SAGIP Party-list Rep. Rodante Marcoleta

Have you ever been on the wrong end of a "paluwagan" scheme wherein you didn't get a full payout since you were the last person in line to receive the pooled fund?

This is the exact scenario that SAGIP Party-list Rep. Rodante Marcoleta wants to avert with the filing of House Bill (HB) No.7757, or the proposed "Community Paluwagan Microfinance Act".

"Paluwagan is a Tagalog word that means 'easing up'- a quite literal denomination of its purpose which is to ease up each other's burden," read the explanatory note of the bill.

It goes on to explain the concept of paluwagan: "Each participant gives a fixed amount as contribution to a pooled fund. The pooled fund will be given to a certain member who is appointed as the manager of the funds on an agreed date."

"The money collected for the period is then given to a person scheduled to receive it. The order of the payout is usually determined by drawing of lots. The cycle continues until all the members have received their share," it said.

But Marcoleta said the system is not without its downsides. "Although paluwagan has been in existence since time immemorial, the practice remains informal and unregulated. Anyone can form a group through verbal agreements. It is not regulated by any governmental body," said HB No.7757.

The bill stated that the Department of Trade and Industry (DTI) once tagged the paluwagan system as a form of pyramid scheme "because of the fact that the first person to receive the pot is actually the one who will get the most benefit from the system".

"The last persons to receive the pooled funds have the highest risk in case other participants fail to pay and the system collapses,” it said.

"Since the system only relies  on trust, it also becomes prone to fraud. Since most paluwagan [systems are] unregistered and undocumented, it is hard to prove claims of losses and damages in court," it further said.

Under the measure, an independent agency to be called Paluwagan Microfinance Administration will be created.

It will prescribe the rules and regulations for the creation and registration of paluwagan. Any seven or more persons with residence or employment in a community, who desire to form a community paluwagan shall register.

The bill also provides for the creation of the Paluwagan Insurance Fund, which will protect members of insured paluwagan in case of cessation of business.

Manila Teachers party-list Rep. Virgilio Lacson is a co-author of HB No.7757, which is currently pending before the House Committee on Micro, Small, and Medium Enterprise Development.