Citi eyes MSME loan market

MANILA, Philippines - American banking giant Citibank NA is pushing for amendments to the existing law on micro, small, and medium enterprises (MSMEs) to level the playing field between local and foreign-owned banks.

Citi country officer Sanjiv Vohra said in an interview with reporters that foreign banks are looking forward to changes in existing law to allow them to provide capital to businesses currently not covered by the existing legislation for MSMEs.

Vohra pointed out that the relevant amendment is now being threshed out in the House of Representatives and its counterpart measure in the Senate.

The House of Representatives enacted Republic Act 6977 otherwise known as “The Magna Carta for Small and Medium Scale Enterprises” in 1991 but was amended through RA 8289 in 1997 and RA 9501 in 2008.

Section 3 of the law defines MSMEs as any business activity or enterprise engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative, partnership or corporation whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated.

Enterprises are classified as micro if their assets are not more than P3 million while those with assets of between P3 million and P15 million are classified as small. On the other hand, medium enterprises are companies with assets of between P15 million and P100 million.

The law provides that the definitions should be subject to review and adjustment by the Micro, Small and Medium Enterprises Development (MSMED) Council upon recommendation of sectoral organizations concerned, taking into account inflation and other economic indicators.

The law permits even foreign lenders to acquire real-estate properties offered as collateral by defaulting borrowers so long as these properties are disposed of within five years.

While this provision allows both local and foreign lenders the same kind of protection in case of borrower default, Vohra said the recognized asset threshold of P100 million for SMEs is too low for foreign lenders like Citi.

“For us, micro, small and medium scale entrepreneurs go beyond assets than the law limits at only P100 million,” he said.

Section 13 of the law provides that all lending institutions are required to set aside a portion of their total loan portfolio based on their balance sheet. Lenders should set aside should at least be five percent by the end of the year of the effectivity of the law, 10 percent by the end of the second year through the end of the fifth year, and five percent by the end of sixth year and may come down to zero by the end of the seventh year.

The Bangko Sentral ng Pilipinas (BSP) has boosted the industry’s lending program for MSMEs by launching 21 credit surety fund (CSF) programs across the country.

Initiated in August 2008, the CSF is a fund created through the pooling of cash contributions from participating cooperatives with an equivalent counterpart contribution from the local government unit and donations from partner institutions.

In lieu of acceptable collaterals, the fund would serve as guarantee for loans extended by banking institutions to MSMEs participating in the program.

The innovative credit enhancement program is aimed at meeting the financing requirements of enterprising cooperatives and capital-short businessmen who often experience difficulty in obtaining loans from banks due to lack of collaterals and credit track records.

 Under the CSF Program, a formal source of credit may now be accessed even in the absence of acceptable collaterals by way of a surety cover issued by the CSF in favor of the lending bank.