A POLICY BRIEF ON THE SOCIAL ENTERPRISE BILL

Prepared by the Poverty Reduction Through Social Entrepreneurship [PRESENT] Coalition 29 June 2012

A PROPOSED PRIORITY LEGISLATIVE AGENDA IN THE PRESIDENTS STATE OF THE NATION ADDRESS TO ENSURE POVERTY-REDUCTION FOR AN INCLUSIVE ECONOMIC GROWTH
The Social Enterprise Sector has banded together to seek for a favorable policy environment for social-mission driven wealthcreating organizations among poor communities. This brief explains what contributions does social enterprises have in achieving inclusive economic growth and poverty-reduction and why it is needed now.

1 POLICY BRIEF ON THE SE BILL

A POLICY BRIEF ON THE SOCIAL ENTERPRISE BILL: A PROPOSED PRIORITY LEGISLATIVE AGENDA IN THE PRESIDENTS STATE OF THE NATION ADDRESS TO ENSURE POVERTY-REDUCTION FOR AN INCLUSIVE ECONOMIC GROWTH
Summary Early this year, the Asian Development Bank [ADB] in its annual meeting remarked that due to slow economic growth, a large infrastructure spending gap and wide income inequality, the countrys economic growth has not trickled down to the poor. To reduce income inequality, ADB recommend governments that it must implement measures that will help low-income earners have more access to assets like financing. The enormity of these challenges requires more than just a public sector response. There is a positive outlook among development organizations, financial institutions and even government agencies that social enterprises that are engaging and investing in the poor as workers, suppliers, clients and even owners can fill that wide gap of income inequality and other forms of poverty. The Social Enterprise [SE] sector which comprise about 30,000 social mission-driven business organizations all over the country which includes cooperatives, corporations, single proprietorships, NGO-assisted enterprises have formed the Poverty Reduction through Social Entrepreneurship (PRESENT) Coalition [See Attachment] to push for House Bill 6085 or the Social Enterprise Bill that would provide for incentives and support for SEs in order for them to scale-up their operations, coverage and hence, their impacts that greatly contributes to the Medium Term Philippine Development Plan 2011-2016, Millennium Development Goals, and NAPCs objective of inclusive economic growth. Social enterprises, defined as social mission-driven business organizations with due regard to environmental and social costs and pro-actively solves social problems including unsustainable agriculture, hunger, joblessness, urban waste, and rural poverty, disability among others, using business methods and principles. When social enterprises engages and invests in the poor to become effective workers, suppliers, clients and/or owners and ploughs profit back to the enterprise to sustain the fulfilment of its social mission. More importantly, social enterprises that primarily engages the poor not just access to income but works towards increasing their capabilities resulting to greater self-esteem, economic sustainability, food security and participation in development program. Among the long-term contributions of social enterprises in researches worldwide are the following: i Improved dignity, economic condition and self-worth of the poor as owners or decision makers in social enterprises Sustainable use of natural resources for economic activities Enhanced cooperation and involvement among community members including government, business, cooperatives, consumers, civil society organizations among others Rejuvenation of local pride and identity Innovation using local resources and talents Community-centered development Improved resilience of communities against failures of the global markets and effects of climate change The OECD says recent forms of social enterprises facilitate social inclusion through workforce integration of marginalised people (eg. long term unemployed, disabled, minorities, etc) by combining training and skills development through temporary and/or permanent employment in a business with social dimension that trades in the market. Recently, the ADB has taken steps to recognize the development contributions of SEs to inclusive economic and social development in their country strategies.

