In the first few months of 2023, nanoenterprises continue their journey towards recovery, now facing the added challenge of rising prices. Our latest study at Social Enterprise Development Partnerships, Inc. (SEDPI) provides new insights into how nanoenterprises are doing. Although there are signs of improvement, the issue of inflation is making the recovery process harder for many.
Our findings show that almost half (47%) of the nanoenterprises surveyed feel their business has weakened a bit during the first quarter of 2023. This is actually a 10% improvement from the last quarter, showing that business conditions are getting slightly better. A consistent one-third of nanobusinesses have been able to keep going as usual over the past six months, showing a good amount of strength despite the difficulties.
However, external factors, mainly rising costs, are making things hard for many nanoenterprises. This period has seen a clear impact on nanoenterprises, with many (83%) saying that higher prices are the main reason they are finding it hard to grow. On a brighter note, fewer businesses are reporting no buyers, with the number dropping from 6% in the last quarter of 2022 to 3% now, which suggests that more people are buying again.
When we look at demand, the picture is a bit mixed. While 38% of businesses are seeing more demand for their products and services—a good increase from last year—the number has dipped a bit from December’s 42%. This shows that while demand is better than during the worst of the pandemic, it’s still changing a lot.
The ability to get supplies stayed stable, with 71% of businesses managing to get what they need, similar to last quarter. However, the overall picture of recovery is a bit worrying, as the number of businesses that feel they have recovered from the pandemic’s impact has dropped from a high of 77% to 51% now, again mainly due to the challenges brought by rising prices.
Half of the businesses surveyed say their income has gone down, pointing to higher prices, more competition, and weakening business conditions as the main reasons. On the other hand, those who have seen their income go up say it’s because of more demand, a good season for farming, and having more people in the household earning money.
For this round of rapid community assessment, there were 571 respondents. The majority of respondents are nanoenterprises owned and operated by women (85%), with an average age of 42 and 73% being married. SEDPI is a microfinance institution dedicated to providing ethical financing to nanoenterprises in Agusan del Sur, Davao de Oro, Davao del Norte, and Surigao del Sur. Their efforts have led to significant improvements in various aspects of the beneficiaries’ lives, such as business growth, education, housing, nutrition, and income.
These findings highlight a key moment for nanoenterprises as they deal with both the positives of recovery and the negatives of inflation. The strength and flexibility these small businesses have shown are impressive, but there’s still a tough road ahead. As SEDPI keeps supporting the sector with fair loans and help in building skills, focusing on how to deal with inflation and keep businesses stable is more important than ever. The path to full recovery for nanoenterprises shows progress but also reminds us of the need for ongoing support and attention to the changing economy.
Established in 2004, the SEDPI Group of Social Enterprises focuses on empowering marginalized Filipino communities via sustainable nanoenterprise growth. Their multifaceted approach includes nanofinancing, social investments, and financial education, addressing poverty and promoting financial stability. Despite advances in microfinance, poverty and high indebtedness persist in the Philippines. SEDPI’s research prompted a pivotal strategy change in 2020 to social microfinance with SEDPI KaNegosyo, aiming to improve financial literacy, reduce debt burdens, and provide fast and affordable social safety nets, especially in poverty-stricken rural provinces.
Nanoenterprise
Microenterprise
Assets
PhP3,000 to PhP150K
>PhP150K to PhP3M
Employees
0
1 to 9
Enterprise registration
Mostly unregistered
Mostly registered
Approximate number
8,100,000
1,000,000
Economic status
Mostly poor
Mostly non-poor
Nanoenterprises are typically unregistered livelihoods of self-employed individuals or informal solo-preneurs with asset size ranging from PhP3,000 to PhP150,000. 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. There are approximately 8.1 million nanoenterprises in the Philippines as of 2022.
Profile of SEDPI nanoenterprises
Facebook Global Data
SEDPI
Female
42%
83%
College degree
40%
1%
Location in city
59%
2%
No digital tools
10%
56%
No digital revenue
30%
68%
Survival expectation
20%
100%
SEDPI nanoenterprises are characterized by an 83% female ownership, operate mostly in rural areas, and are largely retail and agriculture-focused, diverging from global trends. They face digital challenges, with the majority lacking digital tools and revenue. Despite infrastructural and educational limitations, there is universal optimism for business survival among SEDPI NEs. Comparatively, they show lower urban presence and college education levels than in the global dataset, and a starkly different industry involvement, with no representation in arts and ICT. Their resilience despite economic and technological barriers underscores the socio-economic and cultural factors influencing their entrepreneurial outlook.
Adapting to Pandemic Challenges: The Resilience of Nanoenterprises in the Face of COVID-19
The COVID-19 pandemic presented unprecedented challenges for nanoenterprises associated with the SEDPI Group. As the pandemic surged in April 2020, a staggering 69% of these small-scale businesses ceased operations, indicating the immediate and severe impact of lockdown measures. However, this initial shutdown was followed by a gradual, albeit fragile, process of recovery. By May 2020, some enterprises cautiously resumed activities, although the majority continued operating under significantly weakened conditions.
This period of operational crisis extended through July 2020, with none of the enterprises achieving pre-pandemic levels of normalcy. The situation, though improved, remained precarious with most nanoenterprises identifying their operational status as ‘slightly weak’ or ‘weak’. This prolonged state of fragility, lasting even until December 2022, highlights the profound challenges faced by these enterprises, including limited market access, disrupted supply chains, and a general consumer hesitance.
The pandemic also laid bare the sluggish nature of government assistance, which was critical during the early stages of the lockdown. Initial aid was slow to materialize, with only a small fraction of enterprises receiving cash assistance by mid-April 2020. This delay in financial support likely contributed to the prolonged weakened condition of nanoenterprises, emphasizing the need for more responsive and efficient disaster management strategies.
Despite these challenges, SEDPI members demonstrated remarkable adaptability. Many altered or diversified their business models, with 37% changing their source of income and 52% adding new income streams, showcasing entrepreneurial agility. The transition to online sales was one such adaptation, with a peak of 41% of enterprises exploring digital markets by mid-2021. This pivot, however, showed varied sustainability, indicating the complexities and limitations of digital commerce for these small-scale businesses.
Additionally, the data revealed that members with agricultural assets were better equipped to adjust to the pandemic’s disruptions. This finding underscores the relative resilience of agricultural activities in times of economic crises.
The COVID-19 pandemic posed a significant threat to the survival and operation of nanoenterprises associated with SEDPI. Yet, their response to these challenges was marked by resilience and adaptability. The experiences of these enterprises during the pandemic provide valuable insights into the dynamics of small-scale businesses in crisis scenarios and the necessity for robust, responsive support systems to aid in their recovery and long-term sustainability.
Redefining Microfinance: The SEDPI KaNegosyo Model for Nanoenterprise Development
SEDPI’s KaNegosyo model represents a significant departure from traditional microfinance practices, introducing innovative strategies to support nanoenterprises in the Philippines. This approach is underpinned by six foundational principles: capital infusion (not loans), financial education, profit and risk-sharing, non-profit insurance product, partnership, and cooperation. Each of these elements contributes to a holistic model aimed at empowering nanoenterprises.
Capital Infusion, Not Loans: The principle of capital infusion instead of loans forms the cornerstone of the KaNegosyo model. In stark contrast to the conventional microfinance model, which often burdens nanoenterprises with debt, SEDPI’s strategy fosters a symbiotic relationship through joint ventures. By forming co-ownership arrangements, SEDPI positions itself as a stakeholder in the success of nanoenterprises, not merely a creditor. This approach eliminates the pressure of escalating debts, allowing enterprises to focus on sustainable growth and community development.
Financial Education: Central to SEDPI’s approach is its emphasis on financial education, aimed at liberating nanoenterprises from the cycle of debt. By prioritizing savings mobilization, SEDPI cultivates a culture of financial resilience and stability among its members. This emphasis on savings over borrowing encourages nanoenterprises to grow sustainably. SEDPI utilizes practical, community-centric methods, such as local language videos and case studies, to make financial concepts accessible. Financial Inclusion Officers play a pivotal role in guiding members towards robust savings habits and reducing reliance on debt.
Profit and Risk-Sharing: SEDPI’s profit and risk-sharing principle fosters a mutual partnership between the organization and nanoenterprises. This approach diverges from traditional loan systems by equitably sharing both profits and risks, acknowledging the value of labor and participation over capital contribution. This model facilitates joint problem-solving, enhancing the resilience of nanoenterprises.
Non-Profit Insurance Product: The inclusion of a non-profit insurance scheme, locally known as “damayan,” reinforces the community-oriented ethos of SEDPI. This scheme offers protection through solidarity, not for income generation. The approach of providing near same-day delivery of benefits without complex documentation processes underscores SEDPI’s commitment to responsive and efficient support.
Partnership and Cooperation: SEDPI’s partnership and cooperation principle demonstrates its dedication to creating a supportive ecosystem for nanoenterprises. By forging alliances with government agencies and civil society, SEDPI enhances the reach and efficiency of social safety nets. These collaborations, complemented by the KaSosyo program, which engages social investors, reflect a broad-based approach to poverty eradication.
The impact of these principles is evident in the significant growth of SEDPI’s financial landscape. The organization’s portfolio expanded from PHP 23.8 million in 2018 to PHP 116.5 million in 2023, a testament to the effectiveness of its model. Additionally, the enhanced portfolio quality, with a low portfolio at risk, indicates prudent financial management and the positive influence of SEDPI’s member-centric policies.
In conclusion, SEDPI’s KaNegosyo model not only offers a sustainable alternative to traditional microfinance but also presents a replicable framework for empowering nanoenterprises. Through its innovative approach, SEDPI has demonstrated how a focus on partnership, education, and community support can drive both social and economic development in the microfinance sector.
Evaluating the Success: The Impact of SEDPI’s Nanoenterprise Developmenton Organizational Growth and Financial Performance
The SEDPI Group’s innovative approach to microfinance and nanoenterprise development, as reflected in its comprehensive financial performance from 2018 to 2023, has led to significant organizational growth and an improvement in the bottom line. This success is anchored in strategic operational approaches and a deep understanding of the target demographic’s needs.
One of the pivotal elements contributing to SEDPI’s growth is the effectiveness of its near same-day claims processing, a core feature of the damayan system. This prompt support mechanism has not only been an effective marketing tool but has also established SEDPI as a reliable and responsive organization among its members. The firsthand experiences of timely assistance have played a crucial role in reinforcing members’ trust and loyalty, resulting in an impressive average growth rate of 32% increase in membership, taking the total count to 19,840.
The principle of capital infusion, a hallmark of the SEDPI model, has significantly reduced the debt burden for nanoenterprises. By focusing on non-compounding and non-accruing costs and eschewing penalties, SEDPI has created a stress-free financial environment. This approach has fostered a culture of loyalty and commitment towards the organization, encapsulated in the local ethos of ‘walang iwanan’ or ‘leaving no one behind.’ This sentiment has been instrumental in not only attracting new members but also retaining existing ones.
