FOURTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
Second Regular Session 
~~~~~~~~'~~ 
CY?': 
S E N A T E  
Senate Bill No. 
INTRODUCED BY SEN. MANNY VILLAR 
EXPLANATORY NOTE 
The bill consistent with the declared policy of the state to promote a more 
focused program of poverty eradication, seeks the creation of micro-enterprise 
development institutions to tap the vast opportunities to promote, enhance and 
protect the interest of the poor not only to access credit but not have access as 
well in all related micro-finance services, such as insurance, health care, 
education, housing, and other value added services to help eradicate poverty in 
the Philippines. 
The proposed legislation takes cognizance of the plight of poor Filipinos 
who comprise some 40 percent of the country's total population of approximately 
88 million, or roughly 35 million individuals or 7 million families. This percentage 
represents untapped human potentials that could further enhance the nation's 
wealth-creation efforts and the transformation of the Filipino as the catalyst to a 
real meaningful change in our society. 
Already, the government has provided the platform for this task and 
mission with the passage of Republic Act No. 8425, or the "Social Reform and 
Poverty Alleviation Act". President Gloria Wlacapagal-Arroyo, no less, made 
specific reference to microfinance as one of the cornerstones in the fight against 
poverty. 
There are more than 300 NGOs currently involved in retail microfinance. 
With about I 
.5 million poor clients and aggregate portfolio of approximately Php5 
billion, the microfinance sector has provided a sizeable contribution in the poverty 
eradication effort. It is thus deemed timely and appropriate to take the necessary 
legislative measures to optimize the poverty eradication opportunities open in a 
government partnership and collaboration with Microfinance, Non-Government 
Organizations (MF-NGOs). 
The way forward is to help these MF-NGOS broaden their present 
services for the poor. 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 medium-based entrepreneurs. 


The proposed legislation also aims to ensure that the expanded 
partnership between government and micro-finance-NGO sector becomes even 
more mutually beneficial particularly in regard to the national efforts to revenue 
generation and socio-economic development. 
In substance, the proposed law shall cover MF-NGO's, to be known as 
Micro-finance Development Institutions (MEDls) shall be organized as non-profit 
institutions, to be accredited by proper government authorities. They shall be 
subject to a tax of 2% of their gross income as contribution to the People's 
Development Trust Fund created and established under Republic Act No. 8425, 
otherwise known as the "The Social Reform and Poverty Alleviation Act". The 
2% tax on gross income will be in lieu of all taxes whether imposed by the 
National or local Governments. 
The tax scheme will strengthen the MEDls as it will simplify their 
bookkeeping and other government compliance requirements. It will likewise 
greatly help the poor borrowers of MEDl by keeping the costs of borrowing low 
since there will be no income tax, value added taxes (where practically all the 
borrowers being poor have no output VAT), documentary stamp tax, other forms 
of percentage tax and local tax. 
In view of the foregoing, the approval of this bill is earnestly requested 
MANNY ILLAR 9 
2 


FOURTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
Second Regular Session 
S E N A T E  
Senate Bill No. 2 5 6  8 
INTRODUCED BY SEN. MANNY VILLAR 
AN ACT 
GOVERNING THE 
CREATION AND 
ACCREDITATION 
OF 
MICRO- 
ENTERPRISE 
DEVELOPMENT 
INSTITUTIONS, 
AND 
FOR 
OTHER 
PURPOSES 
Be it enacted by the Senate and House of Representatives of the 
Philippines in Congress assembled: 
PART I -TITLE AND DECLARATION OF POLICY 
Section 1. 
Title. This Act shall be known and cited as the "Micro- 
Enterprise Development Institution Act of 2008". 
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 government shall work in partnership with 
qualified institutions in the private sector for the poor to have more access to 
micro-finance, micro-insurance, micro-health care, micro-housing, business 
development, such as leadership training and entrepreneurs 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 al programs directly involved in poverty eradication. 
PART I I  - COVERAGE AND DEFINITIONS OF TERMS 
Section 3. 
The Act shall apply to non-stock, non-profit Micro Enterprise 
Development Institutions whose mission is totally focused on poverty eradication, 
and are duly accredited by the Securities & Exchange Commission (SEC), as 
accrediting entity, and registered with the Bureau of Internal Revenue (BIR). 
Section 4. 
