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REPUBLIC OF THE PHILIPPINES ) (2 unr eee. 2.8 2023 E
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HOUSE OF REPRESENTATIVES ‘Leinperd

house BILL No. 7356

Introduced by REPRESENTATIVE VIRGILIO S. 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. Each 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 paluwagan.

‘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 paluwagan
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 Paluwagan Microfinance Administration. The Administration shall prescribe rules and
regulations for the creation and registration of paluwagan, and shall exercise the power of
supervision over registered paluwagans. The bill also provides for the creation of the
Paluwagan Insurance Fund, which aims to protect members of insured paluwagan in case of

cessation of business.

This bill principally aims to provide an avenue for the Filipino people to achieve
financial autonomy and self-sufficiency, by promoting entrepreneurship and providing them
with affordable credit and financial assistance. It is hoped that the formalization and
strengthening of the paluwagan microfinance system, as well as the establishment of the
Paluwagan Microfinance Administration, shall contribute to the realization of the people's

aspirations towards financial stability and self-reliance.
For the foregoing reasons, the passage of this bill is earnestly sought.

VIRGILIQ S. LACSON

Manila Teachers Party-list


NINETEENTH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES )

First Regular Session

HOUSE OF REPRESENTATIVES
Housé BILE No._7356

Introduced by REPRESENTATIVE VIRGILIO S. LACSON

AN ACT
PROVIDING FOR THE REGULATION OF ORGANIZATION AND OPERATION OF
COMMUNITY MICROFINANCE GROUPS ALSO KNOWN AS PALUWAGAN, AND FOR OTHER
PURPOSES

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

SECTION 1. Title - This Act may be cited as “Community Paluwagan Microfinance Act.”

SEC. 2. Declaration of Policies. - The State hereby declares its policy 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, for they are crucial elements in realizing the

people's aspirations towards financial stability and self-reliance.

To achieve this end, the paluwagan, a traditional community microfinance system,
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 they shall be empowered to engage in entrepreneurial activities and
other forms of self-sustenance.

SEC.3. Definitions ~ As used in this Act, the term -

Community Paluwagan refers to a microfinance group that caters to a select group of
persons with residence or employment in a defined community, created in
accordance with the provisions laid out in 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.

Chairman refers to the Chairman of the Paluwagan Microfinance Administration;
Administration refers to the Paluwagan Microfinance Administration;

Board refers to the Paluwagan Microfinance Administration Board;

Member means a person who holds an account in the paluwagan, which evidences
member's contribution 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;

Paluwagan refers to a duly registered Community Paluwagan;


Board of Trustees refers to the Board of Trustees of a registered Paluwagan.

CHAPTER II

Paluwagan Microfinance Administration

SEC. 4. Creation of Paluwagan Microfinance Administration - There is hereby
established in the executive branch of the Government an independent agency to be
known as the Paluwagan Microfinance Administration, which shall be under the

management of the Paluwagan Microfinance Administration Board.

SEC. 5. Membership of the Board ~The Board shall consist of three members, who are
broadly representative of the public interest, appointed by the President of the
Philippines upon consultation and recommendation of existing paluwagan. In
appointing the members of the Board, the President shall designate the Chairman.

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

SEC. 6. Qualifications of Board Members -

(A)Experience in Financial Services - In considering appointments to the Board

under the preceding section, the President 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 on 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
paluwagan as a trustee, committee member, officer, or employee.

SEC. 7. Term of Office ~ Each member of the Board shall have a term of 6 years, except
that of the two members, other than the Chairman, initially appointed shall expire,
one upon the expiration of two years from date of appointment, and the other upon
the expiration of four years from the date of appointment. In no case shall there be
re-appointments.

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

SEC. 8. Functions of the Board. - The management of the Administration shall be
vested in the Board. A majority of the Board shall constitute a quorum. Among its
functions ~

@ the Board shall adopt such rules as it sees fit for the transaction of its business
and shall keep permanent and complete records and minutes of its acts and
proceedings.

