

b) The Secretary of the Department of Finance (DOF) or designated

representative;

¢) The Secretary of the Department of Trade and Industry (DTI) or
designated representative;

4) The Govemor of the Banko Sentral ng Pilipinas (BSP) or
designated representative;

e) The Chairperson of the SEC or designated representative; and

f} The President of the Microfinance Council of the Philippines (MFCP)

or designated representative.

The MICRODEV Accrediting Genter shalt be assisted by a Secretariat in the
Performance of its functions. Funding for its operation shall be sourced from the two
Percent (2%) tax proceeds fram MICRODEVs to be remitted to the Peoples Development
‘Trust Fund established under R. A. No. 8425 as provided for in subparagraph (a) of
Section 10 of this Act


‘Section 8. Powers and Functions of the Accrediting Entity. The MICRODEV
Accreditation Center established under this Act shatl have the follwing functions and
responsibilities:

a)
b)

2)

d)

e)

9)

hy

Institute and operationalize a system of accreditation for MICRODEVs.

Issue Certificate of Accreditation as a MICRODEV 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 rules and regulations of this Act; Provided, further, That no
application shall be processed for accreditation as a MICRODEV unless the
applicant enterprise secures a valid registration or license with the
government agency that exercises regulatory function over such corporation;
Monitor the performance of MICRODEVs to ensure compliance with the
Provisions of this Act and its implementing rules and regulations;

Suspend or revoke any certificate of accreditation upon determination that
a MICRODEV no longer meets the criteria for accreditation;

Require regular submission of reports by MICRODEVs;

Collect reasonable accreditation and monitoring fees from a MICRODEV
which shall be used for the accrediting entity's operational requirements;
Submit an annual report to the President of the Philippines and the
concemed committees of both Houses of Congress; and

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

‘Section 9. Power of the Regulatory Authorities to Examine MICRODEVs. The
BSP and the insurance Commission, in coordination with the accrediting entities, shall
have the power to examine the operations of MICRODEVs, solely for the purpose of
determining that MICRODEVs are not engaged in an unauthorized undertaking or
activities which are subject to their respective regulations.

‘Section 10. Taxation of Accredited MICRODEVs. The taxation of MICRODEVs
Shall be as follows:

a)

The MICRODEVs 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 R. A. No, 8425. The
term gross income shail mean gross receipts less sales retums, allowances,

discounts and other costs of services. The term ‘cost of services’ shalt mean
4


all direct costs and expenses necessarily incurred to provide the services
required by the customers and clients including salaries and employee
benefits of personnel, consuttants 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
MICRODEV shall be deductible from gross receipts as part of cost of
services in arriving at gross income. The term gross income shait exclude
donations;

b) —_ Donations to the MICRODEV 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 Intemal Revenue Code
‘of 1997: Provided, however, That the accreditation of the MICRODEV by the
accrediting entity under this Act shall be sufficient;

©) Donations to the MICRODEV 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 intemal Revenue Code of 1997: Provided,
That, for purposes of utilization, accreditation granted under this Act shall be
‘sufficient; and

d) Transactions of the MICRODEV and its cients shall be exempt from

documentary stamp tax.

Section 11. Implementing Rules and Regulations. The NAPC, in coordination
with the DOF, BIR, BSP, DT! and MFCP, shall formulate the implementing rules and
regulations (IRR) of this Act within ninety (90) days after its approval. The IRR shall take
effect fifteen (15) days after its publication in a newspaper of general circulation in the
Philippines.

Section 12. Penalty Clause. f the BSP or the Insurance Commission finds,
Pursuant to its power under Section 9 of this Act, MICRODEVs engaging in unauthorized
undertakings or activities, the BSP or the Insurance Commission may impose
administrative sanctions including, but not limited to, issuance of an order requiring the
MICRODEV and/or the directors and/or officers concemed 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 violation. The cease and desist order shall be
immediately effective upon service of such order to the respondents.

