Category: Digital Finance

1 out of 4 nanoenterprises adopted online selling in response to lockdowns

At least one out of four nanoenerprises are now either selling their products online, or are buying products to be sold in their local communities to cope with granular lockdowns imposed by local government units. Out of 7,675 respondents, 26% sold products and 29% bought supplies online, to augment their livelihood operations.

Nanoenterprise is a SEDPI-coined term that refers to unregistered livelihoods of self-employed individuals that have capitalization of less than PhP50,000 to operate. SEDPI estimates that the vast majority of entrepreneurial poor in the Philippines are nanoenterprises, numbering around 8 million.

Nano level risk diversification

More than half of the respondents or 52% also claimed that they added other kinds of livelihoods in response to the pandemic. Nanoenterprises refer to this as “diskarte” to be able to survive the negative economic impact of the pandemic. Diskarte is the ability to use creativity and resourcefulness to respond to challenges and adversities.

Nanoenterprises involved in the agricultural sector were better able to weather the pandemic compared to their non-agri counterparts. Eighty nine percent of the respondents said that those with farms were able to adjust and fair better.

Farming households were able to harvest produce for consumption. The surplus farm produce were then sold in local markets through ambulant vending and online selling. This resulted in reduced expenses for food and at the same time provided ample additional income

Status of nanoenterprises

A year after the Enhanced Community Quarantine (ECQ) imposed in the whole country, all

nanoenterprises reported that they already resumed operations. At the peak of the ECQ last year, 69% of them stopped operations which prompted the government to distribute cash assistance.

As of March 2021, four out of ten respondents said that they have fully recovered from the negative economic impact of the pandemic; while 55% said that it will take them up to 2 months more, before they get back to their pre-pandemic levels.

During the first quarter of the year most areas in the country were under Modified General Community Quarantine (MGCQ), the lowest quarantine level imposed by the Philippine government. These reinvigorated the local economy due to ease in the flow of goods and mobility of customers.

 

Social Enterprise Development Partnerships, Inc. (SEDPI)

SEDPI provides capital to nanoenterprises through joint ventures to approximately 10,000 low-income households in Agusan del Sur, Davao de Oro and Surigao del Sur. Its members also benefit from life insurance as well as medical and disaster relief assistance through damayan. SEDPI also partnered with SSS and Pag-IBIG to bring social safety net programs of the government closer to nanoenterprises in rural areas.

This research is part of a series of rapid community assessments that determines the economic impact of COVID-19 to nanoenterprises. SEDPI began the research last March 2020. This latest update was conducted on April 2021 to cover the first quarter of 2021.

The 7,695 respondents is not a representative sample of the entire Philippines. It is highly localized to SEDPI members. However, this is a good case study that reflects the situation of nanoenterprise and the local economy in the countryside. SEDPI believes that the nationwide picture is not far from its research results.

Summary of findings:

  • Out of 7,675 SEDPI nanoenterprise respondents 26% sold products and 29% bought supplies online to augment their livelihood operations
  • 100% are resumed livelihood operations a year after the hard lockdown
  • 52% added other kinds of livelihoods in response to the pandemic
  • 89% said that those with farms were able to adjust and fair better
  • 40% fully recovered from the negative impact of the pandemic
  • 55% said it will take them up to 2 months more before they get back to their pre-pandemic levels

Previous rapid community assessment updates. The titles are hyperlinked. Click on the titles to full read article online.

Challenges of investing in Bitcoin

Bitcoin is a digital currency that uses blockchain technology. It is located in a computer network, meaning it is only accessible through a network such as the Internet.

Bitcoin is unregulated

In the event of a grievance or dispute, there is no institution to turn to as the governing body of all transactions. The lack of centralized regulation means there is no way to verify legality of purchases or trades made online.

In January 2017, Bangko Sentral ng Pilipinas stated in BSP Circular 944 that it does not endorse Bitcoin as a legal tender. However, it provided guidelines for digital currencies. Although it did not outlaw digital currencies, it remained partial to the Philippines Peso.

Digital currencies holds promise in revolutionizing the banking system. However, the system still needs to undergo major changes.

Things to consider before investing in Bitcoin

When deciding whether to invest in Bitcoin, you need to consider the fact that no single institution or individual sets the price of Bitcoin. Traders – buyers and sellers of Bitcoin set the price or value of Bitcoin.

