Philippines MSMEs remain most underbanked in Asia — Philexport

(The Philippine Star), 9 May 2021

MANILA, Philippines — The leader of the Philippine exporters have called on government to reinvest in micro, small and medium enterprises (MSMEs), which represent 98 percent of total enterprises and are considered the backbone of the economy.

Philippine Exporters Confederation Inc. (Philexport) president Sergio Ortiz-Luis, Jr. said in a recent e-forum that despite comprising the overwhelming majority of businesses and accounting for up to 65 percent of total employment and 30 percent of GDP, the Philippine MSME sector remains the most underbanked sector in the whole of Asia.

He said that empowering MSMEs is still not taken seriously, with development programs, legislature and laws initiated over the years to assist small enterprises being mostly token efforts that have not even scratched the surface in terms of MSME development. As a result, the Philippines continues to lag behind in MSME development.

He added that after two decades since its passage, the Magna Carta for MSMEs has not achieved its objective, rendered useless by measures that prevent MSMEs from accessing affordable loans.

The Magna Carta for MSMEs is a landmark legislation that was passed to help develop the Filipino entrepreneurial spirit by providing a business environment conducive for MSMEs. It was enacted by Congress in 1991 as Republic Act 6977, amended by Republic Act 8289 in 1997, and further amended by Republic Act 9501 in 2008.

Philexport has been calling for the amendment of the Magna Carta for MSMEs to free the Small Business (SB) Corp. from its regulatory accountability under the central bank. The SB Corp. is the Department of Trade and Industry’s (DTI) agency providing financing and other forms of assistance to MSMEs.

Ortiz-Luis stressed that to empower the MSME sector, the government has to reinvest in it and should not look at the investment as an expense, but as capital for MSME development.

“We propose that in the Magna Carta that is being made, at least 20 percent of the CCT (conditional cash transfer) fund which we give away for free and we don’t even know what’s the result of that let’s devote it for lending to SMEs.”

Ortiz-Luis added that lending conditions for MSMEs should not be like traditional bank conditions that require the repayment of 95 percent to 97 percent of the loan. Instead they should be based on criteria such as how many workers have been employed or how the business has grown.

“You might not be able to recover 95 to 97 percent maybe you will only recover 60 percent but look at the employment it could create.” He added that as opposed to giving away the money for free under CCT, it can be used to support sustainable businesses and generate employment.