Excerpts from the Rules and Regulation Implementing Certain Provisions of the

Philippine Cooperative Code Of 2008 (Republic Act No. 9520) Rule 12 Financial Service
Cooperative (FSC)

Section 2. Functions of Financial Service Cooperative (FSC).

A FSC is a financial organization owned and operated by its members and authorized to
provide the following services, exclusively to its members:
● (a) the functions of credit cooperatives and other cooperatives, including multipurpose
cooperatives, that provide savings and credit to their members; and
● (b) other financial services subject to regulation by the BSP.

Section 4. Registration.
The Articles of Cooperation and By-laws of any FSC, or any amendment thereto, shall be
registered with the Authority only if accompanied by a Certificate of Authority issued by the
BSP, under its official seal. Existing cooperative engaged in credit and multi-purpose activities,
after it has notified the Authority of its decision to exercise enhanced functions and satisfied the
requirements for the conversion to Financial Service Cooperative, shall register its amended
Articles of Cooperation and By-laws to the Authority upon approval of the Authority and
favorable certification of the BSP.

Section 6. Minimum Capitalization Requirements.

Only those cooperatives with minimum Paid-up capital of at least Ten Million pesos (Php
10,000,000.00) shall qualify to register as FSC without prejudice to additional capital
requirements that maybe prescribed by the BSP for a particular financial service regulated by
the BSP that will be offered by the FSC.

Section 9. Membership and Affiliation.

A FSC shall have two (2) types of members:
● (1) Regular members, who are natural persons; and
● (2) Associate members who are natural persons but who do not immediately qualify
under the requirements for membership set out in the By-laws of the cooperative. All
associate members who are natural persons shall be given two (2) years to become
regular members. Failure to convert within said period shall mean automatic withdrawal
of their associate membership. They may, however, re-apply as regular members after
two (2) years. Minors who are dependents of regular members can qualify as associate
members. When they reach the age of majority and within two (2) years from acceptance
of their associate membership, they have the option to convert into regular members. As
associate members, they may open accounts, deposit funds, and withdraw from their
account, subject to the By-laws and rules of the cooperative, and the rules and
regulations of the Authority, notwithstanding the provisions of existing laws to the
contrary.
Section 15. Deposit and Borrowing Operations.
Savings and Time Deposits with FSC may be opened with a minimum amount to be determined
by the Board of Directors. Only members and its affiliate laboratory cooperative may open
savings and/or time deposit accounts. The FSC, through the Board of Directors as authorized
by the General Assembly, may borrow from any source at the best terms or conditions available
and in such amount that may be needed.

Section 16. Reserve Requirements against Deposit Liabilities.

FSC shall maintain a Liquidity Reserve Fund that will be restricted in nature equivalent to at
least two percent (2%) of their savings and time deposit liabilities.

Section 17. Loans.

The Board of Directors shall be responsible for setting loan policies and lending procedures. It
shall comply with the provisions of R.A. 3765, otherwise known as the "Truth in Lending Act"
and shall make the true and effective cost of borrowing an integral part of every loan contract.

Section 18. Investment Program.

A sound investment program shall be the sole responsibility and accountability of the Board of
Directors. The scope of the program will depend largely on the FSC size and the extent of its
surplus funds. Investment policies should be in writing and should address the safety, liquidity
and yield, diversification, delegation of authority, and valuation/assessment of securities. The
FSC shall not invest in any single entity more than 20% of its net worth.

Section 23. Prohibition.

The terms 'Credit Cooperatives', 'Financial Service Cooperative', and 'Financial Service
Cooperative Federation' shall be used exclusively by those who are duly registered under the
Code, and no person, group of persons, or organization shall use the said terms unless duly
registered with the Authority. Violations of this prohibition shall be punishable in accordance
with Art. 140 of the Code.

Excerpts from Republic Act No. 8556 An Act Amending Republic Act No. 5980, as
amended, otherwise known as The Financing Company Act

Sec. 1. This Act shall be known as the "Financing Company Act of 1998."
Sec. 2. Declaration of Policy.
It is hereby declared to be the policy of the State to regulate and promote the activities of
financing and leasing companies to place their operations on a sound, competitive, stable and
efficient basis as other financial institutions, to recognize and strengthen their critical role in
providing medium and long- term credit for investments in capital goods and equipment
especially by small and medium enterprises particularly in the countryside and to curtail and
prevent acts or practices prejudicial to the public interest so that they may be in a better
position to extend efficient service in a fair manner to the general public and to industry,
commerce and agriculture and thereby more fully contribute to the sound development of the
national economy.
Sec. 3. Definition of Terms.