Central banks work to stabilize values because of the pervasive effects of currency changes. Unlike the Philippines Peso, the value of Bitcoin is not prevented from rising in value or dropping in value too quickly. The Bitcoin market sets the price based on trust.

Bitcoin wild swings

In January 2009 when the Bitcoin first came out, its value was virtually nothing. It first registered value a year later at approximately USD0.003.

Bitcoin was trading at USD750 in January 2017 and rose to its historic high of USD19,780 on December 17 in the same year. That’s a wild meteoric rise of 2,537% increase in value.

Bitcoin versus PHP

Currencies, such as Bitcoin and the Philippine peso, should be stable for it to be widely used. These should have the ability to provide confidence that the money they have could purchase a set value of goods and services over long periods of time.

One way to compare stability of a currency is to compare its exchange rate with another currency. The closer the change rate is to zero, means relative stability of the currency. Conversely, the farther the change rate to zero, means more volatility.

Let us compare the exchange rate of the Philippine peso and Bitcoin against the US dollar.

 

December 2015 December 2020
PHP to USD 0.0210 0.0208
BTC to USD 419.0000 19,383.0000

In the past five years, from December 2015 to December 2020, the change in value of the peso against the US dollar is -0.96% of -1%. Bitcoin, in the same period had a change rate of approximately 4,526%!

 

Stability of Bitcoin versus Philippine peso

Let’s dig a little deeper and check the change on annual basis for the same five year period. The table below shows the actual exchange rate of the peso and Bitcoin to the US dollar in the past five years on an annual basis.

 

2015 2016 2017 2018 2019 2020
PHP to USD 0.0210 0.0202 0.0200 0.0189 0.0197 0.0208
BTC to USD 419.0000 973.0000 1,2833.0000 3,729.0000 7,300.0000 19,383.0000

The table below summarizes the change rate of the peso and Bitcoin against the US dollar on an annual basis in the past five years. It clearly shows that the Philippine peso is far less volatile and is a far more stable currency compared to Bitcoin.

 

2016 2017 2018 2019 2020
% PHP to USD -4% -1% -6% 4% 5%
% BTC to USD 132% 1,219% -71% 96% 166%

Taking a look at the annual change rates of the two currencies, it is easy to see the stability of the fiat money compared to Bitcoin. Investors are more certain of the value of the Philippine Peso compared to the value of Bitcoin. Bitcoin is similar to a rollercoaster gone mad in its volatility.

Currencies should be stable

Because Bitcoin is so volatile, it promises high growth but it also poses the danger of slumping to extremely low values. For the typical person on the street, there is a need to be certain that the value of their money is retained throughout the years.

Furthermore, there is no certainty in how much an investor will receive from Bitcoin. Based on past data, an investor trading $1,000 into Philippine Pesos will receive between PhP45,000 and PhP50,000 in the next year. However, Bitcoin has no such certainty. On November 24, 2020, it was valued at PhP924,000. Two days later, it was valued at PhP821,000.

The certainty of fiat money can be projected into years whereas the volatility of digital currency means that days and even weeks can yield wildly different valuations. This makes it difficult to use Bitcoin for business and is part of the reason it has not been adopted into mainstream exchanges. Fiat money is more stable and predictable.

Bitcoin versus PSEI

The Bitcoin market is actually even more volatile than the stock market. Given Sir Vince’s strict guidelines for investing in the stock market, he poses even stricter guidelines for investing in Bitcoin.

The table below shows the volatility of the Philippine Stock Exchange Index (PSEI) with Bitcoin and the Philippine peso.

 

2016 2017 2018 2019 2020
% PHP to USD -4% -1% -6% 4% 5%
% BTC to USD 132% 1,219% -71% 96% 166%
PSEI -2% 25% -12% 3% -8.%

Bitcoin is not an investment

Bitcoin should not be considered an investment. Rather, treat it as a currency or a medium of exchange. If you base your investments on the possibility of large payouts due to extreme volatility, you are engaging in speculation.

Speculation is not a valid investment strategy because it is considered as gambling.

 

Cryptocurrencies: Where does Bitcoin come from?

Should you be investing in Bitcoin? Will it sustain its massive gains? Is it safe to invest in it?

A lot of people have become curious about Bitcoin again since its perceived value is near historic highs the past month.

What is Bitcoin?

Bitcoin is a cryptocurrency. Other popular cryptocurrencies include Bitcoin Cash, Litecoin, Ethereum, Binance Coin, Tron, and many others. They have their own exchange rates and places where they can be traded or purchased.

