Small Business Corporation is celebrating its 27th year as a GOCC and as the implementing agency of the access to MSME finance agenda under the Magna Carta.
President Duterte has strongly advocated for a stronger MSME as the solution to achieving a middle class economy for the country. Thus, national government funding through SBCorp has been increased significantly starting 2017.
While the size of its resources has been limited in the early years, SBCorp has done its best to fulfil its mandate. It has embarked on the path of a trailblazer with programs including the Enterprise Rehabilitation Financing for Yolanda-affected MSMEs, the Pondo sa Pagbabago at Pag-asenso as an anti-5/6 strategy, and investment financing to special communities engaged in entrepreneurship. SBCorp has trained rural banks and its account officers on how to lend to MSMEs as well as trained MSMEs to bridge the information gap between lenders and borrowers for a reinforced environment of trust and confidence between the supply side and the demand side.
SBCorp has not stopped innovating and has adapted to the changing environment faced by the MSME sector.
Philippine Star caught up with SBCorp President and CEO Ma. Luna Cacanando for an interview.
1.For the past 27 years, what are the landmark projects that the agency has implemented? How did these help improve the stability and sustainability of small businesses?
Since its creation in 1991, SBCorp has helped advocate the increased allocation of the country’s financial resources to MSME finance.Coverage of the first Magna Carta in 1991 was limited to “small enterprises”.This was expanded to cover “small and medium enterprises” in 1998, and the law eventually became Magna Carta for Micro, Small and Medium Enterprises in 2008.Under the Magna Carta, banks are required to allocate a certain percentage of their amount of lending to MSMEs.In the case of the 2008 amendment of the Magna Carta, banks had been required to lend at least 8% to micro and small enterprises and at least 2% to medium enterprises for the period 2008 up to 2018.Congress is reviewing the extension of this affirmative action in favour of MSMEs.
To date, SBCorp is the only government corporation mandated to wholly focus on MSME finance.SBCorp is differentiated from the banks in terms of target market, i.e. small businesses that are still young in their life as an enterprise and that do not have the required collateral.In times of deep impact calamities such as the Yolanda super typhoon and the Marawi war, SBCorp is mandated to respond by way of appropriate financing facilities that are of significantly low interest rate and of sufficient grace period in repayment schedule.
In 2014 and 2015, the national government issued P200.0 million in credit risk fund and P750.0 million in credit guarantee fund through SBCorp as lending support to Yolanda-affected MSMEs.Starting 2017, NG has issued through SBCorp at least P1.0 billion every year as lending support to micro enterprises plagued by 5/6 lenders.
The P1.0 billion a year fund is called Pondo Para sa Pagbabago at Pag-asenso.Congress has issued an endorsement to increase the allocation for this fund to P6.0 billion in 2019.
An important accomplishment in MSME development finance as implemented by SBCorp is having been able to prove that MSMEs do pay their loans.With proper credit evaluation and monitoring of the borrowers, loan default is kept within acceptable levels.
In order to scale up and mainstream MSME finance, SBCorp has been training account officers of rural banks under a certification program with the end of producing more AOs that are equipped in evaluating SME loans.
2. What are the most difficult challenges that hinder small Filipino entrepreneurs from striving in the business arena? How do you help them with said problems?
Poverty in itself is a huge challenge faced by everyone in the lower economic class. This difficulty is extended in the life of a micro entrepreneur who has barely enough savings to run the business on top of putting food on the table for the family.
The most important step for an entrepreneur is to create and to harness the product and/or service that the business would like to sell to the market. This involves a learning process including experimentation which entails cost.
A second challenge is being able to scale up production which requires hiring and training of labor. During the transition period, the small business will not have enough sales to pay for the right wages for its workers.
Government has responded to these challenges through microfinance, specifically the Pondo sa Pagbabago at Pag-asenso, through a whole range of trainings by DTI, through the roll-out of Shared Service Facilities and through the BMBE policy which exempts micro enterprises from paying minimum wage and income tax.
3. For SBCorp, what are the challenges that you have to overcome in order to provide quality service to small Filipino entrepreneurs?
Development finance or MSME finance requires a unique set of skills on the part of SBCorp as a lender. SBCorp started lending directly to MSMEs at a significant rate in 2003. In the beginning, the frontline teams were inexperienced in the nuances of lending to pre-bankable enterprises. Problems in collection of the MSME loans emerged, more as a result of operations risk on top of the usual credit risk.