Further, MICRODEVs and/or its directors and/or Officers found to be engaged in
unauthorized undestakings and activities shall be ‘subject to criminal and administrative

5


fines as provided in Section 36 and 37 of Republic Act No. 7653 or the New Central Bank
Act, and in case of unauthorized activities regulated by the Insurance Commission, be
liable under the applicable insurance laws.

Section 13. Separabitity 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.

Section 14. 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.

Section 18. Effectivity. This Act shall take effect after fifteen (15) days from its
Publication in at least two (2) national newspapers of general circulation.

Approved,


FACT SHEET

House Bill No. 8
(As approved on 23 November 2010)

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

introduced by: NEPTALI M, GONZALES If, FERDINAND MARTIN G. ROMUALDEZ, TEDDY
A. CASINO, HERMILANDO I. MANDANAS, TEODORICO T. HARESCO, EMMELINE Y.
AGLIPAY, PHILIP A. PICHAY, BERNADETTE R. HERRERA-DY, AUGUSTO D. SYJUCO,
JR., CHRISTOPHER S. CO, RODEL M. BATOCABE, ALFREDO A. GARBIN AND MA.
JOCELYN V. BERNOS
Committee Referral: COMMITTEE ON SMALL BUSINESS AND
ENTREPRENEURSHIP DEVELOPMENT
Committee Chairperson: TEODORO A. CASINO.
Committee Referral: COMMITTEE ON WAYS AND MEANS
Committee Chairperson: HERMILANDO |. MANDANAS

OBJECTIVE/S:
* To establish the policy framework that will promote the growth and development
of small enterprises as a strategy for poverty alleviation

KEY PROVISIONS:

* Provides for the creation of Micro-enterprise Development Institutions
(MICRODEVs) which shall be organized as non-profit institutions accredited by
proper government authorities ta implement social reform programs.

* Requires MICRODEV net worth of Twenty Million Pesos (P20,000,000.00), or in
the case of newly organized MICRODEVs, an initial net worth of Ten Million
Pesos (P10,000,000.00).

+ Imposes a tax on MICRODEVs at two percent (2%) of the gross income in lieu of
all national and local taxes. The tax proceeds shail form part of the disbureable
Portion of the People’s Development Trust Fund established under Republic Act
No. 8425 otherwise known as the “Social Reform and Poverty Alleviation Act”

+ Creates an accrediting agency known as the MICRODEV Accreditation Center
under the National Anti-Poverty Commission (NAPC).

RELATED LAWS;
+ R.A. 8425 Social Reform and Poverty Alleviation Act

+ RA. 8424 National Internal Revenue Code of 1997
+ Batas Pambansa Big. 68 Corporation Code of the Philippines


HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

House Bill No. 213

Introduced by Hon. Neptali M. Gonzales IT

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

Section 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 govemment shall work in partnership with

qualified institutions in the private sector for the poor to have more access 10


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.

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

Section 4, Definition of Terms. For purposes of implementing this Act,
the following definitions shall apply:

a) 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 shail 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.


b)

c)

a)

5)

Micro-Enterprise Development Strategy refers to a social reform
program to empower the poor 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 fal! 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 fevels and living standards.

Accrediting Entity refers to the entity as designated under Section

8 of this Act.


g) Fund Balance refers to the difference between total assets and total

liabilities of the required capitalization for registration as a MEDI.

Section 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.

Section 6. Capital Requirements, A MEDI shall have a fund balance of
Twenty Million Pesos (P20,000,000.00), or in the case of newly organized
MEDIs, an initial fund of Ten Million Pesos (P10,000,000.00).

Section 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.

Section 8. Accrediting Entity. The National Anti-Poverty Commission
(NAPC) in consultation with the Department of Finance (DOF), Department of
Trade and Industry (DTD, 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.

Section 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 rules 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;


c)

dq)

e}

)

h)

Monitor the performance of the MEDIs to ensure compliance with
the provisions of this Act and its implementing rules and
regulations;
Suspend or revoke any certificate of accreditation upon
determination that a MEDI no longer meets the criteria for
accreditation;

Require regular submission of reports by MEDIs;

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

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.

