WHILE Davao City continues to stand out as one of the most livable and secure cities in the Philippines, business leaders warn that many of its micro, small, and medium enterprises (MSMEs) are unable to fully capitalize on its growth due to persistent financial barriers and regulatory red tape.
The city was recently named the “Best City to Visit in the Philippines” by the World Travel Index (WTI), which evaluated destinations based on accommodation costs, affordability of dining and shopping, transportation, infrastructure, attractions, and safety.
Davao City also retained its position as the third safest city in Southeast Asia and the safest in the Philippines, according to Numbeo.com’s Safety Index. These recognitions highlight the city’s strong performance in security, quality of life, and business environment.
However, behind these accolades lies a more complex economic reality for local enterprises. Despite a booming tourism sector, improving infrastructure, and a growing startup scene, many MSMEs remain unable to ride this wave of development.
Barriers to growth
Cherrylin Casuga, vice-president for Industry at the Davao City Chamber of Commerce and Industry Inc., said the city’s economic strength has not translated into equitable growth for small businesses because national-level bottlenecks continue to undermine their potential.
“Davao is leading in tourism, infrastructure, and startups, but these problems at the national level stop most micro and small businesses from leveraging what momentum on economic growth the city has. Instead of doing product development, marketing, and job creation, they’re wasting time with red tape,” Casuga said.
Her remarks reflect the findings of recent research showing that structural challenges, particularly limited access to credit and complex regulatory processes, are major constraints on MSME development.
Credit access remains a challenge
Despite government programs aimed at supporting small enterprises, access to financing remains a significant hurdle.
A 2025 survey revealed that only 33 percent of MSMEs nationwide were optimistic about obtaining bank loans, while more than half had never applied for one due to fears of high interest rates, debt burdens, and lengthy application procedures.
For many who attempt to secure funding, the process can take several months, a delay that often forces them to postpone or scale back expansion plans. This funding gap remains a major obstacle despite the overall growth in lending.
Data from the Bangko Sentral ng Pilipinas (BSP) showed that MSME loans grew by P11.78 trillion as of June 2025, representing a 9.05 percent year-on-year increase.
However, these loans still account for only 4.6 percent of the total banking portfolio, far below the 10 percent allocation mandated under the Magna Carta for MSMEs. Efforts to close the gap are underway. The BSP has partnered with the International Finance Corporation to introduce “movable asset financing,” which allows MSMEs to use assets like inventory or equipment as collateral. It has also launched a web-based credit scoring system to speed up loan assessments and reduce approval times.
Red tape and regulatory delays slow expansion
Beyond financing, regulatory procedures, particularly those involving environmental permits, remain a major barrier to growth. Entrepreneurs say that even low-risk projects are subjected to exhaustive reviews by the Department of Environment and Natural Resources-Environmental Management Bureau (DENR-EMB), with requirements that are often unclear or unnecessarily complex.
These inefficiencies not only slow business expansion but also divert resources that could otherwise be spent on innovation, marketing, or workforce development. Policy misalignments between national and local regulations further complicate the process, leaving many businesses frustrated and unable to scale operations.
Calls for reform and a more enabling business environment
Business groups and policy advocates are urging comprehensive reforms to help MSMEs thrive in cities like Davao, where strong fundamentals are already in place. One proposal, according to Casuga, is to impose stricter timelines on loan approvals and permit issuances, ideally between 15 and 30 working days, with automatic approvals if agencies fail to meet the deadline.
Digital transformation of application processes is also seen as crucial. By moving loan and permit submissions fully online and introducing transparent tracking systems, entrepreneurs could monitor their applications in real time and reduce delays caused by manual processing. She also advocates for a risk-based approach to environmental regulation, which would exempt low-impact projects from full-scale reviews while focusing stricter scrutiny on larger, higher-risk operations.
Integrating government services into one-stop shops at local Negosyo Centers could further streamline processes, allowing entrepreneurs to apply for national and local permits simultaneously.
Meanwhile, expanding microcredit programs that offer P10,000 to P50,000 in collateral-free loans, combined with training and mentorship, could give MSMEs the capital and skills they need to grow sustainably.
Unlocking Davao City’s full economic potential
MSMEs account for more than 99 percent of registered businesses in the Philippines and employ over 60 percent of the country’s workforce. Enabling them to thrive is therefore critical not just for Davao City’s economy but for national development as a whole.
If these reforms are implemented effectively, local enterprises could redirect their time and resources away from bureaucratic processes and toward innovation, product development, and job creation. This would allow them to take full advantage of Davao’s strong fundamentals and ensure that the city’s rising reputation as one of the Philippines’ most livable cities also translates into inclusive and sustainable economic growth. DEF