In 2005 and the next three years, SBCorp had the benefit of training and consultancy services by a number of overseas development agencies (ODA). These helped SBCorp set up its risk management system inclusive of borrowing risk rating scorecards for small enterprises and for conduits, and helped SBCorp’s management and front-line teams to better understand the conceptual framework for MSME finance.
4. What are the programs that you are currently implementing and how will it affect Filipino businesses?
SBCorp’s services today can be classified into four.
First is Direct Lending to duly registered MSMEs, where loans range from P200.0 thousand to P5.0 million and average loan size is P500.0 thousand.SBCorp now has 2,300 active MSME borrowers all over the country under this credit modality.
The second service of SBCorp is the Pondo sa Pagbabago at Pag-asenso (P3), where loans range from P5.0 thousand to P200.0 thousand.This fund is intended for micro enterprises (ME) with asset size not exceeding P3.0 million, inclusive of those not yet registered with the LGU or with DTI.MEs are most vulnerable to usurious, illegitimate 5/6 lenders.
In order to move P6.0 billion in P3 funds in 2019, SBCorp is completing the accreditation of at least 300 credit delivery partners (CDP) nationwide, targeting at least 3 CDPs per province.
Each P1.0 billion in P3 funds will support at least 40,000 MEs, spread out in all provinces of the country.For every P1.0 billion from the national government, each province should be allocated at least P10.0 million in P3 funds.
The third service of SBCorp is Capacity Building for partner financial institutions so that they can lend more to MSMEs.
The fourth intervention provided by SBCorp is Advocacy for MSME Finance, the goal of which is to “fight” for an increased shared for MSMEs in the allocation of the country’s national resources.This service finds expression in the laws developed and passed by Congress that are affirmative of the MSME sector inclusive of the annual budget or GAA.
Under the leadership of DTI Secretary Lopez, SBCorp chairs the Access to Finance Cluster of the MSME Development Council. The mission of the Cluster is to “build consensus and capacity among public and private institutions that contribute to the development of MSME finance in the country by way of policy, standards and program implementation”. The Cluster adopts a vision statement of “A truly responsive and inclusive development finance infrastructure shall have been instituted by 2022, resulting to an adequately financed MSME sector”.
5. Filipinos often have a negative notion on “borrowing”. How do you educate the people about this?
The negative notion on “borrowing” probably arises from the reality of 5/6 financing.It is unregulated, the lenders do not have license to lend and they do not pay taxes to government.There are even reports of physical harm to the borrowers under this lending environment.Paying 20% interest rate for a month-long borrowing or worse for a one-week loan is in a way an act of desperation for an ME, where the ME ends up losing any chance for business growth as all his earnings goes to loan repayment, net of the daily needs of his family.
We need to educate and to equip our small businesses on how to source more appropriately priced loans.They need to start practising simple accounting of their sales and expenses, so that formal lenders can review their ability to pay.
6. Filipinos are often hesitant to start their own businesses because of financial risks. How do you encourage Filipinos to overcome this idea?
To the contrary, study shows that Filipinos are risk takers.Among Asean countries, the Philippines rank one of the highest in rate of start up enterprises.The problem, however, is that we also rank highest in terms of mortality rate, meaning only a few get to hurdle the 40 months gestation period for an enterprise to be considered stable.
7. Many Filipinos are not financially literate. What are your thoughts on this and how do you address this matter?
This is not necessarily true.Even MEs can run the numbers in their head.Same is true with farmers.They can intuitively compute how much they should sell their products and how much discount they can give their customers.The gap is in converting these computations into paper form and into accounting language.
SBCorp and the whole DTI family have put effort into this matter of financial literacy, so that MEs and small businesses can access finance from formal lenders.
8. As we work our way towards Asean integration, how do we prepare or equip small business owners?
Our local MSMEs are seen to be the most vulnerable to the challenges arising from the integration as foreign players are allowed easier access to the Philippine markets. Our regional neighbours have prepared their MSMEs through increased and cheaper financing, aggressive marketing and upscale in product design. Our government is doing its best to provide services to our MSMEs at par or better than our counterparts. We hope for the best and we continue to work hard in putting in place all the support that our MSMEs need.