Section 10. Taxation of Accredited MEDIs, ‘The taxation of MEDIs

shall be as follows:

a)

The MEDIs shall pay two percent (2%) of the gross income in liew
ofall 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.”


b)

¢)

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 employce 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 shal! be exempt from

documentary stamp tax.

Section 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.

Section 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.

Section 13. Repeating 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.

Section 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,


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

HOUSE BILL NO, 1114

RDINAND MARTIN G, ROMULADEZ

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 @ 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 MEDI 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 (NGQs). 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 shail be organized as non-profit institutions, to be
credited by proper govemment 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 ali taxes
whether imposed by the Nationa! or Local Governments.

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

FERDINAND MARTIN G. ROMUALDEZ


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

HOUSE BILL NO. 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 2610.

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
quatified 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 seffless 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 shall apply to non-stock and
non-profit micro-enterprise development institutions duty qualified and accredited as
provided herein.


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

definitions shall apply:

a)

b)

¢)

a)

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
of 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.

fy} Accrediting Entity refers to the entity as designated under Section 8 of this
Act.

g) 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 alt 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 shail 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 MEDI;

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
tules 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;

c) 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;

) Require regular submission of reports by MEDI;

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)

°)

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 MED! shail 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 shail 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 Nationat Internal Revenue Code af 1997: Provided,


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

4) 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 separabie. If any provision of this Act shall be held unconstitutional, the remainder of
the Act not otherwise affected shail 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

of 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,


MINUTES OF THE INITIAL DELIBERATION OF THE COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHP DEVELOPMENT HELD ON 23 NOVEMBER 2010 AT
CONFERENCE ROOM 13, RAMON V, MITRA BUILDING, HOUSE OF REPRESENTATIVES

MEMBERS PRESENT:

HON. TEDDY A CASINO, Bayan Muna Chairperson & Presiding
HON. TEODORICO T. HARESCO, JR., Kasangga Vice Chair

HON. EMMELINE Y. AGLIPAY, Diwa Member

HON. FERDINAND MARTIN G. ROMUALDEZ, 1* Leyte Member & Author

HON. PHILIP A. PICHAY, 1* Surigao del Sur

GUESTS/RESOURCE PERSONS:

ATTY. RHIO FUENTES-NUYLAN
MS. ROCHELLE TOMAS

MR. ROMEO B. CARANDANG:
MS. CATHERINE T. CAMARAQ:
MR. HERMEO BAUTISTA

MS. EVA EQUIPAJE

MR. JOEL MACALINGAG

MR. NELSON SALAS National Anti Poverty Commission
ATTY. DORENDA DASMARINAS, Social Security System

MR. RENE E. CRISTOBAL APPEND

MS. VIRGINIA P. JUAN

MR. F.R_FLORO

ATTY. CORNELIO C. GISON
ATTY. LEONARDA D. BANASEN

Bangko Sentral ng Pilipinas
Development Bank of the Philippines

Land Bank of the Philippines
National Housing Authority

Philippine Chamber of Commerce. Inc.
TSPI Development Corp.

CALL TO ORDER

The meeting was called to order at 2:00PM by the Honorable Teddy Casifio, Committee
Chairperson. Honorable Emmiline Aglipay motioned to defer calling of the role. Likewise, Rep.
Aglipay motioned for the approval of the minutes of the previous meeting. Both motions were
seconded by Honorable Teodorico Haresca, carried and approved respectively.

OPENING REMARKS

Chairman Teddy Casifio informed the body that House Bills 213 & 1114 are identical bills
authored by Cong. Neptali M. Gonzales Il and Cong. Ferdinand Martin G. Romualdez,
respectively. A similar bill was filed in the 14" Congress and passed on second reading. The
Chair enumerated the merits of the proposed bill which include, among others, the following:

* Provides for the creation of Micro-Development Institutions which shall be organized as

non-profit institutions accredited by proper goverment authorities to implement social
reform programs.


