HOW do banks become better providers to micro, small, and medium enterprises?
For Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr., one way for banks to better serve entrepreneur-borrowers is to conduct credit analysis when they apply for loans to expand their businesses, instead of asking for collateral.
“Reduce fixation on collateral as a means of providing loans,” Espenilla told bankers during the 43rd Philippine Business Summit and Expo yesterday at the Manila Hotel in Quezon City.
“The BSP itself signals that it is not requiring banks to demand collateral from borrowers. Instead of collateral, use good judgement and credit analysis,” he added.
Despite the success of the country’s banking sector, the BSP chief said banks have failed in serving a larger number of Filipinos. That’s evident in the results of BSP’s Consumer Finance Survey in January this year, where 86 percent of Filipino households were found to be unbanked or do not have deposit accounts.
Meawhile, banks also prefer to pay fines than lending their resources to MSMEs. Under the law or the Magna Carta for SMEs, banks should allocate eight percent of their total loan portfolio to micro and small enterprises and two percent for medium enterprises.
In the Philippines, MSMEs account for 99.5 percent of the country’s total establishments and employ about 61.6 percent of the workforce.
Espenilla, however, was quick to explain that assistance to MSMES should not be only framed from a financial perspective. Other challenges that need attention are access to markets, the capacity of MSMEs, and access to technology.
On the part of BSP, Espenilla said it is promoting financial technology for MSMEs, too.
“Digitalizing is very important because that creates so many possibilities for offering financial services especially for SMEs,” he said, adding that most digital financial services are not collateral-dependent.
The BSP is working with RegTech for Regulators Accelerator (R2A), managed by global consulting firm BFA, to develop digital supervision tools to regulate financial technology companies.