Large enterprises understating assets to avail of loans

Big firms, not SMEs, benefiting from lending quotas, says ADB

DESPITE a law requiring Philippine banks to allocate a portion of their loan portfolio to small and medium enterprises (SMEs), the Asian Development Bank (ADB) said credit access for that sector remained “poor.”

In a study, the Manila-based lender said that while directed credit programs and state ownership of banks have been associated with some success in improving particular types of outcomes for SMEs, “the overall record seems poor, with much scope for improvement.”

“While banks in the Philippines are required by law to allocate 8 percent of their loan portfolios to SMEs and appear to be doing so . . . funds did not actually go to SMEs but to larger enterprises that deliberately understate their assets to get classified as SMEs,” the ADB said.

The lender however provided no details about this diversion of legal quotas from SMEs to big business establishments.

“ The small enterprises, especially informal ones, may also be facing difficulty gaining finance because of downward pressure on remittances,” the lender said.

While a squeeze in available finance has by all accounts affected SMEs more than large enterprises, leading many governments in the region to step up efforts to improve their access to finance, the challenge of improving SME access to finance has no quick solutions, the ADB said.

“Improving SME access to finance requires building up an appropriate regulatory infrastructure. It also requires stronger informational infrastructure for the efficient functioning of financial markets,” it said.

Besides poor access to credit, other problems facing SMEs include marketing, information, technology and skills. The ADB said assisting micro enterprises can be an important way to alleviate poverty, adding that some micro entrepreneurs have considerable potential to expand their businesses and should be helped in doing so.

“Nevertheless, the big gains in growth and jobs are likely to come from understanding how public policy can help SMEs become more productive,” the lender said.

Fostering dynamism in SMEs will not only help their owners, but also workers at large, it said, adding that a dynamic SME sector can play an important role in the rebalancing of the economies of Asia by raising household incomes and thus domestic demand.

ADB defines SMEs as enterprises with less than 200 workers. Citing manufacturing statistics from the region, the lender said they account for 50 percent to 90 percent of total employment, and are even more important outside manufacturing.  –Darwin G. Amojelar, Senior Reporter, Manila Times