« Mandates MEDI capitalization of Twenty Million pesos, of in case of newly organized
MEDIs, and initial fund of Ten Million pesos.

‘« Imposes a tax on MEDIs at two percent of the gross income in lieu of afl national and

local taxes. The tax proceeds shall form part of the disbursable portion of the People’s
development Trust established under Republi Act No. 8425 otherwise known as the
Social Reform Poverty Act
Exempts transactions of the MEDI and its clients from documentary tax.
Mandates the national Anti-Poverty Commission in establishing the appropriate
accrediting entity to perform the functions provided under the Act, in consultation with
the Departments of Finance and Trade & Industry, Bangko Sentral ng Pilipinas and other
concemed agencies.

STATEMENT OF THE AUTHOR

Cong. Romualdez reiterated the statement of the Chair that the proposed bill was filed and
passed on second reading in the Fourteenth Congress, Although it has been deliberated
extensively by all stakeholders, he submits it to new insights by the new members, and leaves it
to the sound judgment of the committee to approve the same.

MEETING PROPER

Chairperson Casifio proceeded to the presentation of position papers by the invited resource
persons.

The Chairman of Alliance of Philippine Partners in Enterprise Development (APPEND),
likewise concurrent President of TUlay sa Pag-uniad, Inc. (TSP!) Development Corp., Mr. Rene
Cristobal briefed the body on the programs and services provided by their group. The APPEND
Network provides micro-finance, micro-insurance, education, business and community
development, value-chain financing for agriculture, values education and character building,
health services and environmental protection, all geared at improving the welfare of
impoverished Filipino families, As a result of their growth in the field of microfinance which is
the core of their program, their loan portfalio at present stands at Four Billion Pesos with a
repayment trend of 98.9%. Mr. Cristobal expressed apprehensions that back taxes and other
forms of taxes both local and national, as required by the Bureau if Internal Revenue (BIR), will
increase the cost of borrowing to the detriment of the poor beneficiaries, and could wipe-out the
capital accumulated over time rolled-over and over to reach the tatget beneficiaries of five
million households by the year 2015. The proposed bill will hopefully remedy the tax problem
and regulate the non-government organizations.

The representatives of Social Security System (SSS), Development Bank of the Philippines
(OBP), Land Bank of the Philippines (LBP), Bangko Sentral ng Pilipinas (BSP), National
Housing Authority (NHA) and National Anti-Poverty Commission (NAPC) were unanimous in
expressing their respective agency's support for the bill. The BSP representative read their
comments and sought the body's approval of their proposed amendments, to wit:

* On Sec. 5, the law must be explicit that a MEDI shall be established and operated in
accordance with the provision of Tite XI (Non-Stock Corporations) of Batas Pambansa


Big. 68 (The Corporation Code of the Philippines) to ensure that MEDIs will not be
operated for profit.
* On Sec. 6, P20 Million is the minimum capitalization to be maintained by @ MEDI
* On Sec. 7, on the provision that deposit taking does not include taking of funds from
current of prospective borrowers for the purpose of equity build-up of an individual
borrower's own loan, it is suggested to append the phrase to include “provided that the
MEDI shall be a net lender at all times, wherein net loans means total loans minus total
equity build-up" to be consistent with the National Regulatory Framework for
Microfinance, as approved by the National Credit Council

* On Sec, 9, it is proposed that the accrediting entity shall consult with the Microfinance
Council of the Philippines in establishing and operationalizing a system of accreditation
to determine the qualifications of the MEDI. This will ensure that the relevant
stakeholders are represented in the formulation of the accreditation policies.

