THE Department of Finance (DOF) has expressed confidence that the recent signing by President Duterte of the Personal Property Security Act (PPSA) will boost access to credit especially of micro, small and medium entrepreneurs (MSMEs), as well as farmers and fisherfolk, and improve competitiveness in the country.
According to the DOF, the landmark law simplified and harmonized the Chattel Mortgage law of 1906 and other fragmented and outdated financing regulations in the country by enabling borrowers to secure financing using nontraditional collateral, such as account receivables, inventory, warehouse receipts, crops, livestock, machinery and equipment.
“President Duterte signed this measure into law in sync with his vision for sustained high growth and greater financial inclusion,” said Finance Secretary Carlos G. Dominguez III.
Republic Act 11057, also established a unified, centralized online notice-based collateral registry that will be lodged in the Land Registration Authority (LRA) and clearer priority rules in case of foreclosure, among others.
The law is intended to provide protection and more confidence to banks and financial institutions in lending to the agriculture sector and MSMEs.
MSMEs comprise 99.6 percent of total businesses in the country, of which 96 percent are micro businesses.
Dominguez explained that MSME financing is considered unattractive, given the perceived higher risks without traditional collateral such as land and other real property, making it difficult for MSMEs to meet bank requirements to get loan approvals.
He said the new law will help boost economic growth because access to financing is critical to higher productivity of the MSME and agriculture sectors, which in turn, could lift millions of Filipinos out of poverty and accelerate more inclusive growth in the countryside.
In case of default, borrowers and lenders may opt to put movable collateral for private sale. Any excess amount from the proceeds after the settlement of debt obligations may be handed back to the borrower.
In turn, the reform will result in increased access to credit of small businesses and farmers, lower borrowing costs, reduced risk of nonpayment of debt and lower rate of nonperforming loans of financial institutions.
Finance Undersecretary Gil S. Beltran said the reform will “provide the framework for the use of assets other than real estate for MSMEs and agribusiness to access finance.
“It will lead to the development of a professional, regulated warehousing industry that issues receipts that can be used as collateral and can be traded by investors and industry players, and develop the backbone of an efficient commodities market that will stabilize prices and expand transactions,” Beltran said.
In 2012 the DOF led the Technical Working Group composed of diverse stakeholders from the private and public sectors, which eventually came up with a framework document that provided recommendations on how to pursue a best practice movable collateral reform in the country.
The LRA adopted these recommendations and enhanced its registry; and it moved toward aligning it to international best practices.
The International Finance Corp., which is a member of the World Bank Group, provided—with support from the governments of Japan and Canada plus the Secretariat for Economic Affairs of the government of Switzerland—technical and financial assistance to the movable collaterals reform.
“This law is indeed a big milestone in increasing access to finance for MSMEs and farmers in the Philippines and a true collaborative effort from the public and private sectors to promote the growth of MSMEs and agribusiness,” said Yuan Xu, IFC country manager for