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The World Bank says social capital as critical for poverty alleviation and sustainable human and economic development. Social enterprises because of their inclusionary intent to uplift the poor in their communities have the primal capacity to build cohesion among stakeholders in a community. What is the issue? The major challenge that many social enterprises in the Philippines are currently experiencing is in scaling up in terms of operations and coverage mostly due to the need to develop the whole value chain on the side of the producers and the market that the business is situated in. Because SEs are situated mostly in poor areas, the challenge to upscale is doubly hard for SEs than for a traditional business that has no other bottomlines such as environmental or social to speak of. That the SE sector is playing a significant role in poverty-eradication is demonstrable, however, recognizing their contributions through capacity building programs, tax incentives, and accommodations in procurement is challenging at the moment because they can neither be defined by their legal form, nor by their industry, sector of activity, or asset size [See box below]. Poverty is a deprivation of capabilities and not just lowness of income. It is in this context that we see social enterprises as a tool for poverty-reduction : to improve capabilities of the poor in order for them to learn how to manage their own resources such as land, their natural environment and their skills. The experiences of Philippine social enterprises show inspiring stories of the business success and how they have effectively uplifted the lives of the poor. Let us briefly share with you some inspiring stories where social enterprises have not BOX. ORGANIZATIONAL FORMS OF SOCIAL ENTERPRISES just provided and Fair trade organizations [crafts, agri-business, processed food] increased income for CSO-initiated SEs serving various segments of the poor [agri-based processing; the poor but trading and marketing in upland, lowland, coastal communities; important empowered and players in sustainable agriculture and forestry-related enterprises] transformed them and Cooperatives [agriculture/agri-business; savings and credit; social services] improved their quality Faith-based organizations espousing a solidarity economy of life and the needed support to multiply Social welfare-oriented enterprises serving disadvantaged groups [People with their impacts. Disabilities or PWDs, women and children] Micro Finance Institutions SEs initiated by young professionals [fashion, processed food, services to micro-enterprises] Micro, small and medium enterprises [MSMEs with double or triple bottom line] Management and consulting services for SEs/micro-enterprises SE service, resource and advocacy institutions/networks

CASE 1: THE NATIONAL FEDERATION OF COOPERATIVES OF PERSONS WITH DISABILITY (PWD FED)
The National Federation of Cooperatives of Persons with Disability (PWD Fed) is a 15 year old organization that is now employing some 1,250 PWDs. It has an annual revenue of PhP 48 million shared by 15 cooperatives nationwide. The organization is governed a Board who were elected by its member cooperatives. PWD Fed has proven that through social enterprise jobs were not only generated or incomes were increased but there were empowerment and transformational changes in their lives.

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IMPACTS EMPOWERMENT OF PWDs. A survey involving 66 PWD member respondents, that was part of the same impact study, revealed the following (Pelejo, 2009): - 91% of the PWDs said their self-esteem increased and they socialized more after joining the cooperatives school chair project; - 64% of the PWDs said they earned more; and - 23% of the PWDs were able to send their children to school or to provide for their childrens school allowance SUSTAINABLE ENTERPRISE. From the initial order of 24 pieces of armchairs in August 1993 by one of NLADs Board of Director it grew as DepEd contracts surged to PhP 5 million worth of chairs or 11,000 pieces in 1996, followed by two successive orders worth PhP 5 million and PhP 500 million in 1997. The orders scaled up to PhP 90 million and PhP 78 million in 2006-2009 and entailed more sophisticated production and delivery system. Most PWDs who got involved in these projects were initially unemployed and poor. The process of production, managing the business without losing sight of their mission to empower the PWDs has not been an easy process. They had challenging stages and losses. However, the story of the PWD Fed is a very concrete example that social enterprises with the poor as primary stakeholders work with great results. But the income derived from DepEds procurement is being challenged as they are caught by the usual principle of getting value for money in the usual bidding process. The sector views that other values created by procuring with social enterprises must be considered. By buying SE products, taxes spent on procurement does not accumulate upwards but to the poor and to other social and environmental causes.

CASE 2. CARD-MRI: DEMONSTRATING THE ROLE OF NON-COLLATERAL LOANS IN FORMING AN ARMY OF ENTREPRENEURS IN THE COUNTRYSIDE.
CARD MRI started in 1986 as a normal NGO that helped the landless rural poor uplift their quality of life. After 10 years of operation, it evolved into a Microfinance Institution (MFI) under the leadership of its founder and Ramon Magsaysay awardee, Dr. Jaime Aristotle B. Alip. IMPACTS EMPOWERMENT OF THE POOREST MOTHERS. As of September 2011, CARD MRI caters to 1.5 million poorest of the poor mothers Total Number of Clients Served Number of Clients including Savers Total Number of Clients with Loans Total Number of Insured Persons Amount of Loans Outstanding Total Amount of Savings/CBU Repayment Rate 1,510,083 1,461,488 1,432,056 7,160,280 PhP 6.1 B PhP 4 B 99%