+ Insert a new section granting the concemed regulatory agencies (i.e. BSP and Insurance
Commission) the authority to examine MEDIs, in coordination with the accrediting
enlity, solely for the purpose of determining compliance with the authorized activities.
Any adverse findings shall be subject to criminal sanctions and administrative fines as
provided in Sections 36 and 37 of the New Central Bank Act or under the insurance
laws, whichever vielation is applicable, or will result in the suspension or revocation of
MEDI accreditation

On Sec. 11, it is proposed that the Implementing Rules and Regulations be drafted in
consultation with the Microfinance Council of the Philippines,

DISCUSSION/OPEN FORUM

The Chair commented that it is very unusual that Non-Government Organizations (NGOs) would

to be taxed, as proposed in the bill, The same comment was echoed by Vice-Chair
Haresco. Atty. Gison, Corporate Secretary and Accountant of TSP! Dev. Corp. and APPEND.
replied that because of their microfinance aspect activity, documentary stamps on promissory
notes ~ mostly Five Thousand Peso loan — and Value Added Tax are being levied by the
Bureau of intemal Revenue (BIR), Both taxes increase the cost of loans, the cost being passed
on to micro-entrepreneurs. NGOs and other microfinance conduits do not want any tax issue
with BIR as it hampers and restricts their vision and mission to eradicate poverty, through,
among others, access to micro financing. Atty Gison informed the body that they were able to
seek suspension of the documentary tax, however, VAT remains an issue. To put the issue to
rest, they are submitting themselves to a twa percent (2%) tax on their grass income in lieu of all
national and local taxes.

‘On the query of both the Chair and Vice-Chair on how much interest rate is charged on
microloans by government financial institutions, Land Bank informed the body that they do not
loan directty to micro-enterprises, but through conduits, mostly NGOs, and charge 8%-8.5%
interest rate per annum. APPEND, an NGO, charge 2.5% - 3% per month, and added the
information that the repayment is 99.9%. Vice-Chair Haresco further inquired on how the BSP
regulate LBP and DBP with regards to loans to MSMEs. BSP replied by refering to the
mandatory allocation and penalty provision of Republic Act 9125 otherwise knawn as the
Magna Carta for Micro, Smali and Medium Enteprises,


The Chair further queried on any guaranty that NGOs will not abuse the provisions of the
proposed law and remain to be non-stock, non-profit organizations. BSP replied to get the
Securities and Exchange Commission involved as one of the accrediting agencies.

‘As regards to the other proposed amendments by BSP, Cong. Romualdez expressed
agreement to the same. He however, articulated his sentiments to keep the wordings of the bill
simple and not too formal or technical. Mr. Cristobal of APPEND rejoined by proposing to put in
the implementing rules and regulations (IRR) any other technical definitions.

COMMITTEE ACTION

The discussion was concluded by Cong. Pichay's mation to approve HB 213 and HB 1114
subject to amendment and style. Cong. Aglipay seconded the motien with a manifestation to
make all members present as co-authors of the bill. There being no objection, Chairperson
Casifio and the members of the committee approved the measures.

ADJOURNMENT

‘The meeting was adjourned at 3:57PM.

Thereby certify to the correctness of the

ACne}——

‘CONG. TEDDY A. CASINO
Chairman



epablic of the Bitppines
House of Representatives
Quezon Gy, Motes Manila

February 15, 201]

HON. TEODORO A. CASINO

Chairman

Committee on Small Business & Entrepreneurship Development
House of Representatives

Dear Chairman Casifio:

The Committee on Ways and Means in its meeting today, February 15, 2011. has
deliberated upon and approved without amendment the tax provisions specifically on
Section 11. of the Unnumbered Substitute Bill, entitled, AN ACT GOVERNING THE
CREATION AND ACCREDITATION OF MICRO-ENTERPRISES DEVELOPMENT
INSTITUTIONS, AND FOR OTHER PURPOSES.

Very truly yours,

-RMILANDO 1. MANDANAS
‘Chairman
Committee on Ways and Means

COMMITTEE ON WAYS AND MEANS:
‘Nodth Baooment
‘Batasan Complex, Quazon Cly
Tet. Nos. 931-4955 » 931-5001 ine. 7643
Tole 931-4965