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SEDPI Social microfinance: Pro-poor financial services for women entrepreneurs

The following is the transcript of my presentation during the “Accessing Funds, Loans and Financing to Women MSMEs organized in collaboration with United Nations Women, European Commission and  Small Enterprise Assistance Fund on May 20, 2020.


Good day to everyone. My name is Vince Rapisura, President and co-founder of SEDPI Group of Social Enterprises. I am also a faculty member of the Ateneo de Manila University’s Development Studies Program.

I would like to thank United Nations Women, European Commission and Small Enterprise Assistance Fund for organizing this webinar with SEDPI. Today, I will be presenting pro-poor financial services for women entrepreneurs from our onground experience and then attempt to provide ways forward and recommendations that you or your organizations may want to collaborate with us.

SEDPI background

Let me introduce to you SEDPI Group of Social Enterprises and how it mobilizes social investments to fund its social enterprise initiatives in the Philippines and to Filipinos worldwide.

The group is composed of six social enterprises that work in the fields of training, research, consulting, development finance, socialized housing, publications, advocacy and rural banking. The first of which was established in 2004 and the latest addition in 2016 registered in Singapore.

SEDPI which stands for Social Enterprise Development Partnerships, Inc. provides capacity building services in te fields of microfinance, social entrepreneurship, financial literacy, pro-poor market development, disaster and climate change and gender and development.

Over the years, we have trained more than 50,000 microenterprises in the Philippines; consulting, mentoring and training to 7,000 socially-oriented organizations worldwide; and financial literacy to some 25,000 Filipino migrants in 27 countries.

Through public bidding, we partner with government to implement various programs to support our commission to empower Filipinos. We were able to use public funds to provide capacity building services to cooperatives, agrarian reform beneficiaries, micrfofinance NGOs. This resulted in multiplier effects that led these organizations to reach hundreds of thousand of poor households.

SEDPI also developed an operations manual for the National Confederation of Cooperatives that was replicated in more than 67 cooperatives. It also conducted due diligence audit for the Credit Guarantee Investment Facility of the Asian Developmenr Bank when it supported the USD80 million bond offer of ASA Philippines, one of the largest microfinance institutions in the Philippines.

Impact of COVID-19 to microenterprises

SEDPI implements social microfinance and conducted rapid community assessment on the impact of COVID-19 to microenterprises and the informal sector. This is a series of weekly surveys that started last April 6 with almost 5,000 respondents each round.

All respondents are SEDPI members who accessed financial services such as loans, savings, insurance as well as financial literacy trainings. Ninety-five percent are women who have collateral-free loans up to PhP20,000 payable in six months to finance their livelihoods such as sari-sari stores, carinderia, farmers, fisherfolks, dressmaking and vending. The loans bear an interest rate of 3.33% per month which is comparable to credit cards interest rates.

Most of these women are married in households that have more than five household members and greater than three children. More than half of the women are the main breadwinners of the household; and two out of three women have husbands who also have source of income.

Understandably, the research is not a representative sample of the entire Philippines. It is highly localized but should be a good case study that reflects the situation in the countryside. SEDPI believes that the nationwide experience may not be far from our research results.

On April 24, as high as 69% of microenterprises closed operations due to the community quaratine measures the government implemented. This went down to 28% on May 15. Conversely, more and more microenterprises reported to experience weak operations.

This resulted to loss of income to poor households that made their living conditions even more vulnerable. Most have difficulty financing their daily needs to sustain good living.

Our members did the following coping mechanisms in the midst of the pandemic. One in ten sold their assets at a lower value to convert this to cash. About half of them accessed loans, asked for help from the community; and dipped into their savings. Most are confident that their insurance coverage with SEDPI is enough to cover for sickness and funeral expenses. Lastly, everyone was able to access government assistance.

On the second week of general commuity quarantine (GCQ) due to COVID-19, only 13% of microenterprises experienced strong demand on their products and services. This is slump from a hopeful 49% expecting stronger bounce back before the government ordered easing of community quarantine measures on May 1. There were 44% among microenterprises that expected weaker demand but 78% of them actually experienced this in the same period.

In contrast, 84% remain confident that access to supply for their livelihood won’t be problem.

Almost all of SEDPI members were able to receive relief goods and eight in ten were able to receive cash assistance from the government. Each household received PhP3,000 to PhP5,000.

Financing options of microenterprises

Members preferring to resume normal repayments remains. Compared to previous weeks, less and less microenterprises are requesting to refinance their loans.

SEDPI offer short-term loans that ranges from 3-6 months. Members are able to repay their loans quickly and could access repeat loans immediately.

The apparent sluggish demand may have led microenterprises to rethink accessing more debt that may not be used for productive purposes. The cash assistance from the government may have also afforded microenterprises some elbow room in managing their finances, therefore there is less need for restructuring and refinancing.

Recovery outlook

Despite the weak demand, 71% of microenterprises are still confident to recover from the pandemic within two months, if they have sufficient capital to restart their livelihoods. The amount of financing needed to restart range between PhP3,000 to PhP9,000.

Less and less among microenterprises need relief goods. More are requesting for work to bounce back amidst the pandemic. The overwhelming preference is for cash assistance to be able to finance restarting their livelihoods.

SEDPI rebuilding and recovery strategy

With these findings, SEDPI intends to implement the following microenterprise rebuilding and recovery strategies.

These are: (1) Cost-plus capital and zero-percent loans; (2) Social safety nets; (3) Access to government welfare programs; (4) Financial inclusion and financial literacy; and (5) Mobilize social investments versus debt-driven development programs.

