Bill to reform lending law helps SMEs get funding

STAKEHOLDERS are being asked to support a draft legislative bill seeking to reform the lending system in the country to enable more micro, small, and medium enterprises (MSMEs) to gain access to bank credit.

Chester Abellera, a legal consultant of the World Bank-affiliate International Finance Corporation, said in a recent business forum that it is high time the country's outmoded financing laws are reformed so MSMEs can benefit from the lower interest rates offered by banks.

He pushed for support in particular for the passage of the proposed secured transactions reform bill filed in both houses of Congress, which seeks to make acceptable other forms of assets besides real estate as bank collateral.

Abellera said the draft bill aims to unify, simplify, and modernize the fragmented and outdated financing regulations in the country in order for small establishments with no traditional collateral to still secure trade financing.

Although said to be "awash in cash," banks are reluctant to provide loans to MSMEs, which are seen as high-risk clients, thus crippling the growth and expansion of small establishments and startups.

In the Senate, Senator Paolo Benigno Aquino IV filed in July this year Senate Bill No. 354-"An Act Strengthening the Secured Transactions Legal Framework in the Philippines, which shall provide for the creation, perfection, determination of priority, establishment of a notice registry, and enforcement of security interests in personal property, and for other purposes," or otherwise known as the Secured Transactions Act to "enjoin our banks to take part in MSME development with less risk."

In his explanatory note, Aquino said: "Despite being a growth area for banks, SME financing is still considered unattractive given the perceived risks, without traditional collateral such as land and other real property."

The problem is that MSMEs' assets are mostly personal in nature, such as equipment, inventory, motor vehicles, accounts receivables, and more, said the lawmaker, making it difficult for MSMEs to meet bank requirements to get loan approvals.

Thus, the bill underscores the urgency of overhauling old laws, particularly the Chattel Mortgage Law of 1906, which governs movable asset lending in the Philippines.

"The current regime recognizes a diverse set of movable assets acceptable as collateral for loan purposes (e.g. motor vehicles, standing crops like rice, sugarcane and other agri-aqua commodities, equipment, etc.); however, these assets are not being fully utilized nor preferred by banks as loan collateral, except motor vehicles, which leaves the law ineffective to increase trade or facilitate access to finance for MSMEs," said Aquino.

Essentially, the Secured Transactions bill strives to "establish a comprehensive legal framework to govern lending transactions that involve the use of personal property as collateral, as well as a unified, centralized, online notice-based national collateral registry to assure banks that the collateral being submitted has not already been utilized for another loan."

These reforms, Aquino pointed out, can help increase credit access for women and small businesses, reduce the risks of non-payment of debt and interest rates and cut the rate of non-performing loans of financial institutions.

This measure provides "an opportunity to create a win-win, balanced environment for financial institutions and small businesses, which will generate more employment and sustainable livelihood for Filipinos across the country," he added. (Philexport News and Features)
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