The organization’s swift response in providing assistance during disasters, coupled with policies such as no interest accrual and penalty imposition during such events, has further solidified client loyalty. This commitment to member welfare, even in challenging times, has been a key factor in SEDPI’s growth.
SEDPI’s financial landscape has seen a significant upsurge in its portfolio, growing from PHP 23.8 million in 2018 to PHP 116.5 million in 2023. This remarkable expansion is a direct result of the increase in membership, which has enhanced the organization’s financial capacity. The quality of the portfolio has also seen a notable improvement, with SEDPI maintaining a portfolio at risk (PAR) figure well within and below the microfinance industry standard of less than 5%, despite the intensification of claims during the pandemic. This achievement underscores SEDPI’s effective balance between member support
SEDPI’s Path Forward: Expanding Reach and Enhancing Member Services
SEDPI’s empathetic, member-focused model in microfinance, recognized for its innovative financial solutions like the near immediate claims processing of the damayan system, has established a strong competitive advantage within the industry. The strategic shift from debt instruments to capital infusion and savings mobilization, coupled with their low portfolio at risk and high operational self-sufficiency ratio, underscores SEDPI’s commitment to member empowerment and financial health. This scalable model not only solidifies SEDPI’s market position but also serves as a blueprint for inclusive growth in the microfinance sector.
Looking ahead, SEDPI is poised to embark on ambitious initiatives aimed at amplifying its impact and enhancing member welfare:
Membership Expansion Initiative SEDPI has set an audacious goal to increase its membership base to 100,000. This initiative will focus on broadening outreach and harnessing digital technology to engage with potential members across various regions. The expansion is not just about numbers; it’s about fortifying the collective strength and diversity of the SEDPI community, ultimately driving greater financial empowerment and resource-sharing among its members.
Socialized Housing Program Recognizing the critical need for affordable housing, SEDPI plans to offer socialized housing programs. These programs will provide members with access to sustainable and cost-effective housing solutions, improving their quality of life and offering a sense of security. SEDPI is dedicated to making housing more than a commodity—it’s about creating homes and fostering communities.
Holistic Health Schemes With the aim of ensuring the well-being of its members, SEDPI is set to introduce comprehensive health programs. These schemes will go beyond mere financial support, offering preventative care, wellness education, and access to medical services. SEDPI’s vision is to cultivate a healthy and productive membership that can thrive in both business and personal life.
Through these forward-thinking plans, SEDPI reaffirms its commitment to the socio-economic upliftment of its members, fostering a future where financial inclusion and social services contribute to a more equitable society.
In the wake of soaring rice prices, the Philippines has found itself in the midst of a contentious debate over the imposition of a rice price ceiling. As the staple food of the nation, rice plays an integral role in the daily lives of millions, making its affordability and accessibility crucial.
President Bongbong Marcos, wearing dual hats as the President and Concurrent Agriculture Secretary, implemented a price cap on this essential commodity, setting the stage for a series of events that have highlighted economic disparities, government intervention mechanisms, and the intricacies of market dynamics.
With Executive Order No. 39, the government set price ceilings for both regular milled rice and well-milled rice. While this move was intended to counteract alleged illegal activities like hoarding and to mitigate external global pressures, it has elicited various responses from different sectors.
Finance officials have resigned, economists have voiced concerns over potential shortages, and retailers grapple with the economic realities of the decision. As the country navigates this complex scenario, the repercussions of this policy extend beyond just the rice fields and markets, influencing broader conversations about governance, economics, and the welfare of the Filipino populace.
Price Cap in Economics: A Primer
A price cap, as defined in economic terms, refers to the maximum price set by a governing authority on a specific good or service to ensure that it remains affordable and accessible to the general population. It is an interventionist measure typically instituted in situations where market dynamics are perceived to fail, either due to external pressures or alleged illicit activities.
In the context of the Philippines’ recent rice crisis, President Bongbong Marcos introduced a price cap to counteract two primary concerns:
Alleged illegal price manipulation attributed to hoarding by traders and suspected collusion among industry cartels.
External global pressures beyond the Philippines’ control, such as the Russia-Ukraine conflict, India’s ban on rice exportation, and fluctuations in global oil prices.
By imposing a price ceiling on rice, the government aimed to stabilize the commodity’s price in the face of these challenges, ensuring that Filipinos could afford this staple food item.
Price Cap and the Filipino Consumer
The introduction of the rice price cap in the Philippines came as a direct response to the mounting concerns over rising prices and allegations of illegal price manipulation. This move was primarily aimed at favoring the Filipino consumer. However, like any economic measure, it presents both advantages and unintended challenges.
The most immediate positive outcome is making essential goods like rice more affordable. Given that rice is a foundational food for Filipinos, its affordability directly influences the well-being of the majority. By mandating a price cap, the government attempts to ensure that even when faced with market fluctuations, the cost of rice remains accessible to the typical Filipino consumer. Moreover, the price cap serves as a protective shield for consumers against price gouging and speculative behaviors. The decision to implement this measure was partially influenced by concerns about illicit price manipulations, including hoarding and collusion amongst industry magnates. With a cap in place, the objective is to maintain price stability, ensuring fairness for all consumers.
However, this intervention isn’t without its potential pitfalls. One of the most cited concerns is the risk of a shortage if the set price falls below the market equilibrium. When price ceilings are artificially lower than what the market would naturally dictate, it can cause a surge in demand while simultaneously diminishing supply. An economist has voiced concerns suggesting that the price cap’s sustained enforcement might lead us directly into these shortages. This perspective aligns with the insights of Finance Undersecretary Shelo Magno, who emphasized the law of supply. According to this economic principle, as the price of a commodity drops, the quantity supplied might also see a decline.
Furthermore, there’s the looming risk tied to product quality. Given the price constraints, retailers, especially those who procured rice at steeper prices, might face losses. This economic pinch could then drive suppliers and retailers to find shortcuts to uphold their profit margins. Such shortcuts could detrimentally impact the rice’s quality. In trying to maintain profitability, some retailers might prioritize cheaper rice variants or opt for blending different grades of rice.
While the rice price cap is rooted in the noble intention of shielding the Filipino consumer, its extensive repercussions continue to be a point of debate among economists, retailers, and government bodies. The true challenge is striking a balance—ensuring immediate relief for consumers without compromising the long-term stability of the market and the quality of goods.
Impacts of the Price Cap on Rice Farmers
Rice farmers, as the primary producers of this staple, bear the brunt of any market fluctuations and policy shifts. The recent institution of a price cap has raised questions about its implications for these farmers, who are often at the mercy of volatile market dynamics. How does this price regulation support or challenge their livelihoods? This section seeks to provide insights into the impact of the price cap on the farmers, capturing both the potential opportunities and the inherent risks.
On the brighter side, the price cap provides rice farmers with a degree of financial predictability. They can be somewhat comforted by the fact that there’s a guaranteed floor price for their harvest. This assurance protects them against the potential pitfalls of drastically plummeting market prices. Furthermore, if consumers find the capped price appealing and affordable, it could generate increased demand. Such a surge in demand would translate to higher sales volumes for farmers, thereby amplifying their market presence and revenue.
However, every silver lining has a cloud, and in this context, the potential challenges farmers face under the price cap are manifold. Experts, including the likes of Punong Bayan, point out a significant concern: the price cap might not necessarily align with the escalating production costs. If these costs outpace the fixed selling price, farmers could grapple with financial losses. This discrepancy between production costs and selling price is especially concerning in scenarios where external factors, such as climatic changes or global market shifts, hike up production expenses.
Moreover, the very essence of a price cap might inadvertently stifle innovation among farmers. When there’s a ceiling on potential revenue, the incentive for farmers to embrace advanced farming techniques or to channel investments into productivity-boosting mechanisms diminishes. After all, if the return on investment appears bleak in the light of the price cap, why would they venture into uncharted territories of innovation?
The intricate balance of ensuring affordability for consumers while maintaining profitability for producers is a challenging act. For rice farmers, the price cap brings both opportunities and uncertainties. As the Philippine government navigates this complex issue, continuous engagement with farmers and understanding their concerns will be pivotal to ensuring that policy decisions genuinely benefit the broader Filipino community.
Price Cap from the Perspective of Rice Traders
Rice traders operating at the heart of the rice distribution system, play a crucial role in ensuring that this staple reaches Filipino tables. As they grapple with the new pricing regulations, it becomes essential to understand the potential benefits and challenges they face.
One clear advantage is the predictability in pricing. With a price cap in place, rice traders can anticipate the maximum price at which rice can be sold. This can help them strategize their buying, storage, and selling decisions. As President Bongbong Marcos mentioned, this price cap is a temporary measure, which may offer some traders a sense of solace knowing it’s not a permanent market condition.
Additionally, there’s a possible surge in the volume of sales. If consumers perceive the capped price as fair and affordable, they may be more inclined to buy rice. This could potentially lead to increased sales volumes, compensating, to some extent, for the reduced price per kilo.
However, on the flip side, the price cap brings with it certain undeniable challenges. As highlighted by the news from ANC, some rice retailers experienced losses immediately after the implementation of the price cap. One retailer noted a loss of P9,000 on the first day, and the Grain Retailers Confederation indicated that an average retailer selling 20 sacks of rice per day might lose up to 49,000 pesos of potential profit per week.
If the capped price is too close to or even below the cost of acquiring and selling rice, traders could face significant challenges in covering their operational costs. This is especially concerning for retailers who had bought rice at a higher price before the cap and now have to sell at a lower price. Such concerns were echoed by the president when he acknowledged that some retailers bought rice at a higher price and would now be obligated to sell it at a reduced price due to the cap.
The economic perspective provided suggests that if the price cap is set below the equilibrium, it can lead to shortages. This imbalance where demand exceeds supply could strain traders, potentially causing them to run out of stock prematurely. Economists like Punongbayan have cautioned about the implications of such price ceilings, emphasizing the potential disincentive for producers to sell rice, which can directly impact the traders who rely on these producers.
The Rice Tariffication Law and its Implications
The Philippine agricultural landscape underwent a significant transformation with the introduction of the Rice Tariffication Law. Aimed at liberalizing the rice industry, this law was intended to meet the country’s rice consumption needs while attempting to make the sector more competitive. However, the resulting changes sparked debates over its implications, especially concerning local rice producers and market dynamics.
The Rice Tariffication Law replaced quantitative restrictions on rice imports with tariffs, thus allowing private sectors to import rice. It aimed to stabilize prices and supply, benefiting Filipino consumers through potentially lower rice prices.
By lifting the quantitative restrictions, the Philippines saw an influx of rice imports. The newfound ease of importing rice meant that local demand could be quickly met by rice from international sources, often at cheaper prices.
