SIXTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

House Bill No. 4240
EXPLANATORY NOTE

Micro financing is the provision of financial services to low-income clients or solidarity
lending groups including consumers and the self-employed, who traditionally lack access to
banking and related services.

These activities are aimed towards poor or low-income families in order for them to
be able to have access to funds that they could use to start a business or improve their lives.

‘As of 2009, there are an estimated 2.7 million active borrowers in the Philippines
from around 110 micro financing institutions (MIS), These MFls, particularly those in
Mindanao, are usually established by religious persons or organizations for the sole purpose
of helping out the poor. The Board of Trustees of these MFis in Mindanao do not receive any
part of the money involved and all profits, if any, are reinvested for the benefit of the
borrowers, These MFls are definitely helpful and provide opportunities to the low-income
families which do not have access to banks and other money lending institutions because of,
among others, a high interest rate.

‘As such, we must provide these MFis with certain benefits that would help them in
their goal of eradicating poverty in the country,

In view of the foregoing, immediate passage of this bill is earnestly requested.



SIXTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

HOUSE OF REPRESENTATIVES

Introduced by Representative Rufus B. Rodriguez and
Representative Maximo B. Rodriquez, Jr.

House Bill No, 4240

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

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 Institutions Act of 2014.”

Section 2. Declaration of Policy. - It is hereby deciared 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 with qualified institutions in the
private sector for the poor have more access to micro-finance, micro-insurance, 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 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.

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

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


d) 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 the 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.

1) Accrediting Entity refers to the entity as designated under Section * of this Act

g) Fund balance refers to the difference between total assets and total liabilities of
the required capitalization for registration as MEDI.

Section 5. Form of Organization, - A MEDI defined in Section 4 (a) hereof shall be
established as @ 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 no compensation,

Section 6, Capital Requirements. A MEDI shall have a fund balance of Twenty Million Pesos
(Php 20,000,000.00), or in the case of newly organized MEDIs, an initial fund of Ten Million
pesos (Php 10,000,000.00).

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 equality 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 (DT!),
Bangko Sentral ng Pilipinas (BSP) and other concemed 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;

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

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


e) Require regular submission of reports by MEDIs;

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

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

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

=

h

Section 10. Taxation of Accredited MEDIs. ~ The taxation of MEDIs shall be as follows:
fa) 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 People Development
Trust Fund established under Republic Act No. 8426 otherwise known as the
“Social Reform and Poverty Alleviation Act.”

The term “gross income” means gross receipts less sales _retums,
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 in arriving at gross income.
‘The term gross income shall exclude donations,

b) 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 this Act shall be sufficient.

©

d) The transaction of the MEDI and its clients shall 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. 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 14 Effectivity. — This Act shall take effect after fifteen (15) days from its publication
inat least two (2) national newspapers of general circulation.

Approved,