(ii) the Board is authorized and empowered to require that 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, give 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


Git)

(iv)

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(vi)

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.

The Board is authorized in carrying out its functions under this Act to appoint
such personnel as may be necessary to enable the Administration to carry out
its functions.

The Board is authorized to 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.
The Board shall make an annual report to the Congress through the Committee
on Micro, Small, Medium Enterprise Development Committee of the House of
Representatives. 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.

The financial transactions of the Administration shall be subject to audit by the
Commission on Audit. Audit shall be conducted at the place or places where

the accounts of the Administration are kept.


(vii) Upon recommendation of the Board, the Administration may invest and
reinvest such portions of the annual operating fees deposited under this Act
as 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 shall be deposited to the account of the Administration.

(viii) The Board shall fix the compensation and number of, and appoint and direct,
employees of the Administration, in accordance with the applicable laws on
government employee compensation.

(ix) The Board shall provide technical assistance to duly registered paluwagan in
the efficient management and operation of their respective microfinance
systems. This includes 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. Chairman of the Board - The Chairman of the Board shall be the spokesman
for the Board and shall represent the Board and the Administration in its official
relations with other branches of the Government.

The Chairman shall determine each Board member's area of responsibility and shall
review such assignments bi-annually. It shall be the Chairman's responsibility to

direct the implementation of the adopted policies and regulations of the Board.

CHAPTER III

Community Paluwagan

SEC. 10. Creation of a Community Paluwagan - Any seven or more persons with
residence or employment in a defined community, who desire to form a community
paluwagan shall apply either before the Administration who shall approve the
creation of said microfinance group. The application shall specifically state:

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(1) Name of the community paluwagan

(2) Location of the proposed community paluwagan

(3) Names and Addresses of the members

(4) Proposed field of membership

(5) Term of existence, not exceeding 50 years, renewable for another 50 years
upon approval of the Administration

(6) Articles of the paluwagan

(7) By-Laws

SEC. 11. Application - In order to simplify the organization of paluwagan, 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 is approved, an appropriate investigation shall be made for
the purpose of determining: a) whether the paluwagan conforms to the provisions of
this Act, b) the general character and fitness of members, c) economic viability of
establishing the proposed paluwagan.

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

SEC. 12. Powers and Functions of a paluwagan - Upon approval of the creation 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 power:

(1) to make contracts;

(2) to sue and be sued;


(3) to adopt and use a common seal and alter the same at pleasure;

(4) to purchase, hold, and dispose of property necessary, incidental, or

beneficial to its operations;

(5) to make loans, the maturities of which shall not exceed 30 years, except as

otherwise provided herein, and extend lines of credit to its members, in

accordance with the following:

a, loans to members shall be made in conformity with criteria established

in the By-laws of the paluwagan. Provided, That—

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(iii)

(iv)

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 years or such other limits as shall
be set by the Board, subject to the rules and regulations of the
Board;

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 5,000,000 Philippine Pesos, 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;

loans to other members for which trustees or members of the
supervisory or credit committee act as guarantor or endorser 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
5,000,000 Philippine Pesos;

loans shall be paid or amortized in accordance with rules and
regulations prescribed by the Board after taking into account
the needs or conditions of the borrowers, the amounts and

11


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(vi)
(vii)

duration of the loans, the interests of the members, and such
other factors as the Board deems relevant;

loans must be approved by the credit committee or a loan
officer;

the rate of interest is reasonable;

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;

Provided, however, that a paluwagan shall not commit itself to make

any loans for amounts in excess of the total of the following amounts:

1) amount of cash available for loan purposes;

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

3) amount of credit available for loan purposes from
government or private financing institutions;

Provided further, any government office, agency, or instrumentality

employing a paluwagan member is required, notwithstanding the

provision of any existing law, rule and regulation to the contrary, to

make deductions from his salary, wage, income or retirement pension

pursuant to the terms of his loan, and all other deductions authorized

by the member, to remit such deductions to the paluwagan concerned,

and to collect such reasonable fee for his services as may be authorized

by rules promulgated by the Board.

