Collateral-free lending scheme for SMEs pushed

It was a novel, collateral-free, lending project initiated at the height of the Asian financial crisis when most commercial banks slammed their doors to small and medium-sized exporters.

The project has been proven a resounding success with a 99-percent repayment record after the lending of P180 million covering 156 transactions that involved 46 exporters in Metro Manila since 1999.

The special lending package was developed by the Philippine Exporters Confederation (Philexport), the Foreign Buyers Association of the Phils. (FOBAP) and the Land Bank of the Philippines (LBP) as way of helping exporting SMEs survive the credit crunch.

Instead of solid collaterals in their form of land titles, buildings and machinery, the exporters were allowed to use their letters of credit or purchase orders as a substitute guarantee they will pay their loans.

The system also cut the long and tedious process of documentation and red tape that mark regular bank loans.

The program started on a per transaction basis until the borrowers established sufficient payment track records to graduate into getting credit lines or to avail of the regular lending packages of the commercial banks. Philexport endorsed the borrowers, Land Bank lent the cash, while supervision and monitoring of the loans were done by FOBAP.

Because of strict bank regulations that do not allow for what is considered high-risk lending, the lending partner was later transferred to SB Corp.

Counting on the pilot project’s success, this week asked President Arroyo to expand the program to at least five regions where its partners, the Small Business Corp. (formerly the Small Business Guarantee and Loan Fund) has branch offices.

"Instead of experimenting on new lending schemes to help solve the endemic credit access woes of SMEs nationwide, the government can adopt the system piloted in Metro Manila," suggested Philexport president Sergio R. Ortiz-Luis.

Where the FOBAP, the monitoring group, does not have any field offices, regional or provincial chapters of Philexport or the most active chamber of commerce in a province may do the job.

The lending scheme where the government can use its promised P10 billion in credit assistance for SMEs, may also be further expanded by tapping credible industry associations or field chapters of the Philippine Chamber of Commerce and Industry and similar organizations as lending conduit.

Ortiz-Luis revealed that Philexport is finalizing an agreement with a unit of the Finance Executives Association of the Phils. (Finex) for a wider implementation of the successful lending scheme to the provinces. Finex, he said, is initially offering a P5 million se4d fund for lending. SB Corp. may match the money raised by Finex or use the promised funding to be made available for SME lending. – Abe Belena, Philexport News and Features