The influx of cheaper imported rice posed challenges for local rice producers, as they struggled to compete with these prices. The absence of a protective barrier resulted in local farmers facing the pressure of reduced prices for their produce.
Given the backdrop of the Rice Tariffication Law, the challenges faced by local producers and the price volatility in the market were exacerbated. Factors such as the Russia-Ukraine conflict, India’s rice export ban, and fluctuating global oil prices further added to the market instability. This environment, coupled with alleged illegal activities like hoarding, created a situation that seemingly necessitated government intervention, leading to the rice price cap.
The Rice Tariffication Law, while designed with the intent to provide Filipinos with affordable rice, has demonstrated the intricacies and unforeseen challenges of market liberalization. As the Philippines grapples with ensuring food security, the rice price cap’s institution stands as a testament to the delicate interplay between policy decisions, market dynamics, and the livelihoods of thousands of rice farmers.
PhP20 Price of Rice: Political Promise or Practical Solution?
The price of rice has always held significant importance in the Filipino household, with any fluctuation having widespread ramifications on both the economy and daily living. The promise of bringing down the rice price to PhP20 per kilo was a political pledge that captured much attention. However, with the changing dynamics in the rice market and the various challenges, achieving this mark becomes a topic of debate.
The PhP20 price point is not a new phenomenon. In previous years, there have been instances where affordable rice prices have been achieved, with Rep. Rhea Vergara recalling a time when the cost was as low as PhP27 per kilo. This has set a precedent for the public, increasing the expectation for the government to regulate and maintain affordable rice prices.
According to Congresswoman Rhea Vergara, while there were initial meetings suggesting that the PhP20 per kilo price wasn’t attainable, she believes that under certain conditions, it might be possible. Vergara opines, “If the DA can provide the inputs, which is the most expensive part of farming, if we give our farmers the right seeds, support them 100 percent with fertilizer…then, yes, 20 pesos is achievable.” However, she also expressed doubts about its sustainability, suggesting a more realistic price point to be between PhP38 to PhP40 per kilo.
While a PhP20 price point would be welcomed by consumers, its ramifications go beyond just affordability. Such a price regulation can pose challenges for traders and retailers who would need to adjust their profit margins. Moreover, it places pressure on the government and associated bodies like the NFA to intervene, which can lead to significant economic decisions, such as providing subsidies. On the political front, while fulfilling the PhP20 promise could boost the government’s popularity, failing to do so might lead to public discontent.
Promising a PhP20 per kilo price for rice is a compelling political pledge, reflecting the government’s commitment to ensuring affordable living for its citizens. However, as elucidated by Rep. Rhea Vergara and the ongoing developments, achieving and maintaining this price point requires strategic interventions, a robust agricultural support system, and a consideration of its broader implications. Whether a political promise or a practical solution, it is a testament to the intricate relationship between economics, politics, and the Filipino way of life.
Moving Forward: Recommendations and Solutions
With the complex interplay of economics, politics, and agriculture at the forefront, ensuring affordable rice prices and a sustainable rice industry in the Philippines requires strategic solutions. Reflecting on the insights shared, particularly by Congresswoman Rhea Vergara, this section presents several recommendations to address the challenges currently faced by the rice sector.
Direct support to farmers can play a pivotal role in ensuring the rice industry’s viability. Congresswoman Vergara suggests implementing measures like a minimum support price, which considers production costs and other associated expenses. This ensures that farmers receive fair compensation for their produce. In addition, introducing subsidies or grants can also provide the much-needed financial buffer, protecting farmers from volatile market prices.
Investing in research can pave the way for improved yields, cost-effective farming practices, and resilient crops. By focusing on R&D, the Philippines can develop high-yielding varieties, better farming techniques, and innovative solutions to tackle challenges like pests and changing climatic conditions. As Vergara highlights the need for government support, providing farmers with the right seeds and comprehensive fertilizer assistance can significantly reduce production costs.
Given the ongoing challenges, there’s a clarion call to reassess the rice tariffication law. Vergara strongly believes in amending the law, suggesting reintroducing NFA’s role in stabilizing the rice market during emergencies. By allowing NFA to flood the market with affordable rice, it can counteract the manipulations by potential cartels and unscrupulous traders.
Promoting local production is crucial for the country’s food security and economic stability. By offering incentives, the government can motivate farmers to boost production and reduce dependency on imports. Additionally, linking farmers directly to end-users, as suggested by the Kadiwa initiative mentioned by Vergara, can eliminate middlemen, ensuring both farmers and consumers get a fair deal.
Addressing the rice industry’s challenges requires a holistic approach, encompassing direct farmer support, research investments, legislative amendments, and promoting local production. As the country navigates the intricate dynamics of rice production, prices, and market forces, these recommendations serve as potential pathways to ensure that both the producer and consumer benefit, ultimately leading to a self-sufficient and robust rice industry in the Philippines.
Navigating the Rice Terrain: Challenges and Opportunities
The intricate landscape of rice pricing and production in the Philippines has seen a series of ups and downs. The introduction of the rice price cap, alongside the broader discussions on rice tariffication and market dynamics, has only added to the complexities. This section will summarize the overarching challenges and opportunities stemming from these measures.
The price ceiling was introduced as a measure to control soaring rice prices. It brought about a guarantee for producers and potential increased demand from consumers at the capped price. However, as Congresswoman Rhea Vergara pointed out, while it addressed a price hike, it was merely “half the solution.” Challenges have emerged, such as the potential for costs to surpass production expenses and reduced incentives for innovation. Nevertheless, the ceiling also presented an opportunity: a clear signal against unbridled profiteering and a testament to the government’s commitment to consumer welfare.
The rice situation in the Philippines is not isolated to prices alone. It’s intertwined with global events, as seen with the impacts of the Russian-Ukraine war and local typhoons, the changing roles of agencies like NFA, and the evolving dynamics between farmers, traders, and consumers. As Vergara emphasized, addressing just one aspect will not yield the desired stability. Instead, a comprehensive approach is essential — one that takes into account the welfare of farmers, ensures fair pricing for consumers, promotes research and development, and creates avenues for direct links between producers and consumers.
Rice, as a staple in the Philippines, sits at the nexus of nutrition, economics, politics, and culture. The discussions on price caps, tariffication laws, and farmer welfare are emblematic of the challenges of ensuring food security in an increasingly complex global landscape. As the nation moves forward, the lessons from these episodes serve as crucial guideposts. A cohesive strategy that addresses each facet of the rice industry, backed by collaborative efforts from all stakeholders, will be instrumental in charting a stable and prosperous path for the Philippines’ rice sector.
The SEDPI Group of Social Enterprises is a Philippines-based organization that operates with the aim of alleviating poverty among Filipinos worldwide. Since its inception in 2004, it has grown to include eight collaborative organizations executing three key programs: SEDPI KaSosyo, SEDPI KaNegosyo, and Usapang Pera. These programs focus on social investments, nanofinancing, and financial education respectively.
SEDPI programs
The SEDPI KaSosyo program attracts social investors who prioritize people and the environment over profit. These investors support nanoenterprises, social enterprises, and development organizations through a profit-sharing scheme known as Joint Venture Savings (JVS).
The SEDPI KaNegosyo program provides sustainable finance for nanoenterprise development. This includes providing livelihood capital, promoting a savings culture, providing social safety nets, and even creating affordable and inclusive housing communities through various sub-programs.
Usapang Pera, the financial education program, provides a comprehensive suite of financial empowerment services that include online trainings, live events, and publications. The program uses real-life examples and practical applications to improve personal financial habits and foster positive social change. Over the years, SEDPI and its founders have received several recognitions and awards for their work. They remain committed to their vision of empowering Filipinos worldwide to support sustainable nanoenterprises.
Social and solidarity economy: The SEDPI approach
Social and Solidarity Economy (SSE) encompasses a range of organizations and enterprises that prioritize social objectives and uphold principles of solidarity, mutual aid, and social justice. In the Philippines, one of the organizations embodying these values is the SEDPI Group of Social Enterprises (SEDPI). Their model provides a roadmap for implementing Social and Solidarity Economy principles in practice.
Empowering Nanoenterprises through KaNegosyo
SEDPI’s KaNegosyo program follows six foundational principles that reflect a commitment to the values and practices of the Social and Solidarity Economy. Financial Education: SEDPI prioritizes intensive savings mobilization, universal insurance coverage, provision of investment opportunities, and liberation from oppressive loan products. By offering financial education, SEDPI empowers nanoenterprises to make informed decisions and contribute to a more equitable economy. Capital Infusion, Not Loans: SEDPI forms joint ventures with nanoenterprises, establishing a co-ownership business partnership, offering an alternative to loans that require perpetual interest and penalty charges. This innovative approach fosters economic resilience and promotes shared prosperity. Profit and Risk Sharing: SEDPI’s strategy includes a profit-sharing mechanism that favors labor and participation. Risks are equally shared, fostering collaborative problem-solving and economic resilience, central tenets of the SSE model. Loss Follows Capital: SEDPI’s model ensures that losses, defined as bankruptcy or the nanoenterprise’s decision to liquidate assets, are proportionate to the party’s capital contribution. This system upholds the principles of mutual aid and fairness central to the SSE. Non-Profit damayan:SEDPI provides a non-profit insurance product that places solidarity and protection above income generation. This model strengthens collective resilience and reflects the ethos of SSE. Partnership and Cooperation: SEDPI aims to establish partnerships with government agencies and like-minded organizations. This collaboration aims to bring basic services closer to low-income groups and advances the SSE’s mission of poverty eradication. Social Protection through KaTambayayong
SEDPI’s KaTambayayong (KT) program addresses the unique needs and challenges faced by nanoenterprises, emphasizing the importance of providing adequate, accessible, affordable, and efficient social safety nets. This approach reflects a deep commitment to social protection, a key element of the SSE framework. Understanding the vulnerability of nanoenterprises to natural disasters and the growing impact of climate change, SEDPI KT aims to provide a robust support system. The program offers benefits that cover basic costs or assist in disaster recovery, ensuring that these small businesses can withstand crises and remain operational. SEDPI KT departs from the often tedious and lengthy claims processing typical of traditional for-profit insurance companies. Instead, the program is dedicated to providing near same-day delivery of benefits through a simplified documentation process, ensuring efficient and prompt support. In keeping with the principle of solidarity, SEDPI KT is committed to offering social safety nets that are affordable and within the financial reach of nanoenterprises. This enables more businesses to access the program and enjoy its benefits, enhancing their resilience and stability. SEDPI KT complements existing government social insurance programs – SSS, PhilHealth and Pag-IBIG, bridging gaps in coverage and providing additional support where needed. This cooperative approach underscores the core SSE values of partnership and mutual aid. Fostering a new economic paradigm
SEDPI’s programs embody the principles of the Social and Solidarity Economy, demonstrating that social objectives can be pursued alongside economic goals. By prioritizing mutual aid, shared prosperity, and social justice, SEDPI is contributing to the creation of a more equitable and resilient economy. Their work offers an inspiring model for other organizations seeking to implement SSE principles in their operations.
