Should you invest in cooperatives?

Another day, another question. This time it’s about cooperatives. Cooperatives have been existing in the Philippines since 1914, and here in the Philippines, Cooperatives are governed by the law RA 9520 - Cooperative Code of the Philippines. It is also regulated by the (CDA) - Cooperative Development Authority.

What is a Cooperative?

From the word itself, cooperative signifies cooperation among members towards a common goal depending on the mission/vision of the said coop. Formally, a cooperative is an autonomous association of people who unite voluntarily to meet their common, economic, social and cultural needs and aspirations through a jointly-owned and democratically-managed enterprise.

Each member contributes equity capital & shares in the control of the firm on the basis of one-member, one-vote principle and not in proportion to his/her equity contribution.

Cooperative members make equitable contributions to the capital required, patronizing their products and services and accepting a fair share of risks and benefits of the undertaking in accordance with universally accepted cooperative principles.

The primary objective of every cooperative is to help improve the quality of life of its members. Profits are used to provide products and services to clients and are equitably distributed among the members.

Types of Cooperatives

These are the common types of cooperatives present in the Philippines.

Credit Cooperative - It promotes savings or lending services among members. Basically, a Coop that encourages its members to lend from them, that's an example.

Cooperative Bank - Its primary purpose is to provide a wide range of financial services to Cooperatives.

Producer Cooperative - It aims to produce finished products to sell among its members and non-members. Its members undertake the processing of the raw materials in order to produce the goods to sell.

Multi-Purpose Cooperative - It combines two (2) or more business activities defined by the types of Cooperatives. Most of Coops nowadays are multi-purpose, wherein you could enjoy two or more services offered to its members.

Other Types of Cooperatives - Marketing, Service, Advocacy, Dairy, Education, Electric, Financial Service, marginalized-group, Health Service, Housing, Transport, Water Service, Workers and more!

Why invest in coops?

Why do cooperatives have membership-investment? Like any business, a cooperative needs to have adequate funds to pay bills, make investments in assets and have reserves to achieve its mission/vision.

Members are owners at risk and not just users. The dividing of ownership equity among many members makes it easier and less risky to finance the cooperative than if only one or a few members tried to do it on their own.

Also..

• A financially sound coop can give consistent, regular and generous cash dividend or interest payments from the various investments/businesses of cooperatives.
• Personal income derived from coops are tax-exempt compared to a 5-20% tax rate on traditional investments.
• Your investment in a cooperative contributes to local economic development through its businesses and investments. 
• Cooperatives prioritize providing products and services to its members who are mostly part of the marginalized sectors – farmers, fisherfolks, indigents, and microenterprises.

Some coops are restricted to specific members (marginalized/workers/vendors) while others are open.

Like any other investment, there are risks involved when investing in coops whether as a member or starting a cooperative yourself from scratch. So it is necessary to research, conduct due diligence and always check with the CDA - https://www.cda.gov.ph/ .

Note: This is for informational purposes only and should not be construed as investment, tax, or legal advice. You should consult your own legal/accounting/tax/financial professionals before engaging in any transaction.

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