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Participation of grassroots-led microenterprises in value chains

Most grassroots-led organizations are microenterprises or belong to the informal sector. These organizations may or may not be registered.

Table 1. Grassroots-led organizations and government agency responsible for registration

OrganizationGovernment agency
People’s organizations and associationsDepartment of Labor and Employment
Non-stock, non-profit foundationsSecurities and Exchange Commission
CooperativesCooperative Development Authority
Agrarian Reform Beneficiary OrganizationsDepartment of Agrarian Reform
Indigenous CommunityNational Commission on Indigenous Peoples

Members of grassroots-led organizations typically have the following characteristics[1]:

  • Low educational levels
  • Small scale production or service delivery operations
  • Use rudimentary or obsolete equipment
  • Few employees, mostly temporary unpaid family members
  • Basic or no business records
  • No marketable collateral to offer
  • No access to formal sources of credit or no credit history
  • Active participation in informal sources of credit (traders, five-sixers, financiers)
  • Multiple sources of income/ income generation activities

Due to the characteristics of its members, grassroots-led organizations are isolated and unable to effectively participate in value chains. Their lack of capital brings about inappropriate or nonexistent tools, machinery or technology that leads to the inability to produce products and services to buyer specifications especially in higher value markets. Lack of technical skills and lack of information on product demand adds to their difficulty to integrate in the value chain.

Grassroots-led organizations have limited market access due to their weak link to large buyers, marketing organizations and brokers. They lack marketing techniques and methods have product distribution is confined to low value markets in rural areas. High transportation cost and lack of infrastructure hinders them to meet marked demands and opportunities.

Management and competency skills are limited that lead to their inability to organize for economies of scale. This also leads to their inability to effectively communicate and negotiate with value chain players. and are in need of capacity building interventions.

Financial products from formal financial institutions and government programs focus on credit that effectively passes on all market inefficiencies mentioned above on the shoulders of grassroots-led organizations. They ultimately pay the price and absorb the risks associated with these inefficiencies and inequality. Very limited innovative financing schemes are available to enable them to get a headstart and effectively compete in the market.

 

 

[1] Virola, Romulo et.al., Official Poverty Statistics in the Philippines: Methodology and 2003 Estimates, NSCB Technical Paper, March 5, 2005; APEC Center for Technology Exchange and Training for Small and Medium Enterprises

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