The significance of the National Health Insurance Program (NHIP) under the Universal Health Care (UHC) Act in the Philippines is undisputable. As a nation, we must ensure that healthcare is both accessible and affordable to every Filipino citizen, particularly those from marginalized sectors.
SEDPI, an organization that champions social investments, nanofinancing, and financial education to alleviate poverty among Filipinos worldwide, is taking a significant stride in this direction. In a recent development, SEDPI entered into a strategic partnership with the Philippine Health Insurance Corporation (PhilHealth), marking a significant step in fortifying its KaTambayayong program.
This alliance with PhilHealth follows the organization’s successful collaborations with Pag-IBIG Fund in 2018 and the Social Security System (SSS) in 2019, enhancing SEDPI’s commitment to providing comprehensive social protection to its members. As SEDPI President and CEO, Vince Rapisura states, “Our partnerships with government agencies aim to bridge the gap in access to social welfare services, especially for marginalized communities.”
In the last six years, the KaTambayayong program has disbursed Php 19.1 million as benefits to its members to cover for death, calamity, medical, fire and accident assistance. As of June 2023 alone, the program has released Php 2.9 million in benefits to 1,199 members. These milestones highlight the program’s commitment to providing an accessible and dependable safety net for nanoenterprises in times of crisis.
The partnership with PhilHealth is poised to amplify the benefits that SEDPI members can avail of. Through the Group Enrollment Program under the NHIP, SEDPI will facilitate the registration of its enrollees, conduct educational campaigns about PhilHealth policies and benefits, and remit their premium contributions, thereby ensuring its members are covered by health insurance.
Looking towards the future, SEDPI aims to further enhance its network of collaborations, with the Department of Social Welfare and Development (DSWD) and the Philippine Statistics Authority (PSA) being the next potential partners. These future partnerships will focus on securing civil identity documents for SEDPI members, further solidifying their access to government services.
Indeed, the partnership between SEDPI and PhilHealth is not just about providing health insurance; it is about empowering Filipino nanoenterprises, reducing poverty, and fostering a healthier nation. This collaboration represents a vital step towards ensuring the well-being of Filipinos, solidifying SEDPI’s commitment to sustainable development and its overarching goal of poverty alleviation.
Across the economic landscape of the developing world, one cannot overlook the proliferation of small scale enterprises that create a significant economic impact at the grassroots level. This intricate tapestry of economic activity, composed of nanoenterprises, microenterprises, and gig economy jobs, holds tremendous potential for poverty alleviation and socio-economic mobility. To unlock this potential, it is imperative to delve deeper into their unique characteristics, operational factors, resilience to risk, and potential for growth and impact.
Nanoenterprises, the smallest economic units, often operate on the margins of the formal economy, usually out of necessity rather than opportunity. They serve local communities, providing essential goods and services, often with limited resources and technological access. On the other end of the spectrum, microenterprises tend to be more established entities that, despite their small size, exhibit opportunity-driven entrepreneurship and contribute significantly to local and national economies.
Occupying an increasingly significant role in the 21st-century economy, gig jobs – driven by the burgeoning digital platform economy – provide flexible employment opportunities for millions. Like nanoenterprises, they primarily cater to the individuals’ survival and livelihood, but they leverage the power of technology to a much greater extent.
This paper provides a comparative overview of these three crucial components of the economic fabric. It unpacks their defining features, elaborates on their market and operational factors, gauges their risk resilience, and appraises their potential impact. By doing so, the study seeks to reveal opportunities for targeted policy interventions and entrepreneurial support programs to bolster these enterprises’ potential to contribute to sustainable development goals and socio-economic betterment.
In the global south, the sheer scale of nanoenterprises underscores their pivotal role in poverty reduction and economic development. As of 2022, an estimated 8.1 million nanoenterprises operate in the Philippines, and Nigeria boasts a staggering 32.8 million of such businesses (Olagboye, 2021). This highlights a potent yet often overlooked economic force in these developing nations.
Despite the mammoth scale of nanoenterprises, their nuanced understanding remains a challenge due to the prevalent practice of grouping them under the microenterprise umbrella. This conflation, common in many developing nations, masks the unique challenges and potential of nanoenterprises, potentially hindering effective policy and intervention design. Distinguishing nanoenterprises from their larger counterparts, microenterprises, and understanding their intersections with gig jobs offers an opportunity for a more targeted, effective approach to sustainable economic development.
In this light, focusing on the growth and resilience of nanoenterprises, coupled with a nuanced understanding of microenterprises and gig economy jobs, can unlock an inclusive economic paradigm. This approach acknowledges and leverages the power of the smallest economic actors to address poverty, arguably one of the most formidable challenges of our times.
This grand scale and potential of nanoenterprises is not unique to the Philippines or Nigeria but resonates across the developing world. Recognizing and understanding this magnitude can spur a more global momentum towards harnessing these enterprises’ potential and integrating them more effectively into sustainable economic development strategies.
This paper serves as a stepping-stone to understanding these enterprises’ multi-layered complexities in the context of the developing world. It sets the stage for an inclusive discourse that acknowledges the unique role and challenges of each sector and propels evidence-based decision-making towards a more inclusive and resilient economy.
Nanoenterprise definition
Chapter 2 delves into the unique landscape of nanoenterprises, dissecting their characteristics and operational dynamics across four crucial categories.
The first category, ‘Enterprise Characteristics’, encapsulates the foundational attributes that define a nanoenterprise. This includes asset size, enterprise registration, the poverty level of owners, motivation for entrepreneurship, education levels and record-keeping habits, and number of employees. These characteristics set the stage for understanding the breadth and depth of nanoenterprises, their constraints, and their operational capabilities.
The second category, ‘Market and Operational Factors’, explores the interaction of nanoenterprises with the market and the operational choices they make. These factors shape the nanoenterprise’s economic footprint and influence their growth trajectory. The access to finance, market participation, use of technology and information, ownership of equipment, capacity for value addition, and the structural dynamics of nanoenterprises fall under this category.
Next, ‘Risk and Resilience Factors’ delve into how nanoenterprises respond to challenges, market shifts, and disasters. Their resilience and flexibility can be pivotal in determining the survival and potential growth of nanoenterprises, especially in volatile economic climates common in the developing world.
Lastly, the ‘Potential and Impact’ category examines the broader socio-economic contribution of nanoenterprises and their growth potential. This section illustrates the role nanoenterprises play in their communities and the larger economy and identifies opportunities for enhancing their economic impact.
Also within Chapter 2, we embark on a crucial comparative analysis. Nanoenterprises, while often subsumed under the broader umbrella of microenterprises, present distinctive characteristics, challenges, and opportunities. The delineation between these two segments of enterprises is imperative to discern for tailoring more effective support interventions and policies.
The comparison also extends to gig economy jobs, an emergent form of livelihood that has grown exponentially in the recent decade. The gig economy, while seemingly disparate from nanoenterprises, offers interesting parallels and contrasts particularly in their resilience to market shifts, flexibility, and the nature of the jobs itself.
This three-way comparison serves not just to highlight the unique attributes of nanoenterprises, but also to illustrate the nuances and fluidity of the entrepreneurship landscape in the contemporary economic milieu. The analysis paves the way for a more refined perspective, challenging traditional classifications and urging for a more dynamic understanding of these small-scale economic activities.
Throughout this chapter, we aim to shed light on the interactions and differentiations between nanoenterprises, microenterprises, and gig economy jobs. Ultimately, our goal is to present a comprehensive picture of their respective roles and potential in fostering inclusive economic growth and poverty alleviation in developing countries.
Enterprise Characteristics
Nanoenterprises
Microenterprises
Gig Economy Jobs
Asset Size
PhP3,000 to PhP150,000
>PhP150,000 to PhP3M
Varies
Enterprise Registration
Mostly Unregistered
Mostly Registered
Typically Unregistered
Poverty Level of Owners
Mostly Poor
Mostly Non-Poor
Poor and Non-Poor
Motivation for Entrepreneurship
Survival and livelihood
Opportunity-seeking and growth
Survival and livelihood
Educational Level/Record Keeping
Lower educational levels and minimal record keeping.
Higher educational levels and better record keeping.
Varies. Some may maintain good records, especially digital gig workers
Number of Employees
0
1 to 9
1 (Self)
In the Philippines, asset size of nanoenterprises generally ranges from PhP3,000 to PhP150,000. This amount is close to nanoenterprises located in developing economies in Asia, Africa and Latin America. This relatively low capital base forms the backbone of a mostly unregistered economic segment largely populated by poor owners.
Driven by survival and livelihood needs, these nanoentrepreneurs typically possess lower educational levels and maintain minimal record keeping – a reflection of their constraints and the informality of their businesses. Furthermore, nanoenterprises usually have no employees, with the owner doing all the operational tasks. Unpaid family members usually help in their livelihood.
In contrast, microenterprises operate on a larger scale, with asset sizes ranging from more than PhP150,000 to PhP3 million. A majority of these businesses are registered, signaling a greater engagement with formal financial and regulatory systems. Microenterprise owners typically fall within the non-poor category and are driven by opportunity-seeking and growth motives rather than mere survival. Reflecting a step up from nanoenterprises, microenterprises are characterized by higher educational levels and better record keeping. Moreover, they provide employment opportunities, supporting between 1 to 9 employees.
Meanwhile, gig economy jobs represent a distinct segment, operating on varied asset sizes and typically functioning as unregistered entities. The poverty level of gig workers spans both poor and non-poor categories, suggesting a wide socioeconomic spectrum within this group. Motivated by survival and livelihood needs, gig workers’ educational level and record-keeping practices vary considerably, largely influenced by the nature of their jobs which are primarily digital or app-based. As the term implies, gig economy jobs predominantly engage the individual worker – the ‘self’ in self-employment, with each gig worker essentially constituting their own ‘enterprise’.
Market and operational factors
Nanoenterprises
Microenterprises
Gig Economy Jobs
Examples
Sari-sari stores, Carinderia, Ambulant vendors, Smallholder farmers and fisherfolks
Small retail stores, manufacturing businesses, service providers.
Rely heavily on loans, mostly from informal sources, making them vulnerable to predatory lending.
Have more access to formal financial services but still face financial constraints.
Usually rely on personal finance and may use digital platforms for fundraising
Market Participation
Limited due to barriers like high cost of raw materials, lack of market information, and outdated technology.
Have better market access but still face challenges such as lack of resources and information.
Varies, could be local or global based on gig platform
Access to Technology and Information
Very Limited (due to unaffordable gadgets and low internet availability and high cost of internet access)
Moderate (may have more access to technology, but still limited due to financial constraints)
High (largely reliant on technology platforms for their services)
Ownership of Equipment
Use rudimentary and obsolete equipment or lease more advanced equipment.