Financing companies hereinafter called companies, are corporations, except banks,

investments houses, savings and loan associations, insurance companies, cooperatives, and
other financial institutions organized or operating under other special laws, which are primarily
organized for the purpose of extending credit facilities to consumers and to industrial,
commercial, or agricultural enterprises, by direct lending or by discounting or factoring
commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel
mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as
immovable property;

Credit shall mean any loan, mortgage, financial lease, deed of trust, advance or discount, any
conditional sales contract, contract to sell, or sale or contract of sale of property or service,
either for present or future delivery, under which, part of all or the price is payable subsequent
to the making of such sale or contract; any contract, any option, demand, lien or pledge, or to
the other claims against, or for the delivery of, property or money, any purchase, or other
acquisition of or any credit upon the security of, any obligation or claim arising out of the
foregoing, and any transaction or series of transactions having similar purpose or effect;

Financial leasing is a mode of extending credit through a non-cancelable lease contract under
which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment,
motor vehicles, appliances, business and office machines, and other movable or immovable
property in consideration of the periodic payment by the lessee of a fixed amount of money
sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including
any incidental expenses and a margin of profit over an obligatory period of not less than two (2)
years during which the lessee has the right to hold and use the leased property with the right to
expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance,
insurance and preservation thereof, but with no obligation or option on his part to purchase the
leased property from the owner-lessor at the end of the lease contract.

Lease rentals shall refer to the periodic payments made by the lessee to the lessor
Purchase discount is the difference between the value of the receivable purchased or credit
assigned, and the net amount paid by the finance company for such purchases or assignment,
exclusive of fees, services, charges, interest and other charges incident to the extension of
credit.

Receivable financing is a mode of extending credit through the purchase by, or assignment,
to, a financing company of evidence of indebtedness or open accounts by discounting or
factoring

Discounting is a type of receivables financing whereby evidence of indebtedness of a third

party, such as installment contracts, promissory notes and similar instruments, are purchased
by, or assigned to, a financing company in an amount or for a consideration less than their face
value
Factoring is a type of receivable financing whereby open accounts, not evidenced by a written
promise to pay supported by documents such as but not limited to invoices of manufacturers
and suppliers, delivery receipts and similar documents, are purchased by, or assigned to, a
financing company in an amount or for a consideration less than the outstanding balance of the
open accounts.

Digital Financing refers to engaging in financing company activities through the use of digital
platform or infrastructure such as mobile or internet and involving very limited in-person contact
and interference

Sec. 4. Grant of Authority to Securities and Exchange Commission.

The Securities and Exchange Commission is hereby empowered to enforce the provisions
implementing regulations except insofar as the Bangko Sentral may have supervisory authority
under the provisions of Republic Act No. 7653 with respect to financing companies licensed to
perform quasi-banking functions, and insofar as the Monetary Board has authority to prescribe
financing company rates and charges under

Sec. 5 hereof.

Sec. 6. Form of organization and capital requirements.

Financing companies shall be organized in the form of stock corporation in accordance with the
provisions of the Corporation Code of the Philippines, subject to the following:
● a. At least forty percent (40%) of the voting stock of the corporation shall be owned by
citizens of the Philippines
● b. A minimum paid-up capital of:
- i. P10,000,000 for financing companies located in Metro Manila and other 1st
Class Cities
- ii. P5,000,000 for financing companies located in other classes of Cities
- iii. P2,500,000 for financing companies located in Municipalities
Financing companies duly existing and in operation before the effectiveness of R.A. 8556 shall
comply with the minimum capital requirement within one (1) year from the date of the said
effectivity.
● c. The corporate name of financing companies shall contain the term “financing
company”, “finance company”, or “finance and investment company” or other title or
word(s) descriptive of its operations and activities as a financing company

Sec. 9. Rights and powers.

Financing companies shall have the following powers, in addition to those granted by this Act
and by other laws:
● a) Engage in quasi-banking and money market operations with the prior approval of the
Bangko Sentral ng Pilipinas;
● b) Engage in trust operations subject to the provisions of the General Banking Act upon
prior approval by the Bangko Sentral ng Pilipinas;
 ● c) Issue bonds and other capital instruments subject to pertinent rules and regulations
of the Bangko Sentral ng Pilipinas;
● d) Rediscount their paper with government financial institutions subject to relevant laws,
rules and regulation;
● e) Participate in special loan or credit programs sponsored by or made available through
government financial institutions; and
● f) Provide foreign currency loans and leases to enterprises who earn foreign currency
by exports or other means, subject to existing laws and rules and regulations
promulgated by the Bangko Sentral ng Pilipinas.

Sec. 12. Liability of lessors.

Financing companies shall not be liable for loss, damage or injury caused by a motor vehicle,
aircraft, vessel, equipment, machinery or other property leased to a third person or entity
except when the motor vehicle, aircraft, vessel, equipment or other property is operated by the
financing company, its employees or agents at the time of the loss, damage or injury.

Sec. 13. Registry of financial lease.