The objective of the foundation was to create a financial institution thats owned and managed by the poor, particularly the mothers. CARD-MRI SUSTAINABLE ENTERPRISE wanted to move towards the direction Total Asset PhP 11.5 B of assisting women because not only do Total Liabilities PhP 8.9 B they have the capability to translate Total Equity/Fund Balance PhP 2.5 B credit into income-generating activities, Operational Self-Sufficiency 125.81% but their first priority will always be the Financial Self-Sufficiency 109.69% familyfood and education, housing, clothing, basic things. By doing this, CARD-MRI believed that this will bring total change in the family

The instrument was providing microloans that would not require collaterals which at that time, was unthought about. Back then, majority of the population had no access to credit from big banks, even rural banks because the existing regulation then was that 70 percent of pure loans must be collateralized. What makes CARD MRI different from other MFIs is that their loans are 100 percent collateral-free, challenging the conventional banking wisdom that there should be a collateral. Without this innovation, CARD MRI would not be

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able to help the landless and assetless ones. A social enterprise with the mission of engaging the poor, they risked providing non-collateral loans when no other banks would dare. CARD-MRI engages in value chain financing focusing on agriculture but like many MFIs, they are in need of stable sources of loanable fund and credit guarantees. Currently, they have innovated their financial services by accepting movable assets as collaterals (farm machinery and equipment, cars or livestock). The use of movable assets as collateral is not only important to farmers, but also to equipment suppliers and agroprocessors, which are often an important source of seasonal finance in rural areas. Their access to term loans from banks is often restricted by the absence of legal provisions enabling the use of business assets such as inventory or machinery as collateral. This also limits their ability to provide term finance by selling assets on a deferred payment basis or by prefinancing the establishment of perennial crops. Such innovations are propelled by financial institutions that make their social missions the central guide in their operations and planning. Concretely, social enterprise support organizations like CARD-MRI would benefit from a policy providing for guarantee fund to allow them to expand their operations allowing them to serve more poor people to enterprise.

CASE 3. ALTER TRADE: EMPOWERING SUPPLIER-FARMERS IN SUGAR AREAS

Alter Trade was established in the mid-80s by Filipino and Japanese development organizations from a Trade not Aid or people-to-people trade concept in the middle of a sugar crisis in Negros Island Central Philippines. The Alter Trade Group organized communities of former landless sugar plantation workers who later became beneficiaries of the countrys agrarian reform program, as their farmer-partners in processing muscovado sugar and growing balangon bananas for export. Muscovado is unrefined brown sugar which is now known globally as healthy sugar. Fair Trade Organizations provide sustained market access to enterprises of the poor and marginalized. However, fair trade standards should be met such as provision of fair prices to producers, fair wages to workers, and production pre-financing prompt payment of deliveries. IMPACTS INCREASED FARMERS INCOME. In terms of average annual income from sugar, the sugar growers started with PhP 16,364 in 2002. For the period 2003-2007, the average annual income had doubled to PhP 32,016 with an average incremental increase of PhP 15,652 over the base average income in 2002. Farming other crops accounted for an average of only PhP 2,690 in 2002, but grew to PhP 6,808 per year on the average within the 2003-2007 period. SUSTAINABLE ENTERPRISE. From an initial capital of PhP 55.0 thousand in 1988, Alter Trade Corporation.s assets had consistently grown, reaching PhP 25.456 million in 1997 and PhP 135.347 million in 2008. Its sales, mainly from its export markets, had grown through the years, reaching PhP 64.930 million on 1997 and PhP 200.723 million in 2008. Asset turnover (sales over assets) averaged 1.94 over the ten-year period from 1999 to 2008, ranging from a high of 2.45 in 2007, but dipping to 1.48 in 2008, the lowest level in the ten-year period. (Dacanay,2008 Chapter 3, Alter Trade Group: Enabling Suppliers as Transactional and Transformational Partners) Alter Trade started its enterprise of trading muscovado and bananas with solidarity markets of Japan and other European countries. Now, it has grown to be a mediumscale enterprise and is one of the top 20 major fair trade organizations in the Philippines earning sales of PhP 200.7 million in 2008. It is also known to have the biggest reach among the poor engaging 820 sugar farmers and 3,493 banana growers as of end 2007.