Typically possess better equipment and have ownership.
Owned
Value Addition
Very limited due to high resource constraints.
Can add value through improvements, innovations
Depends on the job, but often limited by platform constraints
Structure
Atomistic, low capacity for coordination
Small Organizational Structure , can coordinate internally and externally
Usually individualistic, coordination varies
Nanoenterprises in the Philippine context take on various forms such as sari-sari stores, carinderias, ambulant vendors, and smallholder farmers and fisherfolks, among others. These enterprises heavily rely on loans, predominantly sourced informally, which makes them susceptible to predatory lending. Their participation in the market is relatively limited due to barriers such as high raw material costs, lack of market information, and use of outdated technology. Access to technology and information is generally very limited, primarily due to the unaffordability of gadgets, and the limited availability and high cost of internet access. As for equipment, nanoenterprises often use rudimentary and obsolete tools, or they lease more advanced equipment when resources permit. The potential for value addition in these businesses is extremely limited, due to their resource constraints. The structure of nanoenterprises is atomistic, with low capacity for coordination due to limited resources and high cognitive load on the entrepreneurs.
On the other hand, microenterprises – such as small retail stores, manufacturing businesses, and service providers – have relatively better access to finance, often availing of formal financial services, albeit still facing financial constraints. Their participation in the market is significantly improved compared to nanoenterprises, though they still encounter challenges such as lack of resources and information. Access to technology and information is moderate, with financial constraints acting as a limiting factor. Microenterprises typically possess better, owned equipment, which facilitates value addition through improvements and innovations. Their organizational structure allows for internal and external coordination, reflecting a degree of organizational maturity.
Gig economy jobs represent a new facet of employment and entrepreneurship. These include delivery riders, ride share drivers, and online freelancers such as graphic artists, video editors, content creators, and writers. Unlike the other two categories, gig workers often rely on personal finance and digital platforms for fundraising. The nature of their market participation varies significantly and can span local to global markets, depending on the gig platform they engage with. Access to technology and information is generally high, as their jobs are largely reliant on technology platforms. In terms of equipment, gig workers typically own their own eqipment, but the potential for value addition is often limited by platform constraints. Gig jobs usually involve individualistic structures with varying degrees of coordination.
Risk and resilience factors
Nanoenterprises
Microenterprises
Gig Economy Jobs
Disaster Resiliency
Very Low
Low
Low
Flexibility
High. Can shut down, re-open or pivot easily as opportunities arise
Medium. May require substantial effort for pivoting
High. Can shift roles/platforms quickly
Agility to Market Shifts
Very Low
Low
Moderate to High, depending on the gig
A critical factor in assessing the potential and vulnerability of nanoenterprises, microenterprises, and gig economy jobs is their level of disaster resilience. In this respect, nanoenterprises exhibit a very low level of disaster resiliency, making them highly vulnerable to various shocks and stressors. Microenterprises and gig economy jobs have slightly higher disaster resiliency, but they still remain at the low end of the spectrum, underscoring the precariousness of their operations in the face of disruptive events.
Another vital aspect is flexibility – the ability to adapt, pivot, or shift in response to changes and opportunities. Nanoenterprises show a high level of flexibility due to their small size and simplicity of operations. They can shut down, reopen, or pivot easily as opportunities or challenges arise. In contrast, microenterprises display medium flexibility, often requiring substantial effort and resources to effect meaningful pivots. Gig economy jobs also exhibit high flexibility, primarily due to the inherent nature of gig work which allows workers to swiftly shift roles or platforms based on demand, personal preferences, or changes in the gig marketplace.
Finally, agility to market shifts is an important indicator of the capacity of these entities to respond quickly and effectively to changes in the market environment. In this regard, nanoenterprises demonstrate very low agility to market shifts, primarily due to their resource constraints, limited market information, and technology gaps. Microenterprises exhibit low agility due to similar reasons, although to a lesser degree given their better resources and market positioning. On the other hand, gig economy jobs display moderate to high agility to market shifts, depending largely on the nature of the gig. Those involved in digital gig work, for instance, can respond relatively quickly to market changes due to their reliance on technology platforms that provide real-time market information and trends.
Potential and impact
Nanoenterprises
Microenterprises
Gig Economy Jobs
Economic Impact
Provide essential goods and services to local communities, foster local economic development.
High (Beyond Community Level) Contribute to local and national economies, can provide employment.
High (Service Sector) Contribute to the economy by providing goods or services
Potential for Growth
Low. Have the potential to grow into more sustainable businesses with proper support and interventions.
Moderate to High. Have more potential for growth due to better resources and market access.
Moderate to High. Growth potential is highly dependent on the individual’s skills, the demand for their services, and their business strategies.
Gender and development
Mostly women who provide for the needs of the household
Mixed (Men and Women)
Mixed (Men and Women)
In terms of economic impact, nanoenterprises play a fundamental role in local communities by providing essential goods and services. Despite their small scale, they help foster local economic development and serve as a significant lifeline for local consumers, especially in remote or underserved areas. On the other hand, microenterprises have a more substantial impact that extends beyond the community level. They not only contribute to local economies but also to the national one, providing employment and enhancing local and regional supply chains. Similarly, gig economy jobs significantly contribute to the economy, especially within the service sector. They provide goods or services, often fulfilling niche demands or offering convenience through digital platforms.
The potential for growth varies across these categories. Nanoenterprises have relatively low growth potential due to their resource constraints and other barriers. However, with proper support and interventions, they could evolve into more sustainable businesses. Microenterprises, on the other hand, have moderate to high potential for growth, attributable to their better resources and market access. Likewise, gig economy jobs offer moderate to high growth potential, highly contingent on the individual’s skills, the demand for their services, and their business strategies.
Examining these categories from a gender and development perspective reveals that nanoenterprises are predominantly owned and run by women, often catering to the household’s needs. This characteristic emphasizes the role of these enterprises in empowering women economically and providing them with a source of income. On the contrary, both microenterprises and gig economy jobs present a more mixed picture with both men and women participating, reflecting the broader societal gender roles in the world of work and entrepreneurship.
Review of related literature
The rise of nano-enterprises as a driving force in the informal economy cannot be overlooked. These entities, defined as non-salaried individuals running their own businesses outside an employment contract framework, often emerge as alternatives for family income generation or due to the absence of formal employment opportunities (Lagunas, 2021). Frequently, nano-entrepreneurs do not opt for the informal economy out of choice; instead, they are pushed by a lack of opportunities in the formal sector and the absence of alternative means of subsistence.
This trend towards nanoenterprise entrepreneurship has attracted academic attention due to its significant influence on the informal sector. Various scholars (Acs, 2006; De la Garma, 2010) have devoted studies to this phenomenon. Entrepreneurship is globally perceived as a tool to combat poverty and unemployment (Sigalia and Carney, 2012; Rodríguez and Palavicini, 2013; Pazmiño, Merchán, and Jiménez, 2018). However, there’s an argument that ventures in the informal economy function more as a survival option than poverty alleviation (Walton and López, 2005; Delgado, Cruz, and Lince, 2019).
Nanoenterprises are typically characterized by individual ownership and operation. Valdés (2004) identifies a nanoentrepreneur as a self-employed worker who independently carries out commercial activities. Lejarriaga (2003), García and Fernández (2005), and Raydán (2010) all concur with this definition, adding that nano-enterprises are typically operated as sole proprietorships. This understanding is reinforced by the European Observatory for SMEs (2018) and the Ministry of Economy and Business of Spain (2002), which classify nano-entrepreneurs as individuals running their own businesses with complete autonomy.
Nonetheless, the classification and criteria for micro, small, and medium-sized enterprises have been criticized for their lack of uniformity globally (McKeown, 2017; Poole, 2018). As Olagboye (2021) proposes, it’s crucial to recognize nano-enterprises as an independent category, separate from micro-enterprises. This is particularly true in Sub-Saharan Africa, where many individual entrepreneurs exist in the informal economy.
The informal economy has long been a point of academic interest, attracting a plethora of terms such as the irregular economy, the subterranean economy, the underground economy, the black economy, the invisible economy, and the shadow economy (Ferman and Ferman, 1973; Gutmann, 1977; Dilnot and Morris, 1981; Simon and Witte, 1982; McCrohan and Smith, 1986; Frey and Schneider, 2000; Charmes, 2012). The consideration of the informal economy as independent of the formal one has led to debates over whether to regulate or eradicate it, especially considering its role as a safety net for the poorest populations (2014b; Williams and Martinez, 2014; Benjamin et al., 2014; Dibben, Wood and Williams, 2015).
Olagboye (2021) defines nano-enterprises as non-employing registered and unregistered businesses operated by a single individual or with the assistance of family members. The author argues that formalizing such enterprises can enhance their legitimacy, promoting them as legitimate contributors to economic growth rather than characterizing them as elements of an illegal economy. In essence, the institutionalization of nanoenterprises, or informal economy enterprises (IEEs), presents an opportunity to shift the paradigm of enterprise development, moving away from a ‘one size fits all’ approach to one that acknowledges the socio-economic peculiarities of different contexts (Olagboye, 2021).
Nanoenterprise development and sustainable development goals
Nanoenterprises (NEs), owing to their unique characteristics and inherent agility, can play a pivotal role in the attainment of several United Nations Sustainable Development Goals (SDGs). Through their economic activities, NEs significantly influence poverty reduction, gender equality, decent work and economic growth, industry innovation, reduced inequalities, responsible consumption and production, and the establishment of global partnerships.
SDG 1: No Poverty
As entities often formed out of necessity, NEs directly contribute to poverty reduction (SDG 1). By creating income opportunities, particularly for those with limited access to formal employment, they provide a means of subsistence and financial independence. Although NEs generally function more as a survival option than as a poverty eradication mechanism, with appropriate support and interventions, they can evolve into sustainable businesses, potentially lifting their proprietors out of poverty.
SDG 5: Gender Equality
NEs also play a crucial role in advancing gender equality (SDG 5). Women constitute a significant proportion of nanoentrepreneurs, utilizing their enterprises to provide for their households and attain financial autonomy. By fostering an environment where women can take the reins of their own businesses, NEs promote gender equality and empower women, two critical aspects of SDG 5.
SDG 8: Decent Work and Economic Growth
SDG 8 calls for the promotion of sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. Although NEs often operate in the informal economy and may not offer the same security as formal employment, they provide a source of income and employment, even for those who might otherwise remain unemployed. With the right institutional and policy support, NEs could potentially transition into the formal economy, promoting decent work and contributing to economic growth.
SDG 9: Industry, Innovation, and Infrastructure
Despite operating with limited resources, NEs often demonstrate a high degree of innovation, a key component of SDG 9. This innovation can manifest in various ways, from novel methods of product delivery to creative ways of accessing markets or minimizing costs. While NEs may not contribute significantly to infrastructure development directly, their resilience and growth can spur the need for improved infrastructure, thereby indirectly influencing this aspect of SDG 9.