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(6) to receive from its members payments, representing member's
contribution which shall be evidenced by a certificate of membership;

(7) to invest its funds in accordance with rules and regulations prescribed by
the Board, in the total amount not exceeding 25 per centum of its paid-in
and unimpaired capital;

(8) to borrow, in accordance with such rules and regulations as may be
prescribed by the Board, from any source, in an aggregate amount not
exceeding 50 per centum ofits paid-in and unimpaired capital and surplus;

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

(10)to impress and enforce a lien upon the member's contribution of any
member, to the extent of any loan made to him and any dues or charges
payable by him;

(11)in accordance with regulations prescribed by the Board—

(i) to sell to persons in the field of membership negotiable checks
(including travelers checks), money orders, and other similar
money transfer instruments (including international and
domestic electronic fund transfers and remittance transfers),
and;

(ii) to cash checks and money orders for persons in the field of
membership for a fee;

(iii) to issue credit cards;

(iv) to engage existing digital platforms, or other financial
technologies that may be devised in the future, to enhance or

automate financial services for members;

(12)in accordance with 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

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upon by the board of trustees of the liquidating paluwagan and the board
of trustees of the purchasing paluwagan, but 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 5 per centum of the unimpaired capital and
surplus of the paluwagan;

(13)to 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;

(14)to invest in securities that are offered and sold pursuant to Section 3,
Chapter I of Republic Act no. 8799, subject to such regulation as the Board
may prescribe, including regulation prescribing minimum size of the issue
at the time of initial distribution, minimum aggregate sales prices, or both;

(15) to exercise such incidental powers as shall be necessary or requisite to
enable it to carry on effectively the business for which it is incorporated.

(16)to 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;

(17)Notwithstanding any other provision of law, to accept investment from a
minimum seven persons within the defined community for the purpose of
augmenting resources and increasing liquidity for the purpose of
providing credit line to the development of micro, small and medium-sized
businesses. The contributors shall be members of the paluwagan, and shall
be subject to the same terms and conditions of membership as other
members. The paluwagan shall have the discretion to determine the terms
and conditions of the investments, including the amount of the investment,
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;


(18)To collect member's contribution from its members upon admission, and
distribute such member's contribution, 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 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 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 to the ability of 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 paluwagan.


CHAPTER IV
Membership

SEC. 14, Membership ~ Each member 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 by-laws.

SEC. 16. Additional membership eligibility - No individual shall be eligible for
membership in a 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 otherwise provided by the Articles and Bylaws of the paluwagan, a member
shall be entitled to vote by proxy.

SEC. 19. Expulsion of members - A member may be expelled for cause by majority
vote of the board of trustees, ratified by majority vote of the all 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 majority vote of a quorum of trustees,
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 should consider a member's failure to
vote in the paluwagan elections, failure to obtain or pay loan from paluwagan, among
others. If such a policy is adopted, written or digi notice of the policy and the effective
date of such policy shall be mailed to each member of the paluwagan at the member's
current address appearing on the records of the paluwagan within 10 days from the
adoption of of such policy. In addition, each new member shall be provided 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 - If a member will, subject to the policy adopted herein, be
subject to expulsion, the member shall be notified in advance of the 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.

Amember shall have 30 days from the date of receipt of such notification request a

hearing from the board of trustees of the paluwagan. Ifa member does not request a

17

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hearing during the 30-day period as described, the member shall be expelled after the
expiration of the 30-day period.

Ifa member requests a hearing during the 30-day period as described, the board of
trustees of the paluwagan shall provide the member with a hearing within 30 days
from receipt of request; and after such hearing, the board of trustees of the paluwagan
shall hold a vote within 15 days whether or not to expel the member. If a 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 this section shall be given an
opportunity to request 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 Paluwagan - The management of a paluwagan shalll 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 in number, to be
elected annually by and from the members as the bylaws provide. Any vacancy
occurring on the board shall be filled until the next annual election by appointment
by the remainder of the trustees.