Alter Trade successfully transformed their farmer-partners into effective suppliers of organic or muscuvado sugar through management capacity building services in addition to credit and sustainable technology. They centered on boosting capacities of communities on sustainable agriculture, fair trading practices, management of their production, credit and finance, and development of their resources.

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The story of Alter Trade has shown that social enterprises are powerful and effective tools of improving quality of lives of the poor and scaling up their capabilities in managing resources. From transactional partners who benefitted through increased incomes, the farmer-partners played a key role in providing solutions to their poverty. They became empowered producers who gained a significant voice their own agricultural value chains. The government plays an important role in upscaling their operations by developing the value chain either through capacity building, investment in technology on the production side or through policies that would increase and protect the market of the social enterprises or by providing tax incentives. Why decision is needed now? Social enterprises make wealth-creation processes inclusive of the poor, a goal shared at the national and global development levels. They provide jobs and incomes in areas where government and private sector cannot due to limited finance or markets. Recognizing the contributions of social enterprises through a policy in place shall complement and sustain the efforts in the 609 focus poor municipalities of the governments priority areas for poverty-reduction. Putting in place a policy environment for social enterprises responds to the need of poor communities to see a sustainable way of ensuring access to income in the context of an ending comprehensive agricultural reform program and culmination of the governments conditional cash transfer (CCT) program as its poverty-reduction tool. At this point, the government must propose a concrete graduation scheme for its beneficiaries. Support for social entrepreneurship comes very timely and appropriate for this administration, in a juncture where income inequities is a central public issue. What course of action is recommended? The US, Europe and South Korea have existing legislations that were crafted as a result of their own economic crises. The US legislated Social Business measures as a response to the economic downturn in the 70s and 80s due to the large cutbacks in US federal funding severely affecting NPOs conducting development programs. Europe has more advanced social enterprise measures and programs in social enterprises which were borne out of crises in the 80s when welfare states retreated from public services. South Koreas legislation was basically a response to their unemployment issues. In the Philippines, the social enterprises flourished as a result of worsening poverty resulting from the failure of state and market institutions to serve the needs of the poor. The non-government and development community or organizations had also started to experience the drying up of grants from partners in the North. It is recommended that HB 6085 or the Social Enterprise Bill be included as one of the priority legislation when the President addresses the legislature and the people in his State of the Nation Address. HB 6085 seeks to provide a nurturing environment for the development and growth of strong, pro-active and innovative social enterprises as major vehicles for poverty-reduction. It enacts a planning and implementation of a National Poverty Reduction Through Social Entrepreneurship (PRESENT) Program. The National PRESENT Program delves with the development of strategic economic subsectors with potentials for growth and where the poor are concentrated or could be major players. It aims to benefit the poor through increased incomes and capability to improve their means of living as workers, suppliers, clients and/or owners of SEs in strategic economic subsectors and as partners in economic and social development.

