By Jaime Aristotle B. Alip, PhD
The annual inflation rate in the Philippines rose to 4.0% in March from 3.0% in February. The increase in the prices of goods is at an all-time high as Russia’s attack on Ukraine sent oil and commodity prices soaring worldwide. In an environment where inflation risks are high, oil prices are surging and current macroeconomic forecasts paint a challenging picture, there is a popular Filipino proverb or salawikain that comes to mind:
“Kapag may itinanim, may aanihin.”
This gem of folk wisdom literally translates to “if you plant, you will harvest something,” but it actually means “your future will be the result of the effort you put in today.” Its message is the same as that of the classic Filipino tale, Si Langgam at Si Tipaklong, where the ant stacked up grains in anticipation of the rainy days while the happy-go-lucky grasshopper danced the day away. Unlike the frugal and industrious langgam, the tipaklong suffered when the rains came.
The question now is this: do we want to become ants or grasshoppers?
These uncertain times demand that we prepare for the rainy days. We need to be like the ant and allocate a portion of our present income for future needs, like the education of our children, sickness or emergencies, and even retirement, as there will definitely come a time that we will grow old and can no longer work.
Aside from savings, we can also make sound investments. While many Filipinos believe that the only way to make money is by working for it (either by being paid for one’s labors or by running a business), there is another way: by making your money work for you. This entails investing your money so that it earns more money.
Investments, Benefits and Risks
According to the Bangko Sentral ng Pilipinas (BSP) 2019 financial inclusion survey, only 25% of Filipinos have some sort of investment. An investment is an asset purchased with the hope that it will generate income or appreciate in the future. You invest when you buy an asset and sell it later, when its value has increased. You also invest when you put your money in ventures that earn interest over time. There are two key factors: time and appreciation. When you invest, you open up multiple income streams. You get something extra, aside from what you earn from work or business. It allows you to meet your financial goals faster. It also helps build wealth, because over time, you accumulate assets that increase your net worth.
Risk, of course, is part of investing. There is the risk of capital loss. There is also the risk of not meeting your expected returns. Knowing that there are risks should not stop you from looking into investment opportunities. Instead, you should learn and find the best ways to manage them.
Investment for Beginners
There is a wide range of investment opportunities available for beginners. Investment decisions are based on one’s goals (short, medium, or long-term) or risk appetite (conservative or aggressive). There are many options, but a beginning investor may look into:
- PAG-IBIG and SSS Investment Programs – The BSP financial inclusion survey shows that SSS (88%) and Pag-IBIG Fund (52%) are the most common types of investments for Filipinos. The SSS PESO Fund starts for as low as P1,000, while the Modified Pag-IBIG II starts for as low as P500, making them one of the cheapest investments for beginners.
- Stock Market – When you buy stocks, you buy shares in a company, giving you the right to a portion of the company’s value and income. Stock investments have high income potential. They are also considered to be the riskiest, thus, suited for aggressive investors. One needs to monitor business developments to invest and learn when is the best time to buy and sell stocks.
- Bonds and Mutual Funds – The risk-averse can try investing in bonds, which are debt obligations issued by companies. Bonds are low-risk but low-profit investments, paying a set amount over a certain period of time. Mutual funds are pooled from different investors and invested in various assets by professional fund managers.
- Variable Life Insurance – These are combined life insurance and investment products that are ideal for first-time investors.
Investing for Social Inclusion
The options above are commercial investment opportunities. There is another path which a beginning investor may consider. It is called microfinance, which is distinguished from traditional finance because of its social dimension. Microfinance is a form of impact investing. It caters to the poor and marginalized sectors, making sure that those who do not have access to banks would have access to much-needed financial services. Aside from the financial gain, microfinance measures the social impact of its performance.
Microfinance Institutions (MFIs) provide loans, savings, micro-insurance and related products to low-income groups, as well as micro, small and medium enterprises (MSMEs). This is important, particularly in the Philippines, where 7 out of 10 adults are financially excluded. Thus, MFIs are crucial to the BSP’ National Strategy for Financial Inclusion (NSFI), which outlines a financial landscape with 4,450 microfinance non-government organizations and 23 mutual benefit associations targeting the unserved and underserved: the poor, the unemployed, MSMEs, and the informal workers, especially those living in rural areas and far-flung communities.
A beginning investor may look into MFIs as an opportunity not just to earn money, but to help others. MFIs, after all, enable income-generating activities that help people to break out of poverty. They are regulated by the government, with adequate safeguards imposed for the public’s protection. Let us look at CARD MRI, for instance. This is one of the biggest microfinance groups in the Philippines, with 7.9 million clients and 3,391 offices nationwide. It has a loan portfolio of P33.4 billion, with savings or capital build-up of 32.7 billion. It has more than 76 billion in assets, with a financial self-sufficiency ratio of 118%. CARD has maintained a loan repayment rate of 95.73% even at the height of the COVID pandemic.
Social impact investor and worldwide cooperative Oikocredit is also a case in point. For 46 years now, Oikocredit has been funding organizations that promote financial inclusion, agriculture and renewable energy. It provides loans, equity investments and capacity-building support to enable people on low incomes in Africa, Asia, and Latin America to sustainably improve their living standards. Oikocredit has financed 563 partners, with total outstanding capital of €845 million in 2021. Its partners served 32.2 million individuals and 770,000 SMEs. The network bolstered agriculture by assisting 542,000 farmers; it also provided 68,000 households with clean energy. Private and institutional investors can invest in Oikocredit via its network of support associations. One of the world’s largest financiers of the microfinance sector, Oikocredit has been financing partners in the Philippines since 1983.
Apart from the financial returns, microfinance also offers diversification benefits that are important in the current environment of slowing economic momentum. You can put your money in any BSP-registered MFI and watch it make a difference in the lives of others. CARD, for example, provides microfinance loans for household expenses, housing, education, and microinsurance. It helps micro-entrepreneurs by providing business loans as small as P1,000. Just imagine the multiplier effect of your investment on the lives of these people! Investment returns are good, yes, but at the end of the day, it is about human beings, about individual stories, and about families. Impact investing, after all, is really about the transformative power of hope.
By investing to make a difference, not only are you making your money work for you; you are making it work to help others and to build a better world. As businessman and author Robert Kiyosaki once said, “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”
Dr. Jaime Aristotle B. Alip is a poverty eradication advocate, with more than 35 years of experience in microfinance and social development. He is the founder of the Center for Agriculture and Rural Development Mutually Reinforcing Institutions (CARD MRI), a group of 23 organizations that provide social development services to 7.8 million economically disadvantaged Filipinos and insure more than 27 million nationwide. CARD’s innovative financial and enterprise development services targeting the poor has won many accolades, including the Ramon Magsaysay Award for Public Service in 2008, and for Dr. Alip, the prestigious Ramon V. del Rosario Award for Nation Building in 2019. Dr. Alip is an alumnus of the Harvard Business School, the Southeast Asia Interdisciplinary Development Institute, and the University of the Philippines.