What’s driving the Philippine economy? Is it big businesses that dominate agriculture, manufacturing, real estate, mining, transportation, communications and other key industries? Is it the government, which formulates plans for the economy and enacts economic policy?
While government and big business both have an important role to play in the economy’s growth and development, micro, small and medium enterprises are, undoubtedly, also crucial in driving the economy. After all, they comprise 99.5 percent of all enterprises in the Philippines, according to the Department of Trade and Industry in 2015.
The crucial role of MSMEs
MSMEs are scattered in various sectors of the economy such as wholesale and retail, motor vehicle industries, food and accommodation services, manufacturing, information and communication, financial and insurance activities, among others. In 2015, it employed more 4.7 million Filipinos in various jobs in their sector, as opposed to the 2.9 million Filipinos employed in large enterprises, according to the DTI.
But when it comes to value being added to the economy, MSMEs are largely low value. In the latest available data from the DTI, MSMEs contribute only 35.7 percent of value to the economy, despite having more enterprises and workers being employed. This value is lower as against our Southeast Asian neighbors like Indonesia, Vietnam and Thailand, where MSMEs contribute a larger portion in their respective economies.
What’s hindering greater MSME contribution to the growth of our economy? Several non-financial factors are at play such as difficulty in securing government permits, access to electricity and infrastructure, natural calamities that threaten MSME production, among others. But more importantly, it is the lack of access to capital that prevents MSMEs from producing more and adding greater value to the economy. It needs the government’s assistance to acquire much-needed capital to start and grow their business.
“MSMEs are vital in dispersing new industries to the countryside and stimulating gainful employment. A country like the Philippines where labor is abundant has much to gain from entrepreneurial activities. MSMEs are more likely to be labor intensive. Thus, they generate jobs in the locality where they are situated. In this sense, they bring about a more balanced economic growth and equity in income distribution,” says Bartholomew Brillo Reynes, president and CEO of Small Business Corporation (SB Corp), a government-owned and controlled corporation that is at the forefront of the government’s effort to encourage MSME growth through various enterprise-financing activities.
Encouraging MSME growth
Since 1991, SB Corp. has been providing MSMEs engaged specifically in manufacturing, processing and agribusiness with a wide range of financial services, including direct and indirect lending, loan guarantee, financial leasing, secondary mortgage, venture capital operations and debt instruments for compliance with mandatory allocation provisions.
Together with DTI, its parent agency, SB Corp. works with various partner financial institutions such as banks and lending companies in providing financial services and assessing the different MSME applicants who want to avail of such services.
SB Corp. also works with other government financial institutions (GFIs) that provide similar financial services to other sectors of the economy. The company is the lead convener of the government’s ASENSO (Access of Small Entrepreneurs to Sound Lending Opportunities) program—the collective efforts of GFIs to lend to MSMEs.
ASENSO is comprised by Development Bank of the Philippines, Land Bank of the Philippines, National Livelihood Development Corporation, Social Security System, Government Service Insurance System and SB Corp. As chair and technical secretariat to the program, SB Corp. provides the MSME Development Council regular reports of program implementation in terms of the level of portfolio, number of borrowers and jobs supported. Since 2004, the program has released a cumulative of P436.17 billion to various MSMEs, with SB Corp. share in the cumulative loans totaling P26.793 billion.
Fulfilling promises of change
Even as government changed hands in the past 26 years, SB Corp. remains steadfast in its commitment to support the financial needs of MSMEs. This commitment has become even stronger and broader under the administration of President Rodrigo Duterte.
“Enterprise financing is part of President Duterte’s Ambisyon Natin 2040. Government must encourage investments in these sectors by improving market linkages, simplifying government procedures, and facilitating access to finance. This being said, SB Corp., by fulfilling its mandate of providing access to finance to micro, small and medium enterprises, plays an important role in the fulfillment of the administration’s long-term development plan. With administrative support of the DTI, it has responded to the needs—immediate and otherwise—of the MSME sector,” Reynes explains.
