Issue of September 1, 2019
     
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BSP backs passage of laws to boost MSMEs’ access to funds
by Press release

The Central Bank has expressed support for the passage of laws seeking to improve the access to finance of micro, small and medium enterprises (MSMEs) in the country.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the passage of a new Warehouse Receipts Law and the review and amendment of the Agri-Agra Reform Credit Act of 2009, or the proposed amendment of Republic Act 10000 would help the MSMEs.

“The introduction of updated and more flexible provisions in these laws would help MSMEs, especially those that are agriculture-oriented, to gain access to credit; leverage innovative models; and induce banks to venture into MSME and agriculture financing with better terms and standards for compliance,” he said during the recent third general membership meeting of Philippine Exporters Confederation, Inc. (Philexport).

Diokno was also optimistic that the passage of the Personal Property Security Act in August last year would enhance the access of MSMEs to business and consumer credit by enabling the use of alternative collateral such as equipment, inventory, and warehouse receipts.

Apart from lending legislative support, Diokno said the BSP, together with the Cooperative Development Authority, is implementing the Credit Surety Fund program, which enables MSMEs, cooperative and businessmen to boost their credit worthiness by providing surety cover of up to 80 percent for bank loans.

To boost SME access to finance, he said they are also working with the Government of Japan to establish a credit risk database that will produce scoring models predicting the creditworthiness of SMEs.

This will help improve firms’ access to finance through risk-based lending and lessen the dependence of banks on collateral, he added.

Diokno said that MSMEs are reluctant to approach banks due to the lack of collateral and credit history needed for loan application.

He considered the lack of access to credit still a fundamental obstacle to the further development and sustainability of the MSMEs, which account for 99.6 percent of the country’s enterprises and generate 61.6 percent of employment.

Philexport Trustee for Associate Sector Paterno Dizon attributed the MSME finance gap to the weak or lack of formal banking relationship, particularly for micro enterprises, and insufficient or absence of hard collateral.

Dizon cited the quarterly Financial Inclusion Dashboard report of the BSP indicating a 3.18-percent compliance rate of private banks to MSME lending in the first half of 2018, the sixth consecutive year that private banks failed to meet the required eight-percent lending for MSMEs.

“Based on this record, it may be safe to assume that the compliance rate could even be lower now after the lapse in June 2018 of the 10-year mandatory credit allocation for MSMEs in the Magna Carta for MSMEs,” he said.

“An amendment of this law started last Congress and will still be pursued in the current regime by the Department of Trade and Industry, Export Development Council and Philexport,” he added.

Dizon further cited emerging alternative forms of financing, such as crowdsourcing, angel investing, venture capital, and private equity which MSMEs, including start-ups, had been tapping.


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