SDG 10: Reduced Inequalities
NEs inherently foster inclusivity, offering business opportunities to individuals regardless of their social or economic status. In doing so, they play a part in reducing inequalities (SDG 10) by providing avenues for income generation for individuals across the socioeconomic spectrum.
SDG 12: Responsible Consumption and Production
Given their size and scale, NEs can contribute to SDG 12 by promoting responsible consumption and production. They often source materials locally, reducing transport emissions, and due to their small-scale operations, they may generate less waste than larger companies. NEs also have the potential to foster responsible consumption habits within local communities, given their proximity to their customer base.
SDG 17: Partnerships for the Goals
Finally, NEs have the potential to contribute to SDG 17 by establishing partnerships with various stakeholders, including other businesses, non-profit organizations, and local governments. These partnerships can foster knowledge sharing, collaboration, and the pooling of resources, enhancing the capacity of NEs to achieve sustainable growth and contribute to other SDGs.
In conclusion, the development and support of NEs could serve as a multi-faceted strategy for achieving several of the SDGs. Although challenges exist, with the right policy and institutional support, NEs have the potential to contribute significantly to sustainable development.
Further research
The Imperative of State-led Social Safety Nets for Nanoenterprises: Directions for Further Research
As we delve further into the role and potential of Nanoenterprises (NEs) in socioeconomic development, a pertinent area that warrants in-depth exploration is the provision of social safety nets by governments. More specifically, the need for state-backed health and disaster risk mitigation measures for these enterprises. While private sector participation is crucial, the foundation of these safety nets must be laid and sustained by the state for several reasons.
Ensuring Equal Access and Coverage
State-led safety nets ensure universal access and coverage, particularly for NEs operating in remote or marginalized areas, or those run by individuals who may otherwise be excluded from private sector services due to factors such as low income or lack of collateral. Governments, unlike private organizations, are obligated to provide services to all constituents, ensuring that the most vulnerable NEs are not left unprotected.
Promoting Business Continuity and Resilience
Social safety nets, particularly in health and disaster risk mitigation, promote business continuity and resilience in the face of adversities. NEs, given their small scale and limited resources, are often the most affected by health crises or natural disasters. By providing support in these areas, governments can ensure that NEs can recover from setbacks more effectively and continue to contribute to the economy.
Reducing Financial Vulnerability
NEs are often financially vulnerable, and unexpected costs such as healthcare expenses or disaster-related losses can push them further into poverty. State-provided safety nets can reduce this financial vulnerability, allowing nanoentrepreneurs to invest in their businesses rather than spending their resources on coping with such shocks.
Encouraging Formalization
The provision of social safety nets by the state can serve as an incentive for NEs to formalize. This could, in turn, open doors for them to access other forms of support such as training, funding, and business development services, ultimately contributing to their growth and sustainability.
Future research should focus on the design and implementation of these social safety nets. How can they be made most effective for NEs? How should they be delivered to ensure maximum reach? What role can technology play in their deployment? How can they be financed sustainably? Answering these and other questions will help in devising policies and strategies that will ensure NEs, despite their size, can contribute significantly to the economy while also guaranteeing the welfare of those who run them.
Moreover, there should be a keen interest in studying the partnership dynamics between the state and the private sector in providing these safety nets. Such research would shed light on the potential synergies and areas of conflict, enabling a smoother and more effective collaboration between these two important stakeholders in supporting NEs.
Further research in this area is necessary to not only provide a deeper understanding of the needs and challenges of NEs but also to inform policy decisions and guide the development of programs aimed at supporting these vital economic entities.
Private Sector Intervention for Coordination and Consolidation
Another compelling area of inquiry concerns the role the private sector can play in fostering coordination and consolidation to enhance market access for both suppliers and buyers. Particularly, there’s an opportunity for large corporations to form partnerships with Nanoenterprises (NEs), focusing on local sourcing of raw materials rather than importation. These partnerships could reduce the carbon footprint of businesses, stimulate local economies, and foster sustainable development.
Despite the potential capital-intensive nature of these partnerships in the short-term, the long-term benefits to the local economy and the environment are undeniable. State intervention in the form of subsidies and incentives could be essential in promoting such partnerships.
Technology Transfer and Capacity Building
Large corporations often possess advanced technologies and technical know-how that can significantly enhance the productivity and efficiency of NEs. Partnerships between large corporations and NEs can provide an avenue for technology transfer and capacity building, leading to improved output and competitiveness of NEs.
Supply Chain Integration
NEs can be integrated into the supply chains of larger corporations, providing a steady and reliable market for their products or services. This can improve their financial stability, encourage growth, and create employment opportunities.
Financial Support and Investment
Larger corporations could provide much-needed financial support and investment to NEs. This could be in the form of direct funding, or indirectly through facilitating access to credit and other financial services. Such financial support can be crucial for NEs to scale up their operations and enter new markets.
Infrastructure Development
Partnerships with large corporations could also lead to infrastructure development in areas where NEs operate. This can include physical infrastructure like roads and utilities, as well as digital infrastructure like internet connectivity, which can open up new opportunities for NEs.
Further research is needed to understand the most effective ways of fostering these partnerships, the potential barriers and how they can be overcome, and the impact of such partnerships on the economic sustainability of NEs. It would also be beneficial to explore the role of government in facilitating these partnerships, and the types of policies and incentives that could encourage more large corporations to partner with NEs.
Moreover, future studies could also focus on the role of social enterprises and NGOs in bridging the gap between NEs and large corporations, and how these organizations can collaborate with governments to promote inclusive and sustainable economic growth.
Case Study of SEDPI’s Ethical Financing and Social Safety Nets: Opportunities for Research
A third potential area for research is an in-depth case study of the Social Enterprise Development Partnerships, Inc. (SEDPI) model of microfinance services to Nanoenterprises (NEs). SEDPI’s pioneering work in the field of ethical financing and social safety nets for NEs has led to reduced default rates, and the successful expansion of its branch network and outreach.
SEDPI operates under six foundational principles: financial education, capital infusion rather than loans, profit and risk sharing, loss follows capital, non-profit insurance product, and partnership and cooperation. These principles provide a solid basis for a transformative approach to microfinance that is equitable, empowering, and sustainable.
Impact of Financial Education
An investigation could assess the impact of intensive savings mobilization, universal insurance coverage, provision of investment opportunities, and liberation from oppressive loan products on the economic resilience and sustainability of NEs.
Capital Infusion versus Traditional Loans
Research could compare and contrast the effectiveness of capital infusion versus traditional loans in promoting the growth and sustainability of NEs. It could also examine the benefits and challenges of SEDPI’s co-ownership business partnership model.
Profit and Risk Sharing
An evaluation could be made of the impact of SEDPI’s profit and risk sharing mechanism on the viability of NEs, and how this approach differs from conventional loan systems where debtors shoulder all the risks.
Non-Profit Insurance Product:
A study could analyze the success of SEDPI’s non-profit insurance product, and how this approach to insurance contrasts with profit-oriented models.
Partnership and Cooperation
An exploration could be undertaken of SEDPI’s partnerships with government agencies, civil society, and other like-minded organizations. This research could analyze how these partnerships have contributed to the organization’s success, and what lessons can be learned for other organizations aiming to serve NEs.
In sum, this case study would provide valuable insights into how social safety nets can strengthen the capacity of NEs to cope with emergencies and disasters. By examining how SEDPI’s model has led to lower default rates and enabled the organization to expand its services, this research could inform the development of strategies and policies aimed at promoting sustainable and inclusive economic growth.
Nitong ika-16 ng Marso, 2023, nagsagawa ang Social Enterprise Development Partnerships Inc. (SEDPI) ng relief operations sa mga lugar na apektado ng Low Pressure Area sa Carmen, Davao del Norte at Prosperidad, Agusan del Sur. Ang organisasyon ay tumugon sa mga pangangailangan ng mga tao sa mga apektadong lugar sa pamamagitan ng SEDPI KaTambayayong na isang uri ng damayan system.
Batay sa datos na nakalap ng SEDPI, apektado ang 193 sa 1,097 members sa Carmen, Davao del Norte, habang sa Prosperidad, Agusan del Sur ay 38 sa 1,251 members ang apektado ng Low Pressure Area. Ayon sa mga members sa lugar, umabot ang tubig hanggang bewang at leeg. Karamihan sa mga residente ay pansamantalang tumira sa mga kalsada at sa municipal gymnasium bilang evacuation center.
Nagbibigay ang SEDPI KaTambayayong ng life, sickness, calamity, fire, funeral, at accident assistance benefits. Kasama sa calamity benefit ang relief goods at PhP250 cash. Ang mga benefits na ito ay karaniwang naibibigat sa mga members sa loob lamang ng isa o dalawang araw, na labis na mas mabilis kumpara sa 3 hanggang 6 na buwan na claims processing ng karaniwang insurance company. Ang mga benepisyong ito ay eksklusibo lamang sa SEDPI members at maaring nagbabago depende sa nakolektang pondo. Noong 2021 at 2022, umabot sa PhP4.6M at 5.9M ang kabuuang naipamigay na benepisyo sa mga SEDPI KaTambayayong members.
Bagaman umabot na ang relief operations sa mga lugar na ito, hindi pa rin sapat ang mga tulong na ipinagkakaloob upang tugunan ang lahat ng pangangailangan ng mga apektadong residente. Kailangan ng mga solusyong tumutugon sa pinagmumulan mismo ng problema. Una na rito ang paglipat sa mga residente mula sa mga hazard prone areas papunta sa mga safe zones. Pangalawa, ang pagbibigay ng abot-kayang pabahay sa mga residente. At pangatlo, ang pagkakaroon ng disenyo ng bahay na angkop sa lugar at sa kalamidad.
Upang matulungan ang mga miyembro nito, ang SEDPI ay kasalukuyang nagsasagawa ng socialized housing, SEDPI Building Adequate Livable Affordable and Inclusive (BALAI) communities, na naglalayong magbigay ng maayos at disaster resilient housing sa mga low-income members. Ang organisasyon ay nakikipagtulungan din sa pamahalaan, social investors, at civic organizations upang magbigay ng abot-kayang pabahay sa mga nangangailangan.
Update 18 of SEDPI’s Rapid Community Assessment (RCA) October – December 2022
As the world slowly recovers from the pandemic, the economic landscape remains uncertain, especially for nanoenterprises. A recent survey conducted by our organization, Social Enterprise Development Partnerships, Inc. (SEDPI), reveals that 99% of nanoenterprises have resumed operations as of December 2022, indicating a promising recovery for this crucial sector of the economy.
Despite the positive news, recovery remains fragile with 52% of nanoenterprises surveyed experiencing weak demand. Access to supplies has been a continuing concern with 27% of nanoenterprises still reporting difficulties in obtaining the necessary supplies.
