The Department of Trade and Industry (DTI) is seeking to double its funding for micro, small and medium enterprises (MSMEs) to P4 billion next year, but exporters believe this is insufficient to cushion the impact of a shifting global value chain and a national policy on contractualization.
Trade Secretary Ramon M. Lopez said his agency is asking for a 35.14-percent increase in its budget for 2019. If approved, this will hike the DTI’s budget to P7 billion, from this year’s P5.18 billion.
“Yes, of course, [we asked for an increase],” Lopez told the BusinessMirror. He said a budget hike is needed to improve the agency’s programs and services, particularly on microfinance, shared service facilities (SSFs), exports promotion and consumer protection.
Of the proposed P7-billion budget, Lopez said about P4 billion is listed for MSME development. This is almost double this year’s allocation of P2.25 billion for MSMEs.
The DTI’s budget could also soar to as high as P13 billion if Lopez’s appeal to improve funding for the Pondo sa Pagbabago at Pag-asenso (P3) program is approved. The trade chief is proposing to assign P6 billion for the government’s loan service, backed by President Duterte’s desire to set aside at least P4 billion for microfinance.
“With the President’s desire to intensify support to MSMEs, there would be additional budgetary support [for them],” Lopez said.
The problem, however, is that the DTI had submitted its budget proposal before Duterte decided to increase the funds for the P3 program. “The budget for next year has been submitted, and it did not reflect the P4 billion [stated by the President],” Lopez explained.
Either way, he said MSMEs can expect enhanced government assistance next year. Under Lopez, the DTI is utilizing the P3 program and the SSF project to improve the capacity of MSMEs.
The P3 program is designed to give MSMEs easy access to credit, where they can borrow as much as P300,000 with a maximum interest rate of 26 percent per annum and no collateral requirement. It is also intended to veer them from onerous loans, particularly the “5-6” money-lending system, which has a 20-percent interest per day, week or month charged by the lender.
The SSF project is aimed at improving the quality and productivity of MSMEs by providing them with access to technology, machinery, equipment, tools, systems, skills and knowledge under a communal system. It hopes to resolve the gap and bottlenecks in the value chain and encourage MSMEs to graduate to larger enterprises with wider market share.
However, the Philippine Exporters Confederation (Philexport) believes more work—and funding—is needed to make the country’s MSMEs on a par with its counterparts in Southeast Asia.
Philexport President Sergio R. Ortiz-Luis Jr. said at least P10 billion must be allocated for MSMEs if the government is really serious in boosting their market share in the global value chain. “MSMEs in the Philippines are the most starved in Southeast Asia, and the requirement [to really help them] is in the tens of billions,” he told the BusinessMirror.
Ortiz-Luis said the current P2.25-billion budget for MSME development can only do so much. “It will just be scratching the surface, unless we can create a way that MSMEs can access credit on easier terms and requirements are not too stringent,” he said.
“The format of lending should be amended. There has to be acceptance [from the government] that repayment will not be good, but [the loans] will create jobs,” Ortiz-Luis added.
He said he understands repayment is important because government funds are monitored and audited, and this is why he is of the view that a chunk of the conditional-cash transfer (CCT) must be apportioned to MSMEs.
“At least, the CCT requires no repayment because it is handed directly to beneficiaries,” Ortiz-Luis said.
The Philexport chief also said challenges await MSMEs in the coming months and up to next year, with the global value chain anticipated to drastically change with the uncertainty of global trade and the domestic labor force expected to absorb impact from the President’s new policy prohibiting contractualization.
Maria Alegria Sibal-Limjoco, president of the Philippine Chamber of Commerce and Industry, said she agrees MSMEs must receive more funds next year. For her, this is the “opportune time” to grow the sector that comprises 99 percent of Philippine business establishments.
“If need be, we must increase [budget for MSME development],” Limjoco told the BusinessMirror. She said the current P2.25-billion allocation must be increased by at least 10 percent, or by P225 million, to improve the capacity of MSMEs.
Figures from the Philippine Statistics Authority showed 99.6 percent of all businesses in 2016 were MSMEs. Out of the 915,726 business enterprises listed that year, microenterprises account for 89.63 percent (820,795); small enterprises 9.5 percent (86,955); and medium enterprises 0.44 percent (4,018).