At their first board meeting, the 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 Supervisory and Credit Committee - The Committee members
shall be appointed by the board of trustees and shall consist of not less than three

members nor more than five 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 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.

Among other things, the board of trustees shall—

(1) 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;

(2) provide adequate fidelity coverage for officers and employees having
custody of or handling funds according to regulations issued by the Board;
(3) fill vacancies on the board of trustees until successors elected at the next

annual meeting have qualified;

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

(5) 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;

(6) 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;

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

(8) 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;

(9) prescribe conditions and limitations for any committee which it appoints;
(10) 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;

(11) 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;

(12) establish and maintain a system of internal controls consistent with the
regulations of the Administration;

(13) establish lending policies; and

(14) do all other things that are necessary and proper to carry out all the
purposes and powers of the paluwagan, subject to regulations issued by the
Board.

CHAPTER VI

Committees

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SEC. 26. Committee meetings - The committees created by the board of trustee shall
hold such meetings as the business of the paluwagan may require, not less frequently

than once a month.

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

@ make or cause to be made an annual audit and shall 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.

(ii) 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;

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

(iv) 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
nor more than fourteen 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, and not less
frequently than once every two years. As used in this section, the term “passbook”

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shall include any book, statement of account, or other record approved by the Board
for use by paluwagan.

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

@ appoint and delegate to loan officers the authority to approve applications;

(ii) all applications not approved by the loan officer shall be reviewed by the credit
committee, and 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 a majority of the full committee is present.

CHAPTER VII
Regulation

SEC. 29, Regulation of 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 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

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members, may terminate such voluntary liquidation and place such organization in

involuntary liquidation and appoint a liquidating agent therefor.

Such liquidating agent shall have power and authority, subject to the control and
supervision of the Board and under such rules and regulations as the Board may
prescribe -

(i) to receive and take possession of the books, records, assets, and
property of every description of the paluwagan in liquidation,

(ii) _ to sell, enforce collection of, and liquidate all such assets and property,
to compound all bad or doubtful debts, and to sue in his own name or
in the name of the paluwagan in liquidation, and defend such actions
as may be brought against him as liquidating agent or against the
paluwagan;

(iii) _ to receive, examine, and pass upon all claims against the paluwagan in
liquidation, including claims of members on member accounts;

(iv) to make distribution and payment to creditors and members as their
interests may appear; and

(v) _ to execute such documents and papers and to do such other acts and
things which he may deem necessary or desirable to discharge his
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, which notice shall be published
once a week in each of three 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

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liquidation, that distribution has been made and that liquidation has been completed,
as provided herein, the Board shall cancel the charter of such paluwagan; but the
corporate existence of the paluwagan shall continue for a period of three years from
the date of such cancellation of its charter, during which period the liquidating agent,
or his 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 it may sue
and be sued in its corporate name.

After the expiration of five 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 may be determined by
the Board.

Applications for such insurance shall be in such form as the Board shall provide and
shall contain an agreement by the applicant—

(1) 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;

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(2) 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;

(3) 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;

(4) 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

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

(6) To comply with the requirements of this title 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—

(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;

(D) the convenience and needs of the members to be served by the applicant;
and

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

(2) The Board shall disapprove the application of any paluwagan for insurance of its
member accounts if it finds that its reserves are inadequate, that its financial
condition and policies are unsafe or unsound, that its management is unfit, that
insurance of its member accounts would otherwise involve undue risk to the fund, or

that its powers and purposes are inconsistent with the promotion of a culture of

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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. 33. Insurance Premium Charges. - Each insured paluwagan shall, at such times
as the Board prescribes (but not more than twice in any calendar year), pay to the

Fund a premium charge for insurance in an amount determined by the Board.

