United Nations Conference on Trade and Development (UNCTAD) said, “there can be little doubt that rising debt and financial vulnerabilities in the developing world currently are fast turning into a formidable obstacle for sustainable development.” Global financial crises were always centered on debt.
Microenterprises access debt through microfinance and as part of the global financial system, share in the global debt crisis. Microcredit in microfinance institutions use debt as a development tool with the end goal of lifting millions out of poverty. After almost four decades of microfinance, millions are still in poverty with even more debt burden.
In the early 2000s, SEDPI’s research showed that microfinance clients borrow from an average of 2-3 microfinance institutions. This jumped to 4-5 microfinance institutions in 2020. There is so much debt but very little progress is seen in poverty eradication.
On February 14, 2020, SEDPI decided to shift from conventional microfinance to micro impact investing where the primary strategy is to veer away from using loans, debt or credit as a development tool. The aim is to eradicate debt burden in low income households and transform them as real partners in business and development.
We originally referred to it as “social” microfinance to distinguish it from conventional microfinance but micro impact investing captures this new and innovative way of providing financial services to microenterprises.
The Global Impact Investing Network defines impact investments as investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. SEDPI does this at the nano and micro levels in contrast with the network’s focus on large institutional funds.
SEDPI mobilizes social investments from social investors who are also belong to the marginalized sector – Overseas Filipino Workers who are mostly domestic workers, factory workers or entry level employees abroad. Investments are pooled to provide capital to nanoenterprises and microenterprises using a set of principles.
The following are the principles of SEDPI micro impact investing:
Principle 1: Emphasis on financial education
- Intensive savings mobilization
- Universal insurance coverage
- Providing investment opportunities
- Freedom from oppressive loan products
Principle 2: Capital infusion to microenterprises rather than loans
- Joint venture between SEDPI and nanoenterprise/microenterprise is formed establishing formal business partnership and co-ownership versus creditor-debtor relationship in loans
- Capital contribution of SEDPI to joint venture is at pre-determined, non-compounding and non-accruing cost plus basis. This is in contrast to loans that earn perpetual interest and charge penalties for non-repayment
- Character, cash flow and asset-backed financing
Principle 3: Profit sharing and risk sharing
- Profit sharing mechanism that favors labor and participation rather than amount of capital infused
- Cost plus of SEDPI capital contribution is based on agreed upon profit sharing mechanism
- SEDPI and nanoenterprise/microenterprise absorb risks and work out solutions together to address risks. This is unlike loans where debtor absorb all risks and creditor does not and will still force repayment or stop providing services even if cause of non-repayment is external such as natural disasters, typhoon, earthquake, volcanic eruption, pandemic etc.
- Nanoenterprise/microenterprise eventually pays SEDPI’s capital contribution to gain full ownership
Principle 4: Loss follows capital
- Loss is defined as bankruptcy or when nanoenterprise/microenterprise decides to liquidate assets
- Losses will be absorbed as proportion of capital contribution in microenterprise; which means the party that provided larger capital absorbs more losses. In this case, SEDPI will absorb much of the losses.
- Microenterprise will not be empty-handed in contrast to loans where foreclosure is in favor of the creditor and will squeeze them to financial death.
Principle 5: Not for profit insurance product
- Main aim of insurance is protection through solidarity and not as an income earning activity
- Cost of delivering insurance service will be charged as expense. Surplus premium payments will be accumulated to strengthen the fund.
Principle 6: Partnership and cooperation
- Establish partnership with government agencies to bring basic services closer to low income groups – retirement, health insurance socialized housing etc.
- Collaborate with civil society and other like-minded organizations to push for poverty eradication
Principle 7: Entrepreneurship
- Provide sustainable livelihood opportunities
- Link nanoenterprises/microenterprises to viable markets
- Digital and financial inclusion
Sources of information and practical tips on money management
Mga bagay na dapat mong malaman sa insurance
Mga iba pang babasahin tungkol sa insurance:
- Iba’t-ibang klase ng insurance
- Must-have insurance for people in their 30s
- Ang pinakamatatag na insurance company sa Pilipinas (Part 1)
- Ang pinakamatatag na insurance company sa Pilipinas (Part 2)
- Anong insurance dapat mayroon ang mga bata?
- Gusto kong paghandaan ang future ng anak ko, tama bang investment-linked insurance ang kinuha ko?
- Paano gumagana ang ibinabayad na premium sa insurance para mabigyan tayo ng proteksyon sa panahon ng emergency
- Kung akala mo insurance ang education plan, basahin mo ito
- Insurance para sa mahirap
- Bakit mahal ang VUL o investment-linked insurance
Mga bagay na dapat mong iwasan sa insurance
Ito ang listahan ng mga articles na isinulat ko at videos na nagawa ko tungkol sa VUL para makakuha tayo ng mas sulit at mas epektibong insurance coverage.
- Bakit mahal ang VUL?
- Bakit mas maganda ang BTID kaysa VUL?
- Epektibong paggawa ng BTID upang masulit ang pinaghirapang pera sa insurance at investment
- Paanong mas maliit ang fund value sa VUL kaysa sa BTID?
- Ok ba talaga ang VUL kasi protected ka nito beyond 65 years old compared to term?
- Ok ba talaga ang VUL para sa estate taxes?
- Why Not VUL?
- Anong gagawin ko kung may VUL na ako? Paano ko ito ititigil?
- Pagkakaiba ng savings sa VUL
- Mga terms and conditions na kailangang hanapin kung bibili ng VUL
- Paano pumili ng mabuting insurance agent
Different kinds of investments
Preparing for retirement
How are articles on retirement
- 10 Commandments of retirement
- Mga kinakatakutan ng retirees at paano ito paghahandaan
- Magkano ang matatanggap mong SSS pension upon retirement
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