The controversial cryptocurrency mysteriously came into being as an invention or “gift” from Satoshi Nakamoto, who released white papers detailing the rules of Bitcoin. However, the individual or institution known by that presumed alias has not come forward to claim credit and to this day remains anonymous.

To put the origin of cryptocurrencies into context, the 2008 global financial crisis revealed the ugly truth about our imperfect banking system – oppressive and inaccessible to the poor. Many noted that only the rich benefit from the banking system.

The average person receives cents when they make deposits into the bank, and the only people who have the ability to access those funds are the rich. Traditional banking system is intrinsically capitalistic — favors profit that benefit the top 1% of society.

This gave rise to cryptocurrencies that attempt to challenge the current banking system. They were established to address inequities in favor of a secure, democratic and efficient financial system.

Crypto versus fiat

When we refer to cryptocurrency, this is only one type of money. Currencies like coins and paper money, also called fiat currencies, are printed by the central bank of each country. These central banks create the rules for using their currency.

For the Philippines, the central bank is the Bangko Sentral ng Pilipinas (BSP).  Other countries have their own versions and rules, such as the Federal Reserve in the United States; Reserve Bank of India; and the European Central Bank among others.

How does money gain value?

For example, the PhP100 bill costs about PhP3 to print, so why is it worth PhP100? That value is what we as a society have agreed on and trust to hold its value. We further trust that value because it was issued by the government and serves as its legal tender. It guarantees that the value of bills and coins are its face value rather than the amount spent to print it.

Role of central banks

Central banks determine how much money is in circulation and decides when to print and how many. All global currencies are guaranteed by their government as legal tender.

Because money issued by the government is guaranteed by the government, typically countries with stronger economies have more trusted central banks and have stronger currency value. Countries like Japan, Korea, U.S.A, as well as the United Kingdom, which are more developed, have “hard currencies.” In comparison, the Philippine Peso is not as strong (“soft currency”).

Central banks seek to stabilize the value of their currency. BSP doesn’t want the value of the Philippine Peso to be too volatile in either direction.

During the Asian financial crisis, the value of the peso devalued. The peso lost 45% and was devalued against the US dollar. It fell from PhP24.5 to PhP35.61 in a matter of two months. The worth of the money was essentially halved.

To avoid such volatility, central banks intervene in the market. They buy or sell currency in order to adjust the supply of money, which stabilizes exchange rates.

No central bank regulates Bitcoin

On the other hand, cryptocurrencies are decentralized. There is no governing body that regulates its prices and enforces its rules.

Cryptocurrencies are bought in peer-to-peer networks or exchanged. Theoretically, anybody could establish a digital currency so long as they have a peer-to-peer network. But whether or not the currency is trusted is another issue. The value of cryptocurrencies is agreed upon by those participating in the market.

The peer-to-peer network of cryptocurrencies is very similar to the Philippine Stock Exchange, or the stock market. There is a network specific to facilitating the exchange and purchase of each cryptocurrency.

Need for stability in Bitcoin

Rapid devaluation of currencies are avoided to establish trust and integrity among market players in the economy. Gradual increase and decrease in the value of a currency is preferred over wild swings which is a typical characteristic of cryptocurrencies.

Until Bitcoin reaches the trust level that would make it stable and immune to wild swings, its commercial use will be very limited. This will make it stuck as a speculative asset class that would go against its aim create a secure, democratic and efficient alternative financial system.

 

Blockchains: Where does Bitcoin come from?

If central banks print currencies, where does Bitcoin come from?

Blockchain

Bitcoin enigmatically appeared in the Internet. Satoshi Nakamoto, its unknown originator, used blockchain technology in order to create Bitcoin.

Blockchains are democratized “public” ledgers. Ledgers are the recordkeeping books that accountants and bookkeepers typically use. Thus, blockchains are one method of record-keeping.

Because blockchain is public, everyone can access it. Democratized means there is no single institution that administers the recordkeeping– there are many.

Conventional banking system

If a person in Dubai were to send remittance to the Philippines, their bank would first verify their identity and confirm that they received money to be sent to the Philippines. The bank in Dubai would then contact the Philippine bank to send the value requested.

The Philippine bank undergoes a similar process of verifying that money was received and that the recipient exists and is who they say they are. This process of record-keeping requires people and technology and incurs costs. The remittance sender is typically charged a fee and the remittance receiver often receives less than what was sent to cover these costs.