Among President Duterte’s directives in terms of enterprise financing to MSMEs involves the creation of a lending program called Pondo sa Pagbabago at Pag-asenso (P3), which aims to rival the five-six lending scheme that scrupulous lenders use to prey on MSMEs by giving them an alternative source of funding—a call which the company heeded. He also called on the company to design specific programs for calamity stricken MSMEs through its Enterprise Rehabilitation Financing Program that has now evolved into a Guarantee Program.
A year into President Duterte’s term, SB Corp. has already turned these directives into a reality and is helping millions of MSMEs start and grow their businesses.
Leading the charge is the company’s lending activities. As of June 2017, the company’s total portfolio balance for its lending programs is at P3.0 billion, with retail lending posting the highest portfolio balance at P1.3 billion followed microfinance at P1.06 billion, Enterprise Rehabilitation Financing at P0.446 billion and MSME wholesale lending P0.234 billion.
During the first semester of 2017, the total loan releases for direct lending was reported at P846 million—an increase of 68 percent in loan as against P503.74 million total releases in December 2016.
MSME wholesale lending through partner banks posted releases totaling P243.56 million, a modest 13-percent increase from the December 2016 figure of 214.77 million. This performance was the result of MSME wholesale lending being affected by a more relaxed approach to wholesale and a policy shift to consider lending to MSMEs with higher loan sizes compared to aiming for a bigger number of borrowers.
MSME borrowers that availed of retail lending increased from 531 to 885 during the first semester of 2017, a 67-percent increase from the same period last year. Likewise, MSMEs that availed of wholesale lending posted a cumulative total of 182 during the first semester of 2017, a decrease of three percent from the same period last year.
Meanwhile, the company’s credit guarantee portfolio posted a total of P338.59 million in loans guaranteed for the period, while the total number of MSME borrowers guaranteed remained almost constant at 243 during the first semester of 2017.
Helping MSMEs recover
The company also continues to extend a helping hand to MSMEs in their effort to rehabilitate their business affected or damaged by various calamities in the country, particularly in areas still recovering from Super Typhoon Yolanda in CALABARZON, MIMAROPA and the Visayas Region.
Since SB Corp. spearheaded its Enterprise Rehabilitation Financing (ERF) program in these areas in December 2013, a total of P629.80 million has been released to MSMEs that availed of the financing program. A notable beneficiary of the program is Bantayan Island, Cebu’s egg industry, which was rehabilitated within two years from the calamity through loans totaling P110.79 million. Another exemplar of success is the rehabilitation of the tourism industry in Cebu and Eastern Samar through loan releases totaling P16.8 million that benefited 11 hotels/resorts.
Fighting unscrupulous lenders
Another milestone in the company’s accomplishments under the Duterte Administration began with launch of the Pondo sa Pagbabago at Pag-asenso (P3) program in three pilot areas in January in Alabel, Saranggani Province; Tacloban, Leyte and San Jose, Occidental Mindoro.
The program is designed as a better alternative source of financing for enterprises that are forced to borrow from informal lenders at very high rates. From its initial pilot areas the program was rolled-out nationwide on May 31, 2017.Since then a total of P246.4 million has been released as direct lending to MSMEs and as microfinance through conduit financial institutions. Initial direct borrowers to the program were 180 micro borrowers (mostly market vendors) and 50 accredited cooperatives.
These figures are a testament to the positive response the programs has been getting from the MSME sector and proof of the potential the program has in eradicating high-interest lending schemes that target MSMEs.
Recognizing key partners
These successes would not be possible if not for the trust and cooperation given by SB Corp.’s partner financial institutions. In recognition of the critical role they play in providing financial services to MSMEs, the company organizes the annual Gawad MSME, where due recognition is given to distinguished PFIs instrumental in achieving the goals and targets of the company in the past year.
“Partner financial institutions are critical partners in the accomplishment of SB Corp’s vision of mainstreaming MSME finance in the country. SB Corp. agrees to support and cooperate with PFIs where the partnership results to increased access to credit for MSMEs,” Reynes says.
As SB Corp. celebrates its 26th year today, it shall celebrate it with extreme pride for having able to contribute to the promised changes that President Duterte has made. More importantly, it stands tall and with honor, as it recognizes its critical role in driving the growth of the MSME sector and in creating real change in the lives of its fellow Filipinos.
By EPI FABONAN III