A case for nanoenterprises

According to the Department of Trade and Industry (DTI), there are nearly a million microenterprises in the Philippines. DTI considers any business with less than PhP3 million in assets and less than 10 employees as microenterprise.

The challenge with this classification in the social development perspective is that it lumps together poor and non-poor enterprises in one huge bucket. It attempts to describe a very broad base enterprises that have largely varied capacity in terms of management capacity, use of technology, access to finance, and general sophistication of products and services offered. 

Enterprise classification in the Philippines

                       Source: Department of Trade and Industry

This paper intends to provide a case for nanoenterprises that is distinct and separate from microenterprises. The purpose is to aid in policy development for the government, as well as program intervention design and implementation of development organizations, so that their needs are addressed at its core.

The lowest asset base of a microenterprise in DTI’s definition is vague since it could mean as low as one peso or no asset at all. The microenterprise category is very important because this is where the poor belongs. However, microenterprises that have assets greater than a million pesos could not be classified as poor. 

What is a nanoenterprise?

Government policies and programs of development organizations can better respond to the needs of the poor belonging to the microenterprise sector if there is a clear delineation between poor and non-poor microenterprises. Poor mircoenterprises are rendered invisible since non-poor microenterprise needs are prioritized and is the basis for most policies, programs and engagement. 

Let us use nanoenterprises to refer to poor microenterprises. The table below shows the difference between a nano and microenterprise.

The Social Reform Agenda or Republic Act 8425 of 1998 defined a microenterprise with a maximum capitalization of PhP150,000. The same amount is set as the maximum amount for microfinance loans. This figure could be used as a good basis to separate nanoenterprises from microenterprises.

SEDPI proposes that PhP150,000 be used as the maximum asset size for nanoenterprises while those that exceed this but is less than PhP3 million would be classified as microenterprise. Nanoenterprises use rudimentary and obsolete equipment in manufacturing products or delivering services or they may have more advanced equipment that they lease. Microenterprises typically have better equipment and have ownership of these.

Nanoenterprises are typically unregistered livelihoods of self-employed individuals or informal solo-preneurs. They operate businesses alone or with the help of unpaid family members targeting their immediate local communities. Microenterprises are mostly registered enterprises able to hire employees albeit on a minimum wage rate.

As of March 2022, SEDPI estimates that the total outreach of microfinance is 9.1 mllion based on reports from the Bangko Sentral ng Pilipinas, Cooperative Development Authority and Securities and Exchange Commission.^[1] One will observe the gross underestimation DTIs 1 million microenterprises versus the 9.1 million microenterprises the microfinance industry serves. This is mainly because DTIs estimate is based on registered microenterprises that are mostly non-poor. Removing the one million microenterprises accounted for by DTI, that leaves the number of nanoenterprises to be at 8.1 million. 

Why nanoenterprises?

The sheer number of nanoenterprises as distinguished from microenterprises should make them more visible to the government and private sector. Most government programs fall under the banner of microenterprises, that grossly misrepresents the needs and largely excludes the magnitude of nanoenterprises. Thus making a concrete case to add nanoenterprises as the smallest size in classifying enterprises. 

As it is, nanoenterprises lack support from the government and has limited engagement with the private sector This is because they are lumped into the microenterprise sector that clearly have different profile, behavior and needs. Making nanoeterprises visible means more effective and customized policies and programs that should provide them the opportunity to grow into a more sustainable enterprise that would lift them out of poverty.

There are 30 million Filipinos considered as poor based on a survey the Department of Social Welfare and Development conducted in 2022.^[2] Directly addressing the needs of the 8.1 million estimated nanoenterprise will reduce this number by 27% which is a great leap forward for a truly inclusive Philippine economic development.

^[1] https://vincerapisura.com/philippine-microfinance-industry-estimates/

^[2] https://www.rappler.com/nation/filipino-families-living-in-poverty-2022-dswd/#:~:text=MANILA%2C%20Philippines%20%E2%80%93%20There%20are%20over,Welfare%20and%20Development%20(DSWD).