SEC. 34. 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. 35. 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. 36. 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.

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The reporting dates selected for reports of condition shall be the same for all 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, by a vice president, by the treasurer, or by 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. 37. 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 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

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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 or

unsound practice.

SEC. 38. 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.

CHAPTER VIII

Taxation

SEC. 39. Grant of tax exemption. - Notwithstanding the provisions of any law or
regulation to the contrary, paluwagan shall enjoy the following tax exemptions:

1. 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: 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.

Interest on member's contribution of members with any paluwagan as well as the
shares of its members from the net income of the paluwagan shall be exempt from
income tax.

2. Any paluwagan duly registered with the Administration shall be exempt from the
payment of value-added tax and documentary stamp taxes;
3. Any paluwagan, regardless of the amount of accumulated reserves and undivided

net savings shall be exempt from payment of local taxes. Fees and charges

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assessed by the cities or municipalities on the application of mayor's or local
business permits, and other licenses and approvals shall in no case exceed Php
3,000.

CHAPTER IX

Confidential nature of capital contributions

SEC. 40. 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 ofan 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.

It shall be unlawful for any official or employee of a paluwagan to disclose to any
person any information concerning said deposits, except in the cases mentioned in
the preceding paragraph of this Section. Any official or employee of an Association
who violates this Sec. shall be punished under Republic Act No. 1405, as amended.

CHAPTER IX
Offenses

SEC. 41, Refusal to Make Reports or Permit Examination. - Any trustee, corporate
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) nor more than One hundred
thousand pesos (P100,000) or by imprisonment of not less than one (1) year nor
more than five (5) years, or both, in the discretion of the court.

SEC. 42. False Statement. - The willful making of a false or misleading statement on
material fact before the Administration or any of its authorized representatives shall

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be punished by a fine of not less than One hundred thousand pesos (P100,000) nor
more than Two hundred thousand pesos (P200,000), or by imprisonment of not more
than (5) years, or both, at the discretion of the court.

SEC. 43. Proceedings Upon Violation of this Act and Other Laws, Rules, Regulations,
Orders or Instructions. - Whenever a paluwagan willfully violates 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 (P50,000) nor more than
Five hundred thousand pesos (P500,000) 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. 44. 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, and/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;

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(c) suspension of authority to enter into new contracts
(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 in his position: 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 and/or the
trustees and/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 and/or the trustees and/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 VII
Capacity-building

SEC. 45. Capacity-building. - The Board is authorized to conduct directly, or to make
grants to or contracts with colleges or universities, state or local educational agencies,
or other appropriate public or private non-profit organizations to conduct, programs
for the training of persons engaged, or preparing to engage, in the operation of

paluwagan, and in related counseling programs.

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It is 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 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 such programs
and projects.

Additionally, the Board, in collaboration with public and private sector partners as
needed, microcredit, financial literacy, and entrepreneurship programs to the public

ona continuing basis.

CHAPTER VIII

Miscellaneous Provisions

SEC. 46. Appropriations. - The initial amount necessary for the implementation of this
Act shall be included in the General Appropriations Act.

SEC. 47. Implementing Rules and Regulation, - For the purpose of carrying the
objectives of this Act, the Administration is authorized to require the services and
facilities of any department or instrumentality of the government or any officer or
employee of any such department or instrumentality, to promulgate the necessary
rules and regulations within 60 days from the effectivity of this Act. The rules and
regulations issued pursuant to this section shall take effect thirty (30) days after its
publication in two (2) national newspapers of general circulation.

SEC. 48. Separability clause - If any provision of this Act or the application thereof to

any persons or circumstances is held unconstitutional, the other provisions of this Act

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and the application of such provisions to other persons and circumstances, shall not
be affected thereby.

SEC. 49. 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. 50. Effectivity.- This Act shall take effect fifteen (15) days following the
completion of its publication in the Official Gazette or in two (2) national newspapers

of general circulation.

Approved,