Firm Commitment to Achieve
a. To provide its members with more economical and
better service at the same cost, or
the same service at lower cost
Management is duty-bound to develop a cooperative
into a paragon of business economy and efficiency with
the proper blending of accepted and effective business
management practices. In the process, the
management of cooperatives should not merely
duplicate or imitate the services of ordinary
It should be able to present a different
business image by introducing new and
innovative business practices and
strategies that will improve its services.
Finally, cooperative management should
strive to make cooperatives innovators
and pacesetters in their respective fields.
Firm Commitment to Achieve
b. To recast the pattern of distribution of savings
(surplus) by making patronage and not capital
the residual claimants to the savings.
service at cost to the members – distribution of
savings or surplus; wherein the volume of
business contributed by a member-patron and
not the amount of capital contributed by a
member-owner is made the basis of distribution
of the savings of a cooperative.
One area of management which
definitely should be given major emphasis is
the installation of a rigid system of cost
allocation and control. This requires that the
entries in the books of accounts be complete,
accurate, and up-to-date and that the
transactions of each and every-member-
patron be properly recorded in individual
ledger cards. This also requires a realistic
pricing policy that will govern the general
dispensation of goods and services.
Firm Commitment to Achieve
c. To place the control of a cooperative in the hands of its member-
Real democracy – a cooperative should be controlled by the
members as “ users ” or “ patrons ” and not as “ investors ” . The
cooperative practice of “one member, one vote” was formulated as a
precise guideline to meet this objective.
There is a need for cooperative management to work out a responsive
member relations program which provides for a free exchange of
communication between the members, on the one hand, and the board
of directors and hired management, on the other.
Basic Cooperative Principle
I. Democratic control by member-patrons
- “ Cooperatives are democratic organizations that are
controlled by their members who actively participate in
setting their policies and making decisions. Men and
women serving as elected representatives, directors or
officers are accountable to the membership. In primary
cooperatives, members have equal voting rights of one-
member, one-vote. Cooperatives at other levels are
organized in the same democratic manner.”
Source: Art4 (2),RA9520
a. It affirms the democratic nature and purposes of
a cooperative. The administration and control of
the affairs of a cooperative are placed in the hands
of the members themselves with each member in
a primary society having voting rights on the basis
of “ one member, one vote ” . In other words, in a
cooperative, it is the man and not the money that
votes. The principle also tacitly recognizes that the
management and control of a cooperative should
be vested in the hands of members who are
actually using the services of their cooperative,
likewise known as member-users.
c. It stresses the necessity for an equitable
representation of the members in secondary
societies. The principle counsels secondary
societies to carry out the administration of
their affairs in a manner whereby their
member-associations can in turn represent
the interest of their individual members in an
equitable manner to maintain and preserve
the democratic nature of their cooperative.
II. Limited Returns on Share Capital
- “The term “share” refers to a unit of capital in a
primary cooperative the par value of which may
be fixed at any figure not more than One
thousand pesos (P 1,000.00). The share capital
of a cooperative is the money paid or required to
be paid for the operations of the cooperative.
The method for the issuance of share certificates
shall be prescribed in its bylaws.”
Source: Art76, RA9520
b. It underscores the need for the members
to be fully conscious of their duties and
responsibilities. The complete and absolute
authority given to the members to manage
and control the affairs of their cooperative
challenges them to accept and assume the
duties and responsibilities that go with such
a. It affirms the service orientation of a cooperative. This
principle underscores the fact that services and not
profit is the principal motivation of a cooperative. This
basic orientation should be internalized by the
members, officials and employees of a cooperative.
b. It forestalls speculation on capital contribution or share
capital. It stresses the fact that a cooperative is an
association of people and not of capital. Under this
scheme, for example, purchase of shares of stock
cannot be considered as an investment opportunity
because of the limited interest earnings of share capital.
c. It provides capital at just rates. This principle enables the
cooperative to have access to and the use of capital with
interest at prevailing market rates. The availment of such
nonspeculative capital is an advantage that the
management of a cooperative enjoys.
d. It emphasizes the importance of sound financial
management. This principle creates some problems or
difficulties in encouraging the members to increase their
capital contribution because of the misconception in the
limited rate of interest principle. Members think that
cooperative investments are not competitive and that
interest are below the market rates.
In reality, cooperative investments are nonspeculative and are
based on actual needs or demands of members and the market and
hence are nonspeculative investments. Measures such as
implementing relevant education and information programs are, of
course, at the full discretion of the management. In addition,
management can initiate, a sound program of financial management
so that the capital resources, can be used in the most effective and
e. It underscores further the need for sound general management. The
paramount objective of cooperative management is to operate at the
highest possible level of efficiency in order, to boost he capital
contribution of the members out of the savings from operations and
also from funds which may be generated from the operations of
retains like in the case of marketing cooperatives.
The collection of retain is, of course, an indirect but effective way of
raising capital when it is difficult to raise direct capital contributions.
He principle explains why the management of a cooperative should
at all times operate at a high level of efficiency.
f. It increases the amount available for patronage refund. In allocating
the net savings o surplus, the schedule of which is expressly
stipulated in a cooperative’s by-laws, it is a standard practice to first
set aside funds for reserves and other specific purposes. The
remaining balance is then alloted to interest on share capital and
patronage refund. The limitation imposed by the principle on the
interest on share capital increases the amount available for
distribution as patronage.
Order of Distribution:
1. Reserve fund – at least per centum (10%) of the net surplus.
Provided, that in the first five (5) years of operation after
registration, this amount shall not be less than fifty per centum
(50%)of the net surplus
2. Education and training fund – shall not be more than ten per
centum (10%) of the net surplus.
3. Community development fund – shall not be less than three per
centum (3%) of the net surplus.
4. Optional fund – a land and building, and any other necessary fund
the total of which shall not exceed seven per centum (7%).
5. Remaining net surplus shall be made available to the members in
the form of interest on share capital not to exceed the normal rate
of return of investments and patronage refunds. Provided, that any
amount remaining after the allowable interest and the patronage
refund have been deducted shall be credited to the reserve fund.
Source: Art86, RA9520
g. Minimizes concentration of wealth. This principle
is completely compatible with one of the ultimate
objectives of cooperatives i.e. effecting an
equitable distribution of wealth. The net effect of
the principle is that capital receives a smaller
share of the savings of a cooperative. Thus, it is
systematically regulates the possible
concentration of wealth to those with large
capital contributions by plowing back to the
members more of the savings of the cooperative
based on patronage.
III. Service at Cost
- the central point of this principle is that, ideally
speaking, a cooperative must not make profit or
incur a loss. It is the members who stand to
benefit or suffer from their cooperative’s
operations. If the cooperative is successful,
gains accrue to members in the form of
patronage refund. If unsuccessful, members lose
either by being paid lower prices for their
products or through a diminution of their equity
in their cooperative, or both.
• Dr. Eulogio Castillo (2013)The Path to the
Success of Cooperatives. UP
• The Philippine Cooperative Code of 2008
(Republic Act No. 9520
• Local Government Code (Republic Act
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