Philippine leaders have been saying for the longest time that micro, small and medium enterprises have a very important role to play in the development of the Philippine economy. In a “Go Negosyo” TV commercial, for example, President Duterte pushed for an equitable and inclusive economic growth by nurturing the country’s MSMEs.
When the President graced the launching in November of the Asean Business Advisory Council’s flagship project—the Asean Mentorship for Entrepreneurs Network—he announced his commitment to help propel MSMEs in the Philippines and to increase the national budget allocation to further the development of this sector. Duterte said: “Next year I would like to make some changes to the budget. I would like to pour more money into the micro, small and medium entrepreneurs because we found out in our meetings that the basic unit of the economy has always been moved by the MSMEs.”
The announcement acknowledges the fact that despite government policies that aim to provide an enabling environment for MSME development, the sector still faces various constraints that prevent it from realizing its full potential.
Many business opportunities for MSMEs have been wasted because of their inability to respond to these favorable circumstances. In December, for example, the government urged our MSMEs to take advantage of the huge under-tapped opportunities in the multitrillion-dollar global halal market. The reality, however, is that most MSMEs need all the support they can get because getting certified as producers of halal products is already a big hurdle for most of them.
For Philippine MSMEs, financing is their biggest problem. Unlike their counterparts in other countries that can secure needed capital from their respective banks, our MSMEs are shamefully credit-starved. That’s because our commercial banks remain reluctant to lend to these enterprises despite the existence of a law mandating banks to set aside a portion of their loanable funds for small firms (See, “Micro, small firms still unable to tap loans from banks” in the BusinessMirror, December 27, 2018).
Republic Act (Republic Act) 9501, which was passed in 2008 to boost the access of small enterprises to bank loans, mandates commercial banks to allocate 8 percent of their total loan portfolio for small firms. The law was crafted because our micro, small and medium enterprises are regarded as crucial drivers of the Philippine economy, making up 99.6 percent of all registered businesses. They also generate 61.6 percent of the country’s employment.
The law, however, is more honored in the breach than in the observance. Data from the Bangko Sentral ng Pilipinas (BSP) showed that in the first half of 2018, local banks only earmarked 3.18 percent of their total loan portfolio for micro and small enterprises. This is the sixth consecutive year that local banks failed to meet the required lending for micro and small enterprises in the country.
Data also showed that loans allocated to MSMEs have been declining since RA 9501 was passed in 2008. In 2009, banks set aside 9.48 percent of their loanable funds for small firms. Two years after, this went down to 8.23 percent as of end-June 2011. Since 2012, banks have been unable to meet the mandatory lending requirement. That year, loanable funds allocated by banks for small firms plummeted to 6.87 percent.
BSP Governor Nestor A. Espenilla Jr. earlier said: “MSMEs are unable to reach their full potential because of difficulty of credit and financial access. As a staunch advocate of financial inclusion and of promoting broad-based growth, we at the BSP are very concerned about these numbers. We are committed to providing a regulatory environment to address financial access barriers such as cost, information asymmetry and lack of infrastructure, among others.”
It seems the BSP needs the help of Congress and Malacañang to do the job of helping small entrepreneurs and providing a fertile ground for our MSMEs to grow and compete in a bigger stage. The ball is still in the hands of our national leaders.