CEBU Provincial Board member Glenn Anthony Soco has called on banks and other lending institutions to extend more financial assistance to micro, small and medium-sized enterprises (MSMEs) on the back of rising interest rates and inflation.
In a resolution, Soco urged banks, financial institutions, and loan facilities to extend help and assistance to the MSME sector by giving more loans and other financing opportunities, simplifying loan availment and access, expediting loan processing and approval, and designing more advantageous programs to help the sector bounce back from the effects of the economic difficulties, remain afloat and sustain their businesses and expand.
According to Soco, even with the policies and programs in place, MSMEs are unable to reach their full potential due to a lot of hindrances. He said banks, financial institutions and loan facilities are not extending enough loans and are not compliant with the required 10 percent total bank credit to MSMEs.
This, he said, is on top of the procedural difficulties in accessing these loans because of lengthy documentary requirements, processes, and more, which result in the sector’s poor growth.
“Most of these MSMEs are looking for options and opportunities to expand and take advantage of the improving economy. However, with their limited capitalization, they are hampered in their efforts. Most of them are dependent upon loans extended by banks and other financial institutions and facilities to finance their businesses. Worse, in desperation, some resorted to loan sharks, fly-by-night and opportunistic informal businesses which take advantage of the MSMEs. These businesses charge exorbitant rates,” Soco said who, prior to joining public service, was president of the Mandaue Chamber of Commerce and Industry.
MSMEs’ share
A report from the Asian Development Bank said the share of MSMEs’ credit to total bank credit has been falling to less than 10 percent since 2013. It is below the mandated threshold of 10 percent by virtue of Republic Act 6977 or the Magna Carta for MSMEs, which mandates banks to earmark eight percent of their total loan portfolio for micro and small enterprises, and two percent for medium enterprises.
The share of MSME loans to banks’ total lending portfolio fell to 6.1 percent (P588.8 billion) in 2022 from 11.7 percent in 2010 as more lenders did not comply with the mandatory credit allocation to the sector, preferring to just pay the penalty rather than take on the risks associated with lending to MSMEs.
Soco argued that special attention and assistance must be extended to this sector, especially since they have been badly hit by the lingering effects of the Covid-19 pandemic and super typhoon Odette and now the rising inflation and interest rates.
“With all these challenges, the MSMEs are one of the most affected business sectors. With their limited capitalization and market reach, the successive events considerably injured them. They are grasping for more assistance and help as most of them had to close shop and lose some of their employees,” he said.
Collateral-free financing
Meanwhile, in a related development, a measure seeking to establish a sustainable and collateral-free financing program for the country’s micro and small enterprises (MSEs) obtained approval on March 21, 2023, on the third and final reading at the House of Representatives.
With an overwhelming 278 votes, lawmakers approved House Bill 7363, or the “Pondo sa Pagbabago at Pag-Asenso Act,” or simply the “P3 Act,” which aims to provide an affordable, accessible and simple financing program for MSEs, especially those in the poorest populations and underserved areas.
HB 7363 mandates the creation of the Pondo sa Pagbabago at Pag-asenso (P3) Fund, “which shall be lent out to qualified MSEs under such terms and conditions that will meet the purposes of this Act.”
The P3 Fund shall be accessible through the Small Business Corp. (SB Corp.) and accredited partner financial institutions (PFIs) such as rural banks, thrift banks, development banks, cooperative banks, cooperatives, non-stock savings and loan associations, microfinance non-government organizations, or lending companies.
SB Corp. will be the lead implementing agency for the P3 Fund.
Main features
According to HB 7363, SB Corp. shall handle the fund delivery to MSEs through the following modes: direct lending for 40 percent of the P3 Fund, and lending through accredited PFIs for 60 percent of the P3 Fund.
The main features of the P3 Fund include low-interest rates and no collateral requirements for MSE loans.
“The effective interest rate to be imposed on the loan availed of by the P3 Fund beneficiaries shall not exceed one percent per month for direct lending, and shall not exceed two and a half percent (2.5 percent) per month for lending through accredited PFIs,” the measure said.