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House Bill 6085 seeks to provide: Provision of accessible non-collateralized loans thru special credit windows with a Guarantee Fund Pool Comprehensive insurance system to reduce vulnerability to climate change/calamities Resources for comprehensive capacity development for SEs and poor as partners (transactional and transformational services); mainstream SE content in formal educational system Proactive SE market development program promoting principles of fair trade Research and Development on strategic economic subsectors; appropriate technologies; and innovations to democratize access of poor to quality basic social services Recognition and support for LGUs in developing social enterprises Preferential treatment in government procurement including coverage of performance bonds Tax exemptions and tax breaks for SEs and social investors Cash incentives (i.e. at least 25% of minimum wage for social enterprises employing PWDs) Placing it in the priority agenda of this Government would also open the gatekeepers of banks, donors, agencies, local executives and other institutions to provide access to appropriate funding, investments for inputs, technology, training and procurement. The Social Enterprise Bill is a timely and appropriate piece of legislation that this country needs in this time of continuing inequities. The opportunity cost of not supporting SEs is insurmountable: public investments poured for short-term poverty-reduction strategies, environmental degradation due to unsustainable patterns of production, loss of jobs for marginalized sectors such as PWDs, youth, rural farmers, etc). and slow economic growth in communities. Social entrepreneurship fosters a more equitable society by addressing social issues and by achieving lasting impact through their social mission rather than purely profit accumulation. It complements povertyreduction efforts of government in communities wanting to move out of poverty in a sustainable manner.
Sources: 1. The Role Of Social Enterprise In Local Economic Development. Karl Birkhlzer. Interdisciplinary Research Group Local nd Economy, Technical University of Berlin, Germany, July 1-4, 2009, 2 EMES International Conference on Social Enterprise. 2. Remarks by ADB Vice-President Stephen P. Groff at the Impact Forum: "Igniting Capital Markets for Social Good," National University of Singapore, 25 June 2012 3. Creating the Space in the Market. Social Enterprise Stories in Asia by Maria Lisa Dacanay. 2004. 4. World Bank, 2004 5. The Social Enterprise Sector. A conceptual Approach. Organisation for Economic Co-operation and Development Local Economic and Employment Development Programme 6. House Bill 6085 or the Magna Carta for Social Enterprises of 2012. 7. Jaime Aristotle Alip, Rural Banking Innovation: The Next Generation. Presentation to RBAP Symposium, November 11, 2011

1 ATTACHMENT 1 MEMBERS OF THE PRESENT COALITION

THE POVERTY REDUCTION THRU SOCIAL ENTREPRENEURSHIP (PRESENT) COALITION The Alliance of Philippine Partners in Enterprise Development, Inc. (APPEND) The APPEND is a network of Christian microfinance institutions. APPEND formally started in 1991 as an umbrella organization of microfinance organizations to help alleviate poverty in the Philippines. It supports its affiliates through provision of technical services and resources locally and through linkages to the international microfinance community globally. Association of Negros Producers (ANP) The ANP s a legitimate entity representing, promoting and lobbying for the interests of small and medium scale producers in Negros.It promotes cooperation where absolutely necessary: among producers; between producers and government; between producers and the business sectors in Negros Occidental, the Philippines and in the global market. Ateneo School of Government (ASoG), Co-Convenor o The Ateneo School of Government or the ASoG started out as a unit under the Graduate School of Business in 1996 and was formally established as an autonomous academic unit in 2001. Since its beginnings, the ASoG has been faithful to its mission of working with effective and ethical public servants to build prosperous and just communities throughout the Philippines.

Ateneo Center for Social Entrepreneurship (ACSENT) o ACSENT is the Center for social entrepreneurship in Ateneo de Manila University. It provides capacity-building services for social enterprises.

Eagle's Wings Development Foundation Philippines, Inc.-ASEF A development foundation duly registered with the Securities and Exchange Commission (SEC) with the primary purpose of developing and strengthening the capacity of social entrepreneurs through its Value Chain Development Program. Foundation for a Sustainable Society (FSSI), Co-Convenor o The FSSI is organization committed to support the development of sustainable communities through social entrepreneurship. Since 1995, we have developed social enterprises with triple bottom lines in marginalized communities that are owned, managed and operated by the poor, economically sound andenvironmentally-friendly. We are a network of 19 dynamic network organizations spreading across the country in the field of social and economic work.

Foundation for These-Abled Persons, Inc (FTI) Initiated by individual members of the National Federation of Cooperatives of Persons with Disability (NFCPWD), supporters of NFCPWD and the Federation as an organization, FTI was born. It was registered with the Securities and Exchange Commission (SEC) on June 19, 2009 and started to formally operate in December of the same year. FTI is a catalyst of change to enable organizations of PWDs to be economically self-sufficient and meaningfully participate in an inclusive and supportive environment.