Banks act as middlemen in financial transactions. With this role, they charge fees which is expensive especially to low income groups, the majority of the population.

In the case of blockchain, there is no need to go through banks. It eliminates these expensive middlemen and allows direct transactions with anyone who have access to the technology.

Recordkeeping

To ensure correct recordkeeping, multiple devices are used in the blockchain around the world in anetwork. They simultaneously record and verify the transaction.

If even a single of these devices in the blockchain were not to match, then the entire transaction would be invalidated because it is no longer consistent is the network. This prevents fraudulent recordkeeping to occur and upholds the integrity and accuracy of the network.

Blockchain is efficient

Using blockchain through the internet, the middleman is eliminated, and transaction fees would be reduced. It would be a cheaper system compared to the current system of incurring bank fees.

Blockchain keeps your privacy

Typically, banks require proof of identification in order to proceed with transactions. This makes transactions traceable in order to prevent money laundering and financing of terrorist activities.

Contrary to conventional banking, blockchain is anonymous. The anonymity of blockchain means that there is no need to furnish proof of identity, as the blockchain goes through its own verification method.

However, scammers and criminals were the first to take advantage of the anonymity of cryptocurrency transactions. This resulted to many cryptocurrencies linked to illicit financial transactions that continues to paint cryptocurrencies in bad light.

Use of blockchain

Cryptocurrency is just one use of blockchain. As a secure, efficient, and tamper-proof method of recordkeeping, blockchain can be used to verify any type of interaction. Its uses could range from government use, insurance, international trade, health care, and real estate, etc.

Admittedly, blockchain is a very powerful technology that could be used for social good. However, when used by the wrong hands, it could also be equally used to the detriment of society.

SEDPI joins key financial stakeholders in Finovation 2019

Social Enterprise and Development Partnerships, Inc. (SEDPI) is the country’s premier capacity builder in the fields of social entrepreneurship, microfinance and financial literacy. SEDPI, represented by its founder and president Vincent Rapisura, joined eCompareMo’s Finovation 2019 to contribute to a clearer and more solid path towards greater financial inclusion.

He served as the moderator of the first roundtable discussion, which provided insights into the problems and solutions to increase financial inclusion. Panelists included Pia Roman-Tayag, BSP Managing Director​, Center for Learning and Inclusion Advocacy (CLIA), Mags Surtida, Asia United Bank Group Business Head for Credit Cards and Acquiring​ First Vice President, Harvey Libarnes, Smart Communications Inc.​ Financial Service Head​ Vice President, Hamilton Angluben, Cashalo General Manager, and Stephanie Chung, eCompareMo Co-Founder and CEO. Each panelist shared their individual and organization’s efforts towards financial inclusion among consumers.

Speaking for SEDPI’s constituents which are microenterprises and microentrepreneurs, Vince Raoisura brought to the table a question on why microfinance loans are still not on the eCompareMo’s platform. To which Ms. Chung from eCompareMo answered, “We are actually prepared to work with microfinance. We are so happy that they’re here and we have already made steps towards reaching out to them. Our goal is not just education, but financial inclusion.”

Several topics were further discussed in the next discussions. These include working together to empower more consumers and the need to protect borrowers. In conclusion, the panelists all reiterated their commitment in pushing for the advocacy of financial inclusion and education, especially to the unbanked populations.

SEDPI Clinches WOCCU Project on Financial Inclusion

On January 7, 2019, the Worldwide Foundation for Credit Unions awarded SEDPI a contract to conduct a demand-side research with credit union members of select credit unions (CUs) or credit cooperatives in the Philippines.

The Worldwide Foundation for Credit Unions, the social impact affiliate of the World Council of Credit Unions (WOCCU), partnered with the Bill and Melinda Gates Foundation (BMGF) to design open-loop, low-cost, real time payment platforms for its global network of credit unions (CUs). The goal of the project is to reach and serve the existing 248 million CU members and to extend the CUs’ reach to unbanked populations worldwide.

The Filipino implementation partners are national associations which are WOCCU global members. These are the National Confederation of Cooperatives (NATCCO) and the Philippines Federation of Credit Cooperative (PFCCO).

The demand-side research will be conducted through at least 30 focus group discussions (FGDs) with credit union members to understand their needs and preferences with respect to digital payments. The FGDs would be conducted in partnership with at least 13 credit cooperatives all over the country.

The results of the demand research would provide valuable input to the project and promote financial inclusion in the country and to the unbanked populations around the world.