The real problem lies on the access of micro, small and medium enterprises (MSMEs) to trade finance. This could have been addressed had the banks and lending institutions faithfully complied with the 10-percent mandatory allocation of their loan portfolios to MSMEs as provided for in Republic Act 9501, or the Magna Carta for MSMEs.
However, such provision was rendered ineffective by the reduced penalties imposed by the Bangko Sentral ng Pilipinas (BSP) on noncompliant banks. The urgent task now is to review and amend the pertinent BSP issuance to conform to the real intent of the law. Thus, the government and relevant stakeholders should work toward the full implementation of the Magna Carta for MSMEs. Since the law will expire in May 2018, the Export Development Council’s Networking Committee on Financing (EDC-NCF) has been working with both houses of Congress in amending the law’s implementing rules and regulations (IRR) and the law itself.
Through the EDC-NCF’s efforts, House Resolution 2568 was issued by the Congressional Oversight Committee (COC) on MSME Development during the 16th Congress. The resolution aims to extend to another 10 years the mandatory lending provisions of the said law to ensure adequate financing for MSMEs. The EDC-NCF will continue to advocate this in the 17th Congress.
Another intervention worth looking into is increasing the credit guarantees of PhilExim and SB Corp. for SME exporters. PhilExim and SB Corp. have an existing guarantee program for SMEs, including exporters. It is necessary they enhance their Portfolio Guarantee Program and engage more commercial banks into financing credit-guarantee loans for SMEs. SB Corp. went further by implementing the risk-based lending program, wherein 50 banks have been trained on how to lend to SMEs without going through tedious requirements.
Risk-based lending approach to banking is a radical change in lending, from a heavy reliance on collateral to an assessment of borrower quality and ability to repay loans.
Government financial institutions (GFIs), banks and other financing institutions and companies have developed their own innovative financing schemes and other alternative financial sources to assist our MSMEs in accessing finance. Below are just two of the many innovative facilities made available to MSMEs.
SB Corp. has introduced the following innovative financing facilities available to MSMEs:
- Trade Fair and Inventory Buildup Loan Fund—to finance participation in local and international trade fairs, for inventory buildup, space/booth rental and shipment cost;
- Food and Drug Administration (FDA) Licensing and Production Site Compliance Loan Fund—to finance the cost of licensing and physical assets or improvements that need to be acquired by the MSME in order to be granted the license;
- Patents Licensing and Inventory Buildup Equity Fund—to finance patent-licensing cost and inventory buildup;
- Commercialization of Innovation Awardee Equity Fund—to finance start-ups with outstanding product/ service concepts;
- Halal and Kosher Certification Loan Fund—to finance MSMEs engaged in food processing and are seeking certification of products for export to Muslim and Jewish territories;
- Loan Fund for Farm Development for Pocket Farmer Entrepreneurs—to finance the production requirement for long gestating and/ or nontraditional high-value crops by farmer entrepreneur and corporate employees;
- Equity Financing for Corporatized Enterprises—to finance MSMEs operating in industry clusters with funding requirements from P50,000 to P200,000; and
- Lending to MSME Clientele of DTIs SSF Program—to finance the working capital requirements of Department of Trade and Industry Shared Service Facility (SSF) beneficiaries.
First Circle is a new financing company that leverages the use of technology to provide Philippine SMEs with world-class financial services. Their innovative and customer approach enables SMEs to avail themselves of growth finance within one to three working days for first-time applicants and 24 hours for refinancing. First Circle provides short-term working capital finance to businesses starting with a loan amount of P100,000 to P1 million for a term length of up to six months.
Once a relationship with a client has been established and there is a track record of repayment, First Circle can increase the amount and extend the term length. The interest rate varies, depending on the amount, term length, type of product and risk profile of the business.□
Emmarita Z. Mijares and Grace T. Mirasol , Export Development Council, Department of Trade and Industry