Definition of Terms, for purposes of implementing this Act, 
the following definitions shall apply: 
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a) “Micro-Enterprise Development Institution (MEDI)” - refers to a non 
stock, non- 
profit corporation organized and operated to provide 
Micro-Enterprise Development Strategy, as defined in letter (b) 
hereof, through the broad package of financial and human 
development services as well as other business development 
services to the poor to enable them to operate their own productive 
economic activities; provided, no part of the net income of the MEDl 
inures to the benefit of any private individual, and the administrative 
expenses of which, on an annual basis, conform with the rules and 
regulations to be prescribed by the Secretary of Finance, upon 
recommendation of the Commissioner of Internal Revenue, but in 
no case to exceed thirty percent (30%) of the total expenses; 
b) 
”Micro-Enterprise Development Strategy” - a social program 
exclusively for the poor to improve the asset base of households 
and expand the access to micro-finance services, such as micro- 
credit, micro-insurance, micro-savings and micro-health care for the 
poor through the board package of business development services 
and other non-financial services as well as to the poor to enable 
them to operate their own productive economic activities; 
c) “Poor” - refers to individuals and families whose income fall below 
the poverty threshold as defined by the National Economic and 
Development Authority andlor 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 address the 
basic inequities in Filipino society through a systematic, unified and 
coordinated delivery of socio-economic programs or packages; 
e) “Utilization” by an accredited MEDl - shall refer to; 
I) 
Any amount in cash or in kind, including 
administrative 
expenses, paid or utilized by an accredited MEDl to accomplish 
one or more purposes for which it was created or organized; or 
Any amount paid to acquire an asset used, or held for use, 
one or more purposes for which the 
II) 
directly in carrying out 
accredited MEDl was created or organized; or 
Ill) Any amount in cash or in kind invested in any poverty 
eradication activity related to the purpose for which it was 
created or organized; or 
IV) Any amount set aside for a specific project which comes within 
one or more purpose or purposes for which the accredited MEDl 
was created, provided that the amount will be utilized for 
specific project within a period not to exceed five (5) years, and 
the project is the one which can be better accomplished by 
setting aside such amount than by immediate payments of 
funds; 
V) Any amount in cash or kind invested in capital sustaining and 
generating activities, such as but not limited to government 
securities, endowment funds, trust funds, money market 
placements, shares of stock and similar instruments. Provided, 
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that any Income derived from these investments shall be 
exclusively used in activities directly related to one or more 
purposes for which the accredited MEDl was created or 
organized. 
VI) “Accrediting Entity” - shall refer to the Securities & Exchange 
Commission (SEC) and the Bureau of Internal Revenue (BIR), 
the regulatory powers of which shall be defined in the 
implementing rules and regulations of this Act. 
PART 111 -ORGANIZATION 
Section 5. 
Form of Organization. A MEDl as defined in Section 4 (a) shall 
be established as a non-stock non-profit corporation. 
Section 6. 
Capital Requirements. A MEDl shall have a fond balance of 
not less than Fifty Million Pesos (P50,000,000.00). 
PART IV - SUPERVISION, ACCREDOTATION 
AND MONITORING 
Section 7. Supervision and Accreditation. 
The Accrediting Entity 
established under this Act shall establish and operationalize a system of 
accreditation to determine the qualifications of the MEDI. 
It shall have the 
following functions and responsibilities: 
a) 
Examine evaluate and accredit the MEDl as a pre-requisite for its 
registration with the BIR for purposes of tax exemption under this Act. 
b) Issue a Certificate of Accreditation to the MEDl upon determination that 
it meets the criteria for accreditation; provided, that the Certificate of 
Accreditation shall be valid for such period as may be prescribed by 
implementing rules and regulations. 
c) Review and deny the application of any MEDI, which does not meet the 
criteria for accreditation. The MEDl shall be notified of the denial of its 
application, 
the 
reasons 
therefore 
and 
the 
evaluator’s 
recommendation. 
The procedure for reconsideration of and/or 
effecting any corrections amendments to the application shall be 
provided in the implementing rules and regulations of this Act. 
Section 8. 
Monitoring and Verification of Annual Information Return. 
The Accrediting Entity shall monitor the MEDls and coordinate to ensure that the 
provisions of this Act are complied with. 
Section 9. Withdrawal of Certificate of Accreditation and Renovation of 
the Cerfificafe of Regisfration. - The Accrediting Entity shall have the authority 
to withdraw the Certificate of Accreditation, which it issued to the MEDl upon a 
determination that the latter no longer meets the criteria for accreditation under 
Section 7 of this Act. 
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PART V - TAX EXEMPTIONS AND CONTRIBUTION TO PEOPLE'S 
DEVELOPMENT TRUST FUND 
Section 10. Exemption from National and Local Taxes. No Taxes, local 
and national, shall be imposed on MEDl's duly accredited by the Accrediting 
Entity and registered with the BIR. In lieu therefore, two percent (2%) of the 
gross income derived by the MEDls shall be remitted to the National 
Government. This two percent (2%) tax shall be entirely contributed to the 
Peoples Development Trust Fund established under Republic Act No. 8425 
otherwise known as the "Social Reform and Poverty alleviation Act". In addition 
borrower of the MEDls shall not be subject to the documentary stamp tax 
imposed under Sector 179 of the Tax Code, as amended. 
The term "gross income" means gross receipts less sales returns, 
allowances, discounts and other cost of services, interest expenses of a MEDl 
shall be deductible from gross receipts as part of cost of services in arriving at 
gross income. The term gross income shall exclude donations. 
Section 11. Deductibility of Donations. Donations to a MEDl shall be fully 
deductible from the gross income of the donor and shall be exempt from donor's 
tax imposed under Sec. 98 of the Tax Code. 
PART VI - FINAL PROVISIONS 
Section 12. 
lmplementing Rules and 
Regulations. 
The SEC, in 
coordination with the BIR, shall formulate the implementing rules and regulations 
of this Act within sixty (60) days after its approval. Such rules and regulations 
shall take effect fifteen (15) days after their publication in a newspaper of general 
circulation in the Philippines. 
Section 13. Separability Clause. If any provision of this Act or the 
application thereof to any person or circumstances is held invalid, the other 
provisions of this Act and the application of such provisions to other persons or 
circumstances shall not be affected thereby. 
Section 14. Repealing Clause. All internal revenue issuances, rules and 
regulations, or parts thereof, which are contrary to or inconsistent with this Act 
are hereby repealed, amended or modified accordingly. 
Section 15. Effectivity. This Act shall take effect upon its approval 
Approved, 
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