[ANALYSIS] How to support microenterprises, informal sector hit by coronavirus

Since the enhanced community quarantine was imposed in Metro Manila on March 15, Social Enterprise Development Partnerships, Incorporated (SEDPI) has conducted weekly rapid community assessment research with its members. SEDPI is a group of social enterprises that provides capacity building and social investments to development organizations and directly to microenterprises (MEs).

Most of SEDPI’s ME members, about 9 in 10, are women with an average age of 42. These women are typically into vending, farming, fishing, dressmaking, selling food, and livestock backyard raising. The rapid community assessment aims to determine the economic impact of the coronavirus on our members.

Impact of COVID-19 on MEs and informal sector

All microenterprises were negatively affected due to COVID-19. Immediately after the quarantine was announced, 34% of microenterprises stopped their livelihood. After two weeks, this spiked to 51%, then slightly recovered to 41% after a month of lockdown.

Majority of microenterprises (59%) reported that their livelihood weakened. Of these MEs, 59% and 31% reported significant and severe weakening of livelihoods, resepectively. (READ: ‘Sariling diskarte’: The heavy impact of lockdown on micro, small businesses)

Only 2 of the 5,775 respondents were persons being monitored for possible infection. This may be a positive sign that the quarantine is effective in containing the spread of the virus.

Access to government assistance

Only 1 in 10 microenterprises were able to receive cash assistance, while 60% received relief goods from the government, as of April 14. Most of them received P3,000 to P4,000 cash assistance through the Pantawid Pamilyang Pilipino Program of the Department of Social Welfare and Development.

Relief goods received were composed of rice, canned goods, and soap, enough to last only for 1 to 2 days. Most of the respondents (82%) expressed that the P5,000 cash assistance will not be enough to cover their daily needs in the next two months.

Hasten government cash assistance and relief

The government needs to hasten release of cash assistance and relief goods to microenterprises and the informal sector. These will alleviate their burden and enable them to survive the quarantine.

Prohibit interest accrual on MSEs’ loans

Interest accrual for loans of micro and small enterprises during the quarantine period should be prohibited. On April 3, the Ateneo-SEDPI Microfinance Capacity Building program released a position paper regarding this. The continued charging of interest during the quarantine is socially unjust since it is an additional burden on micro and small enterprises at a time when they can barely survive.

Mass testing

Prioritize mass testing for suspected and probable COVID-19 cases from low-income groups, especially in urban centers, where spaces are cramped and transmission is faster.

Cash assistance to restart livelihoods through MFIs

Most of the respondents (77%) need cash assistance to restart their livelihood after the quarantine. Many of them (35%) would still need relief goods, especially food, immediately after the quarantine and a few (12%) need work to have source of income.

Government should provide cash assistance to restart livelihoods, coursed through microfinance institutions (MFIs) to eliminate the dole-out mentality. The cash assistance should be given as 0% loans. MFIs are well positioned to provide this intervention since they would need to support the rebooting of the livelihoods of their client base.

Bail out MFIs

Repayment rates in MFIs are expected to hit as low as 20% given the magnitude of MEs negatively affected, which would lead to liquidity problems. The government should intervene and infuse capital in the form of equity to MFIs to fund the proposed cash assistance intended to restart microenterprise livelihoods.

Existing debt obligations of MFIs to commercial banks and especially to government financial institutions could be converted to equity to ease pressure in debt repayments. MFIs will eventually pay this equity back to the government, perhaps even at a premium, once they recover from the crisis.

Pay-for-work programs

Development organizations and the government should provide pay-for-work programs to spur the local economy. This will create temporary employment and give purchasing power that will augment efforts to restart livelihoods.

0% SSS and Pag-IBIG calamity loans

Social Security System (SSS) and Pag-IBIG members are allowed to borrow calamity loans against their personal contributions with interest rates of 10% and 5.95%. It is highly recommended to bring the interest on calamity loans down to 0%, since these are drawn from personal contributions of members anyway.

Ease in access to identity documents

Access to government basic services starts with identity. Processes should be streamlined for low-income groups to get government identification documents such as birth certificates, marriage certificates, and licenses.

Greater financial inclusion

Ensure bank accounts are opened for all low-income families so that they can easily access cash transfers and cash relief in times of disaster. This will ensure that funds truly land in their pockets, and could potentially reduce corruption and patronage politics.

Universal disaster insurance

The Philippines needs universal disaster insurance that prioritizes coverage of low-income groups, since the Philippines ranks high in the World Risk Index. The scheme will provide funds to affected low-income communities to cope and rebuild. Having disaster insurance will eliminate the need for them to beg for government assistance from politicians.

Tap vast network of MFIs

MFIs are rooted well in communities and have vast networks that penetrate even the most remote areas. This makes them suitable for information dissemination as well as for distribution of government assistance that could complement barangay-level legwork.

Bottom-up approach

We may already be seeing the positive effects of the quarantine in terms of containing COVID-19. However, its negative economic impact, especially on microenterprises, is undeniable.

These recommendations to support microenterprises during and after the quarantine are practical and can easily be implemented. These will channel resources to microenterprises and help them recover faster from the negative effects of the coronavirus. (READ: Need help protecting your business during the pandemic? Project Lifeline is here) – Rappler.com

Vince Rapisura is a faculty member of the Ateneo de Manila University and is also the founder of SEDPI Group of Social Enterprises. Follow him on Facebook and YouTube, or visit his website here.