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Institute for Social Entrepreneurship in Asia (ISEA) The Institute for Social Entrepreneurship in Asia (ISEA) is a learning and action network set up by social enterprises and social enterprise resource institutions to catalyze knowledge creation, capacity development and movement-building for social entrepreneurship in the region.

International Network of Alternative Financial Institutions- Philippines (INAFI) INAFI or the Internat ional Network of Al ternat ive Financial Institutions was founded in Cuzco, Peru in March 1 9 9 5 . Twenty four representatives of microfiance institutions and NGOs coming from the regions of Africa, Latin America and Asia, all partner organizations of NOVIB, a Dutch NGO, came together to form the INAFI International Network. MicroVentures Inc.

MVI is composed of dedicated professionals who aspire to be the leading partners of micro entrepreneurs in the country. We believe that micro financing is a powerful tool to empower socially and economically challenged families.

Philippine Coffee Alliance- Small Farmers Sector The Philippine Coffee Alliance represents the cross section of the value chain of Philippine coffee .The PCAs purpose is to promote and protect the interests of the Philippine coffee industry .

Philippine Social Enterprise Network (PhilSEN) PhilSEN traces its roots from a loose network (IGA Network) of NGOs, development institutions, peoples organizations, & cooperatives engaged in social enterprise promotion and development including microfinance/savings & credit among the poor communities/groups. Since 1999, the network focuses on enhancing capacities of member organizations through subsector analysis, value chain analysis and market studies, business planning and monitoring, business development services, social entrepreneurship capacity building, markets and products development, including micro-finance/ savings and credit. Philippine Rural Reconstruction Movement (PRRM) The Philippine Rural Reconstruction Movement was founded in 1952. It traces its roots to China where, in the early 1900s, the rural reconstruction movement was born, inspired and led by Dr. Y. C. James Yen Yen Yangchu. PRRM, a movement committed to the caused of the Filipino peasant, began as a small group of prominent Filipinos led by Dean Conrado Benitez of the University of the Philippines. It pioneered a whole era or rural development and local democracy in the country. PRRM was the first NGO to send its workers to the villages to implement its integrated, fourfold program of education, livelihood, health, and self-governance. PRRM pioneered the establishment of an elected barrio government. Todays Barangay Council can be claimed by PRRM as one of its contributions to grassroots democracy. PRRM inspired the formation of similar national movements in Colombia, Guatemala, Ghana, India and Thailand.

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Pilipinas Ecofiber PILIPINAS ECOFIBER is a leading manufacturer of processed coco and abaca fiber, as well as an established fabricator of decorticating and baling machines used in the processing of fiber. PEC has operations in the provinces of Laguna, Quezon and Albay, processing fiber primarily from coconut husks. PEC operates a fiber-processing joint venture of FSSI with local cooperatives in Sorsogon and the Aquinas University in Legaspi. PEC also does business with other cooperatives, microentrepreneurs and traders who supply PEC with coconut husk and abaca tow. As a subsidiary of FSSI, PEC is in the process of transforming itself to become an eco-enterprise with a proven track record in economic and financial viability while at the same time promoting environmental sustainability and social equity. Visayas Cooperative Development Center (VICTO) The Visayas Cooperative Development Center (VICTO) is the most viable cooperative-owned institution in the Visayas in central Philippines with a membership of two hundred forty-nine (249) cooperatives. The Center's services are consultancy, audit, training, financing, intercoop trading, research and publication, training center and hostel. World FairTrade Organization-Asia and Philippine Offices World Fair Trade Organization ASIA (WFTO ASIA), a consortium of producers and marketing and development organizations in the Asia Pacific region, commits itself towards enabling disadvantaged producers to improve their livelihoods through Fair Trade by linking, promoting, and protecting the integrity of Fair Trade organizations, and speaking out for greater trade justice in world trade.

WFTO-Philippines is a coalition of Philippine producer groups, marketing organizations and support organizations, as well as individual advocates, commonly adhering to the principles and goals of Fair Trade. It works for the development of progressive and responsible Fair Trade stakeholders in the Philippines, and ensure that each member organization engages in their commitment to the principles and standards of Fair Trade: providing income and food security in disadvantaged communities; empowering community based producers; and promoting a quality and market driven image of Fair Trade products.