Lack of credit access hobbles competitiveness of cities

SUPPORTING the access of entrepreneurs to credit may help a city become more competitive, according to a study by the Asian Institute of Management Policy Center.

The level of lending activity and access to finance are among factors that propel the dynamism of a local economy, said Ma. Lourdes A. Sereno, AIM-PC executive director, who lamented on Monday that the low levels of these two factors usually become hurdles to a city’s competitiveness.

Sereno said these were some of the findings in the 6th round of the Philippine Cities Competitiveness Ranking project done every six years.  Cebu City was the most competitive among 29 cities included in the study that measured the drivers of competitiveness from data taken from local governments and national government agencies, as well as from interviews with local businessmen.

The interviews were held for 15 weeks beginning mid-September last year up to the first week of January this year.

Davao, Cagayan de Oro, Dagupan, Tacloban, San Fernando in La Union, Ormoc, Bacolod, Zamboanga and Puerto Princesa followed Cebu on the list of the top 10 cities that garnered high scores in the “drivers” of competitiveness.

Among the drivers she mentioned were: dynamism of the local economy or the level of activity that entices business; responsiveness of the local government to business needs, or the degree to which the local government units facilitates or hinders doing business through its regulations, programs and plans; and infrastructure, or the availability and condition of road networks as well as reliability of utility services.

Others are the quality of life, cost of doing business, and human resources and training, or the quality and availability of local manpower and potential work force.

Sereno entrepreneurs often hold out on their business operations because they are either discouraged by a credit-access system or can’t access credit.

“They can’t access financing because they’re required to put up so many collaterals and documents that they would rather borrow from other informal sources. Basically, we are forcing our entrepreneurs to go to the kamag-anak [relatives] and to the 5-6 [loan-shark system]. That’s not right. We must find ways to bring them to the mainstream.”

The AIM-PC study also showed that only 6 percent of the respondent-entrepreneurs tapped banks and registered lending institutions. About 13-percent acknowledged having approached “informal credit sources” while the rest saved first. “The rest” included those whose income came from working abroad or from family members working overseas.

This is sad because it takes several years before these people working abroad could go into business, Sereno said, noting that their earlier entry into business in their city could have hastened its competitiveness.

The AIM-PC survey of an estimated 1,740 businesses (60 interviews per city) also revealed that entrepreneurs are discouraged from borrowing from the formal sector because of interest rates, collateral requirements, time-bound payment  and penalties for default.

The survey revealed that entrepreneurs borrow from relatives because the loans either have no interest rates or if they have, they’re usually very low. Moreover, relatives do not require collaterals and the borrowers can pay when able or can delay payment without fear of penalties.

Sereno said government financial executives must sit down and discuss means to encourage entrepreneurs to tap mainstream credit and loan structures.

She said some cities that succeeded in streamlining business processes were able to benefit more because tax collections improved as a result. –Dennis D. Estopace / Reporter, Businessmirror