SEDPI’s latest self-rated poverty survey reveals that the impact of the pandemic on poverty levels remains significant. For 2022, 54% of respondents rated themselves at the poverty line, a decrease from 81% in 2021. The number of respondents who rated themselves as poor is steady at 3% and 4%. On a positive note, the number of respondents who no longer consider themselves poor nearly tripled from 16% in 2021 to 41% in 2022.
According to the Social Weather Stations, which conducts the survey at the national level, self-rated poverty was recorded at 48% in 2021 and 51% in 2022. The considerably elevated self-rated poverty at the national level suggest that a greater number of nanoenterprises that SEDPI serves experienced better economic conditions.
Over the past three years, SEDPI has conducted an impact assessment to evaluate its support for nanoenterprises through self-evaluation or perception surveys. The results are as follows:
Dec 19
Dec 21
Dec 22
Help in growing business
82%
100%
98%
Education of children
70%
85%
98%
Improve housing
67%
99%
98%
Improve nutrition
81%
100%
100%
Increase income
82%
100%
97%
The perception survey suggests that SEDPI’s assistance plays a crucial role in alleviating hardships among nanoenterprises in areas such as business growth, education, housing, nutrition, and income. This may be the reason why the highly significantly lower self-rated poverty data among SEDPI nanoenterprises compared to the national survey. Additional interventions and strategies in the areas of disaster risk reduction, housing and health are necessary to enable a more comprehensive and lasting escape from poverty.
The majority of respondents are nanoenterprises (45%), owned and operated by women, with an average age of 43 and 73% being married. Of these nanoenterprises, 40% rely on other sources of income, such as employment, while 12% are unpaid family members, and 2% are unemployed.
SEDPI is a microfinance institution dedicated to providing ethical financing to nanoenterprises in Agusan del Sur, Davao de Oro, Davao del Norte, and Surigao del Sur. Their efforts have led to significant improvements in various aspects of the beneficiaries’ lives, such as business growth, education, housing, nutrition, and income.
The COVID-19 pandemic has had a profound impact on nanoenterprises (NEs) worldwide, with various stages of recovery, demand trends, and access to supplies experienced throughout the course of the pandemic. This article examines the chronological analysis of NEs’ recovery, demand trends, and access to supplies from March 2020 to December 2022, based on the Rapid Community Assessment conducted by the Social Enterprise Development Partnerships, Inc. (SEDPI). By analyzing these trends, we can better understand the challenges faced by NEs and the factors contributing to their resilience and adaptability.
March 2020: Initial Pandemic Impact, Demand Shift, and Supply Chain Disruptions
At the beginning of the COVID-19 pandemic in March 2020, 34% of NEs stopped their operations due to lockdowns and social distancing measures, while 66% resumed operations. Demand was characterized by 8% of NEs experiencing no buyers, 78% experiencing weak demand, and 13% witnessing strong demand, as consumers’ priorities shifted towards essential goods and services. Supply chain disruptions affected NEs, with 36% facing difficult access to supplies and 64% having access to necessary resources.
June 2020: Early Recovery, Persistent Weak Demand, and Supply Chain Struggles
In June 2020, the recovery of NEs continued, with 91% resuming operations and only 9% remaining closed. However, demand remained weak, with 7% of NEs having no buyers, 72% facing weak demand, and 21% enjoying strong demand. Access to supplies was a significant challenge, as 81% of NEs had adequate access while 19% faced difficulties due to ongoing supply chain disruptions caused by the pandemic.
December 2020: Relief, Recovery, Improved Demand, and Better Supply Access Amid Typhoon Vicky’s Impact
By December 2020, government relief packages and easing of lockdown restrictions helped many NEs recover, with 3% remaining closed and 96% resuming operations. Demand improved slightly, with 4% of NEs having no buyers, 75% facing weak demand, and 21% enjoying strong demand. The holiday season likely contributed to increased consumer spending. Access to supplies significantly improved, with 90% of NEs having access and only 10% experiencing difficulties.
However, during this period, Typhoon Vicky hit the region, causing agricultural production losses in rice, corn, high-value crops, and livestock. The typhoon also triggered floods and landslides, resulting in damaged or destroyed homes in coastal areas. The natural disaster added challenges to the recovery process of nanoenterprises, particularly those in the affected areas and those dependent on agricultural production. Although the overall trend in December 2020 indicated progress in recovery, improved demand, and better access to supplies for nanoenterprises, the recovery would have been even more significant if not for the added challenges brought about by Typhoon Vicky.
March 2021: Steady Recovery, Increased Strong Demand, and Improved Supply Access
By March 2021, the situation for NEs had improved, with 97% resuming operations and only 3% remaining closed. Demand patterns shifted, with only 1% of NEs having no buyers, 52% experiencing weak demand, and 47% enjoying strong demand, likely due to the easing of restrictions and ongoing vaccination campaigns. Access to supplies improved, with 73% of NEs having adequate access and 27% still facing difficulties.
June 2021: Full Recovery, Diverse Demand, and Enhanced Access to Supplies
By June 2021, 100% of NEs resumed operations, marking a full recovery in this period. Demand varied, with 2% of NEs having no buyers, 64% facing weak demand, and 34% experiencing strong demand. Access to supplies continued to improve, with 82% of NEs having adequate access and only 18% facing difficulties.
September 2021: Delta Variant Surge, Granular Lockdowns, and Nanoenterprise Adaptation
In September 2021, the Delta variant surged in the Philippines, prompting the government to implement granular lockdowns as opposed to the general lockdowns previously imposed. This new approach aimed to prevent the wholesale disruption of jobs and livelihoods while still addressing the public health crisis. Despite the surge and the implementation of granular lockdowns, 96% of NEs continued to operate, while only 4% temporarily stopped their operations.
Demand patterns during this period fluctuated, with 12% of NEs having no buyers, 66% experiencing weak demand, and 22% witnessing strong demand. As the granular lockdowns targeted specific areas with high infection rates, many nanoenterprises had to quickly adapt to the changing circumstances and market conditions. Access to supplies remained relatively stable, with 77% of NEs having adequate access and 23% facing difficulties.
The September 2021 period demonstrated the resilience of nanoenterprises in the face of new challenges posed by the Delta variant and the government’s shift in lockdown strategy. Despite the hurdles, the sector continued to adapt and maintain its operations, contributing to the nation’s economic recovery.
December 2021: Continued Recovery, Increased Strong Demand, and Moderate Access to Supplies
By December 2021, widespread vaccination campaigns allowed for more relaxed social distancing measures and a resurgence in consumer demand. The percentage of stopped NEs remained at 3%, while 97% resumed operations. Demand for NE products and services further improved, with 9% of NEs having no buyers, 65% facing weak demand, and 26% experiencing strong demand. Access to supplies became more moderate, with 77% of NEs having access and 23% facing difficulties.
March 2022: Steady Operations, Persistent Weak Demand, and Improved Access to Supplies
By March 2022, the status of operations remained consistent, with 4% of NEs stopped and 96% resumed operations. Demand continued to lean towards weakness, as 8% of NEs had no buyers, 67% faced weak demand, and 26% experienced strong demand. However, access to supplies significantly improved, with 85% of NEs having access and only 15% facing difficulties.
September 2022: Temporary Setbacks, Fluctuating Demand, and Slightly Reduced Access to Supplies
In September 2022, the temporary increase in stopped NEs to 4% could be attributed to localized outbreaks and new COVID-19 variants. Despite these setbacks, 96% of NEs remained operational. However, demand patterns fluctuated, with 15% of NEs having no buyers, 36% experiencing weak demand, and 49% witnessing strong demand. Access to supplies slightly declined, with 73% of NEs having access and 27% facing difficulties.
December 2022: High Inflation Impact on Nanoenterprises, Demand Patterns, and Purchasing Power
In December 2022, the Philippines’ headline inflation increased to 8.1 percent, as reported by the Philippine Statistics Authority (PSA). The high inflation rate led to a decrease in purchasing power, resulting in reduced consumer spending, particularly among low-income households. Despite the inflationary pressures, 99% of NEs remained operational, while only 1% stopped their operations, showcasing the resilience of the sector.
Compared to September 2022, when 36% of NEs faced weak demand, the percentage increased to 52% in December 2022, illustrating the heightened challenges for these enterprises due to reduced consumer spending amid high inflation. The decreased purchasing power of consumers, especially in low-income households, contributed to the fluctuations in demand patterns for nanoenterprises.
Access to supplies remained relatively stable, with 73% of NEs having access to necessary resources and 27% facing difficulties in acquiring them. The December 2022 period highlighted the challenges faced by nanoenterprises due to high inflation and its impact on consumer spending, while also demonstrating the adaptability of the sector in sustaining operations amid economic challenges.
Conclusion:
Throughout the COVID-19 pandemic and various external challenges, such as natural disasters and high inflation, nanoenterprises have consistently demonstrated resilience and adaptability in maintaining operations, responding to fluctuating demand, and navigating supply chain disruptions. As of December 2022, the sector has reached a near full recovery, with stabilizing demand patterns and steady access to supplies. The findings from SEDPI’s Rapid Community Assessment underscore the importance of continued support and empowerment for nanoenterprises, as they play a crucial role in local economies and communities. As the world moves forward from the pandemic’s impact, fostering collaboration between government, business, and community organizations will remain vital in ensuring the sustained success and growth of nanoenterprises in the face of ongoing and future challenges.
Respondents:
In December 2022, the Rapid Community Assessment (RCA) conducted by SEDPI garnered responses from 1,398 respondents across the provinces of Agusan del Sur, Davao de Oro, Davao del Norte, and Surigao del Sur. The profile of respondents in this edition of the survey was similar to that of previous editions. The majority of respondents were female (86%), with an average age of 43, and 73% of them were married. When it came to sources of income, 40% were employed, 45% were nanoenterprise owners, 12% were unpaid family members contributing to the family business, and 2% were unemployed.
Nanoenterprises are typically unregistered livelihoods of self-employed individuals or informal solo-preneurs with asset size ranging from PhP3,000 to PhP150,000. 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. There are approximately 8.1 million nanoenterprises in the Philippines as of 2022.[1]
Most government programs and private sector engagement fall under the banner of microenterprises, that grossly misrepresents the needs and largely excludes the magnitude of nanoenterprises. 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.[2]
There are 30 million Filipinos considered as poor based on a survey the Department of Social Welfare and Development conducted in 2022.[3] 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.[4]
The table below is a brief summary that compares and contrasts nanoenterprises from microenterprises.[5]
Nanoenterprise
Microenterprise
Assets
PhP3,000 to PhP150K
>PhP150K to PhP3M
Employees
0
1 to 9
Approximate number
8,100,000
1,000,000
Enterprise registration
Mostly unregistered
Mostly registered
Economic status
Mostly poor
Mostly non-poor
This paper attempts to provide a more comprehensive profile of nanoenterprises in terms of the following: livelihood characteristics, access to finance, market participation, coping mechanisms in times of emergencies – climate crisis and disasters, digital inclusion, and access to government programs and services.