First, SEDPI will convert all its existing loan agreement with members to joint ventures. Loans that will be restructured into joint venture counterparts that bear zero interest. Those needing refinancing will be charged with a service fee instead of interest. Instead of focusing on cash as the asset; labor and participation is given more importance – a departure from traditional capitalism.

Second, aside from providing capital to members, SEDPI will continue providing financial literacy trainings to them. Members are contribute their labor and day to day operations to the joint venture. After paying the service fee, microenterprises get to keep all the profits of the microenterprise. This is our method of profit and risk sharing.

Third, we convert our members as mere borrowers to become true partners and agents of development. The pandemic will bring about hyper localization which will force local communities to boost agriculture production for food security. SEDPI wil be there to provide agrienterprise opportunities to members that will augment their present livelihoods.

We will also continue providing social welfare protection through partnership with commercial insurance companies; implementing indigenous insurance practices such as damayan; and facilitate access t government social safety net programs.

Fourth, financial education will increase financial literacy of members. As seen in our comparative study, non-microfinance low income housholds are almost twice as likely to sell assets in distress; almost three times less likely to have insurance coverage; and almost half less likely to access government assistance compared to our members.

Lastly, we will continue mobilzing social investments from social investors who are mostly Overseas Filipino Workers. Last 2020, we reached a milestone to have mobilized a total of USD1 million through this strategy. SEDPI Development Finance, Inc. issues preferred shares to SEDPI social enterprise ventures.

The joint venture spells out equitable risk-sharing and profit-sharing between social investors and SEDPI. In this system, SEDPI shares in the profits and losses of investments places. This is in contrast to traditional fund managers who earn commission both in up and down markets.

Our model is really hinged on grassroots-led empowerment. SEDPI empowers women migrant domestic workers abroad. With this empowerment comes the ability to place social investments that SEDPI then uses to fund livelihoods of women microentrepreneurs in rural areas.

Pivot towards the “better normal”

The following are our recommendations to enable us to pivot towards the path of recover and a better normal.

For the government, we would like to reiterate our call for mass testing; a more aggressive and orderly contact tracing and isolation in conjunction with increasing health care capacity. Low income groups should have priority in these efforts since they are more vulnerable.

To jumpstart the local economy, cash assistance should be extended to microenterprises. Cash assistance is facilitated efficienctly and effectvely when low income groups have bank account. We call on the government to institutionalize financial inclusion that will make it a right for every Filipino to have basic savings account to access government welfare programs. We believe that this will reduce red tape, patronage politics and corruption.

Since government programs offer calamity loans that are charged against mandatory contributions, we urge the government to make this interest free so to alleviate the financial burden of low income groups.

We believe these specific recommendations to government will contribute to an enabling fiscal and monetary environment that will benefit microenterprises and not just large businesses and corporations.

In support to the microfinance industry, donor agencies can focus their resources to disaster response of the pandemic. They could also fund researches and provide guarantees to stimuate the economy. In 2008, Cordaid, a Dutch international NGO provided guarantee to protect social investors on their investment with SEDPI.

Wholesaler of funds such as government financial institutions, commercial banks and foundations should support microfinance institutions with zero percent loans. Wholsalers that currently have exisiting exposure to MFIs have the choice between facing ultimate default or share in the losses of MFIs now that could be recoup in later years. A better option is to temporarily convert debt to equity to eliminate the interest burden and cash flow challenges. This will enable focusing efforts in the recovery and rebuilding of microenterprises rather than organizational financial sustainability.

From 2004 to 2009, SEDPI focused on bootstrapping to finance its operations. In 2010-2016, it experienced boom in growth largely due to external credit from commercial banks. However, a default in one of SEDPI’s MFI clients led to a loss that it solely absorbed while commercial banks still enjoyed interest payments.

This led us to decide on a major strategy from solely-bearing risk and cost of interest through debt-driven growth; and retool ourselves to focus more on equity through social investments. We are moving with this slowly and patiently.

As you can see in five years, by 2025, we project to pay off all our commercial debts. We intend to intensify social investment mobilization that will replace debt payments. However, the effect would be a more muted growth trajectory.

For fund managers, we would like to emphasize that market-based solution is not the only strategy in addressing economic challenges. We may be in the early parts of a depression, expecting positive return translates to high cost pressure on microenterprises that would ultimately result to defaults and losses.

We then invite you to consider profit and risk sharing mechanisms beyond taking just defensive stance to preserve capital. Guaranteeing social investments would be a good start.

At the minimum, we hope that fund managers will package their funds to support capacity building and technical assistance, technology adoption and research and development.

In SEDPI’s case, we are open to fund managers and impact investors for capital infusion to reduce commercial debt and beef up equity. This could be in the form of a matching scheme where social investmets mobilized from individuals are matched. A guarantee mechanism such that social investors would be comfortable investing in SEDPI is another way to move forward.

Should this happen, SEDPI will be able to pserve a million poor households in 2025 from its peak of 500,000 poor households in 2016.

Microenterprise first

To sum up, we, at SEDPI believe, that primary stakeholders – in this case microenterprises and the informal sector – should remain at the center of our development agenda, especially in this time of pandemic. Market-based solutions should not only be the default solution we should employ but integrate the social economy or the sharing economy. Lastly, we will emerge to a better normal through public, private a d civil society cooperation and peratnership.

For those interested to support our initiatives, our contact details are presented and would also be available from UN Women secretariat. Thank you for listening and I loo forward to hearing your thoughts and answering your questions.


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