The Register of Deeds shall open and maintain a register of financial leases, as an adjunct to
the chattel mortgage registry. Said lease register shall contain the following particulars:
● 1. Name or description of property, including:
- a. Brand name or name of manufacturer;
- b. Name of model, if any;
- c. Year of model, or manufacture, if available; and
- d. Serial number, if any.
● 2. Acquisition cost;
● 3. Name of owner or finance company lessor;
● 4. Name of lessee;
● 5. Date of lease agreement or schedule;
● 6. Date of expiry of lease; and
● 7. Date of entry in lease registry."

Kinds of Financing Companies

Business (Commercial) Finance Companies

Commercial finance companies are non-bank lenders that provide small business loans.
Commercial finance companies can provide a wide array of business financing to businesses
that don’t qualify for traditional bank loans

Loans secured by motor vehicles, which include loans to buy autos for business use and for
resale
Factoring
One advantage of factoring is that the finance company (called a factor in this situation) usually
assumes responsibility for collecting the debt. If the debt becomes uncollectible, the factor
suffers the loss. This removes the need for the company to have a credit department or be
involved in the collection effort. Factors usually check the quality of the firm’s receivables
before accepting them. The factoring arrangement works well because the factor is able to
specialize in bill processing and collections and to take advantage of economies of scale.
Besides the cost savings from reduced salary expenses, many firms like to use factors because
they do not want their relationship with their customers spoiled by having to collect money from
them.

Financing of accounts receivable

In this case, the finance company receives documents from the business giving it the right to
collect and keep the accounts receivable should the business fail to pay its debt to the finance
company. Many firms prefer this arrangement over factoring because it leaves them in control
of their accounts receivable. They can work with their customers if special arrangements are
required to ensure payment.

Leasing
Under a lease, the finance company buys the asset and then leases it to the business. One
advantage of leasing is that repossession of the asset is easier.

Repossession occurs when the finance company takes the asset back when the lessee (the
firm that is leasing the asset) fails to make the payments on time. Lenders can repossess an
asset under loan and lease contracts, but it is easier under a lease because the finance
company already owns the asset, so no transfer of title of ownership is required. Finance
companies that are subsidiaries of equipment manufacturers have an additional advantage
over banks. When a piece of equipment must be repossessed, the manufacturer is in a better
position to release or resell the asset. The owner of an asset is able to depreciate the asset
over time and to capture tax savings as a result. If the firm that plans to use the asset does not
have income to offset with the depreciation, the tax saving may be more valuable to the finance
company. Part of this tax benefit can be passed on to the lessee in the form of lower payments
than on a straight loan. In effect, the government is supporting the equipment purchase in the
amount of the tax savings. This support is lost unless a firm earning income actually owns the
asset.

A final advantage to leasing is that the lessee is often not required to make as large an up-front
payment as is usually required on a straight loan. This conserves valuable working capital and
is often the critical factor in leasing decisions.

Floor Plan Loans

Some auto manufacturers require that dealers accept auto deliveries throughout the year, even
though sales tend to be seasonal. To help dealers pay for their inventories of cars, finance
companies began offering floor plans. In a floor plan arrangement, the finance company pays
for the car dealership’s inventory of cars received from the manufacturer and puts a lien on
each car on the showroom floor. When a car is sold, the dealer must pay off the debt owed on
that car before the finance company will provide a clear title of ownership. The dealer must pay
the finance company interest on the floor loans until the inventory has been sold. Floor plan
financing is most common in the auto industry because cars have titles that the finance
company can hold to secure its loans. Floor plan financing exists in other industries where
assets with titles are involved, such as construction equipment and boats. A close relationship
usually evolves between the finance company and the dealer. Consider that each sale requires
correspondence between the firms. As a result of the close relationship, it is common to find
that the same finance company also provides retail financing for the dealer’s customers. The
help that an aggressive finance company can provide by financing weak credit customers also
helps the finance company’s floor loans get paid. Note that banks also provide floor plan
financing; however, such loans tend to be high- maintenance. The unregulated, lower-cost
structure of finance companies often makes them the preferred intermediaries.

Consumer Finance Companies

Consumer finance companies make loans to consumers to buy particular items such as
furniture and home appliances, to make home improvements, or to help refinance small debts.
Typically, these companies make loans to consumers who cannot obtain credit from other
sources due to low income or poor credit history. Because these loans are often high in both
risk and maintenance, they usually carry high interest rates.

Sales Finance Companies

Sales finance companies make loans to consumers to purchase items from a particular retailer
or manufacturer. Sales finance companies compete directly with banks for consumer loans and
are used by consumers because loans can frequently be obtained faster and more
conveniently at the location where an item is purchased. A sales finance company, also called
a captive finance company, is owned by the manufacturer to make loans to consumers to
help finance the purchase of the manufacturer’s products. These captive finance companies
often offer interest rates below those of banks and other finance companies to increase sales.
Profits made on the sale offset any losses made on the loans.