Livelihood characteristics
Examples of nanoenterprises include sari-sari stores operators, carinderia, small holder farmers and fisherfolks, dressmakers, and ambulant vendors. Those who participate in the gig economy are also largely considered as nanoenterprises such as delivery riders, and ride share drivers. Freelancers could also be considered as nanoenterprise such as graphic artists, video editors, content creators, writers etc.
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.
Most nanoentarprises are individuals who typically have low educational levels and hardly maintain bookkeeping records. Microenterprises typically have higher educational levels compared to nanoenterprises and could maintain some level of record keeping. Microenterprises also pay business permits and taxes that nanoenterprises hardly pay since they are mostly unregistered.
Both nano and microenterprises lack managerial and technical skills to grow their livelihood and are forced to be entrepreneurs due to lack of employment opportunities. They also have limited access to technology, information and financing that leads to low productivity and low product quality.
Access to finance
Nanoenterprises heavily rely on loans to afford basic needs – food, education, shelter utilities – and recover from a disaster. Loans are also typically used to grow their livelihoods and to finance major life events such wedding, anniversaries and death.
NEs typically access loans from informal sources which make them vulnerable to predatory financing practices. Aside from this, most of them also borrow money from cooperatives, rural banks, microfinance NGOs and pawnshops. Majority also borrow from family and friends albeit in limited amounts.
This goes to show how NEs are trapped in debt. There are very few savings and insurance products available in the market that cater to their needs and preferences – simple, fast, accessible and affordable. Savings and insurance products are more appropriate for disaster risk mitigation and financing major life events. Microfinance institutions, in their continuous drive for growth and profitability, aim to increase their loan portfolio. It is also far simpler for MFIs to offer loans and gain profit to address NE needs compared to designing savings and insurance products for profit that address the same. This are the reasons why most MFIs use loans as the financial product to address livelihood needs, coping in times of emergencies and financing major life events.
It has been shown that low-income individuals can save and will pay premium for insurance if these financial products are designed according to their needs and preferences.[6] Most NEs have extremely limited savings and insurance coverage due to the lack of financial product that directly cater to their needs and preferences.
On average, nanoenterprises borrow a small sum of money ranging from PhP3,000 to PhP20,000 to finance their livelihoods. Although in the proposed definition of naneoneterprises, their loans could be up to PhP150,000.[7]
Microfinance institutions offer them short-term, collateral-free loans to them usually payable in three to six months with interest rates ranging from 2% to 5% per month. SEDPI, a microfinance institution, has a loan portfolio composed of 95.7% with less than PhP20,000 in terms of loan size. Four percent (4%) of loans extended are greater than Php20,000 but less than PhP50,000. A miniscule 0.3% have loans greater than PhP50,000.
Market participation
High cost of raw materials, labor, limited market access, lack of market information, outdated technology, inadequate services and infrastructure hampers overall business environment of NEs. The poor are more than mere victims of circumstance. They are creative individuals. A major barrier preventing NEs from exiting poverty is the problematic market environment. An effective development strategy is to remove the barriers that stand in the way of NE’s ability to help themselves and enhance their ability to participate in markets.
Developing markets and improvements in market linkages and market infrastructure will strengthen the participation of NEs in value chains. The government and development organizations should design programs that lead to sustainable solutions. These interventions should be designed using the following development principles – achieves high impact, specific and focused interventions, sustainable, cost-effective and market-driven.[8]
Coping mechanisms in times of emergencies
The Philippines topped the world disaster risk index in 2022. The Philippines scored high in its exposure, vulnerability, susceptibility, lack of coping capacities, and lack of adaptive capacities in the face of disasters.[9] Impacts of climate change and the global economic crisis are compounding the threats faced by people living in poverty around the world.[10]
The top coping mechanisms, pre-pandemic, of NEs in times of extreme natural events are accessing loans, finding additional work, asking for help from family members, assistance from government and charitable institutions, and selling of assets. Other coping mechanisms mentioned were saving, praying, damayan ang insurance.[11]
Loans topping the coping mechanisms is not surprising but a lot are not aware that this is not good for one’s financial health. Loans should be used for productive purposes only, a cardinal rule when borrowing money. In times of emergencies, loans will be used for consumption – to buy food, rebuild or repair houses, medicines for the sick etc. The loan purpose is not bad but the financial product used is incompatible with the purpose. There is no return from the loan use and loans accessed in times of emergencies typically have high interest rates.
The appropriate financial tool used should be insurance and savings. It is a stark contrast that these two are at the bottom of the coping mechanism strategies of the poor while accessing loans is on top. Insurance is specifically design as a protection strategy against emergencies and external shocks. Savings on the other hand provides a cushion or a buffer to smoothen the impact of financial shocks.
The pandemic made matters worse for NEs since this added to their vulnerabilities – extreme natural events due to the effects of climate crisis. During this period, the coping mechanisms of NEs changed. This time the top coping mechanism used was getting assistance from the government. This was followed by insurance, savings, accessing loans, damayan and distress selling of assets.[12] When strict lockdowns were enforced, NEs could not operate their livelihoods that’s why they did not seek loans as a top coping mechanism. Finding additional work was not mentioned as a coping mechanism unlike before the pandemic. Mobility restrictions imposed during lockdowns prevented NEs from working.
Insurance and savings ranked higher in the coping strategies during the pandemic which is an improvement when these two were at the bottom before the pandemic. This is because microfinance institutions offering savings and insurance products have already penetrated all municipalities in the Philippines. There was less market penetration a decade earlier that made these products inaccessible then.
Although access to savings and insurance products already improved, there are still opportunities for improvement to make these more effective. For example, microfinance institutions should promote savings mobilization rather than provision of higher loan amounts to finance the growth of NEs. MFIs should not merely treat savings from its borrowers as collateral to loans but also a means to smoothen expenditures especially in times of emergencies.
Insurance products for NEs could be improved by offering coverage for disasters that would enable them to restart their livelihoods so that NEs need not be too dependent on loans. Turnaround time in processing claims could also be improved from current practices which takes months due to voluminous documentary requirements. These all could be simplified through streamlining processes and procedures.
Digital inclusion
The Philippines has been dubbed as the social media capital of the world. Meltwater, an Oslo-based social listening and social media analytics company, ranks the Philippines as second in the world in terms of social media use.[13]However, this social media use does not seem to translate to positive economic changes, especially to the poor.
Digital Inclusion refers to the activities necessary to ensure that all individuals and communities, including the most disadvantaged, have access to and use of Information and Communication Technologies (ICTs).[14] Internet access and ownership of gadgets are therefore important in order to take advantage of opportunities in the digital age. This is where the challenge starts for NEs since only 40% of them have access to the internet, 52% of have smart phones and only 8% have laptops.[15] Aside from this, there is also the challenge of the cost of smart phones and internet subscription. NEs, especially in the rural areas, have difficulty getting mobile phone signals due to lack of infrastructure.[16] Not owning a phone, having basic phones and limited access to the internet prevents NEs from accessing information and taking advantage of opportunities online.
These ICT challenges of NEs constrained their participation in e-commerce. SEDPI’s research shows that in 2022 only 19% of NEs are into online selling and 13% buy products online. There was a short-lived participation in e-commerce in 2021 but this was not sustained due to the lifting of mobility restrictions and high cost of deliveries of products ordered online.[17]
Digital financial inclusion among NEs is low. Only 23% of them have bank accounts, 3% have mobile wallets and 3% know how to do online banking.[18]
Access to government programs and services.
At the personal level, they also lack civil registry documents such as birth certificates and marriage certificates that makes it challenging for them to access government welfare services such as SSS, Pag-IBIG and PhilHealth. These civil registry documents are typically required to get government identification cards such as a driver’s license, voter’s ID, passports. These government-issued identification cards are then required to apply for membership in SSS, Pag-IBIG, PhilHealth and other government programs.
Due to the lack of government-issued identification cards, NEs experienced delays in getting the cash assistance program the government provided to its citizens during the pandemic. Lockdowns started on March 14, 2020.[19] A month after, only 60% of NEs under SEDPI received cash assistance. This improved to 98% by the end of the month when local government units started easing requirements.[20]
As of May 2021, there are 3.36M self-employed individuals who are members of the SSS. This is the membership classification where NEs fall. However, they comprise minority since self-employed members also include professionals, proprietors of businesses, farmers, fisherfolks and the informal sector. Even if the 3.36M self-employed members of SSS were all considered as NEs, this will only make up 41% of the 8.1M estimated NEs.
Nanoenterprises lack support from the government because they are lumped with the microenterprise sector. Nano and microenterprises clearly have different profile, behavior and needs. Microenterprises are defined as having up to Php150,000 in assets as defined under the Republic Act 8425 (Social Reform Agenda) and Republic Act 10693 (Microfinance NGO Act). However, the Bangko Sentral ng Pilipinas defines loans extended to microenterprises at a maximum of PhP300,000. Meanwhile, the Department of Trade of Industry defines microenterprises as entities with up to PhP3M in assets.
In reality, MFIs serve mostly NEs, who are considered mostly poor, but have financial products and services designed for MEs, who are considered mostly non-poor. Financial products designed for microenterprises focus more on repayment history, capacity to pay and using savings as collateral. These designs are inappropriate for NEs since they face more vulnerabilities. There should be more social safety net mechanisms for financial product designed for NEs such as using savings for emergency purposes, capacity building for livelihood development, insurance coverage for disasters and subsidies from the government.
The inconsistencies in the definition of various government agencies on what microenterprises are, barring the fact that nanoenterprises are rendered invisible, leads to ineffective and inappropriate policies and programs. Microfinance institutions design their financial products and services according to the criteria set by government financial institutions geared towards microenterprises. Thus, the needs and financial product preferences of NEs are not addressed which may explain why they have a hard time escaping poverty.
Way forward
Making nanoenterprises separate and distinct from microenterprises 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.
A more robust welfare and social safety net programs should be in place to allow NEs to not just cope or survive in their current situation but to recover and thrive to transition as a micro or even a small enterprise. This strategy would complement existing market-based approaches that would reduce vulnerabilities of NEs.
The sheer number of nanoenterprises as distinguished from microenterprises should make them more visible to the government and private sector. Upscaling nanoenterprises renders tremendous multiplier effect. If NEs eventually transition as MEs, they will provide employment that starts at the bottom of the pyramid. They should be recognized as a pillar in socio-economic development since lifting them out of poverty will propel the Philippines to a developed country through inclusive growth.
[11] Based on SEDPI’s research conducted in 2008 with Opportunity International, 2014 with Cordaid and 2015 with People In Need. There were 79 FGDs conducted all over the Philippines.
[12] SEDPI conducted a research in 2020 in CARAGA region to determine coping mechanisms used by NEs during the pandemic.
