Small businesses gain access to financing

MANILA, Philippines - An agreement to allow small businesses to secure financing using movable collaterals was signed last Friday by the public and private sectors.

The document will oversee the establishment of a movable collateral registry by 2015 to “enhance transparency and accessibility” on collaterals such as vehicles and consumer goods and inventories.

For the public sector, the agreement was signed by the Department of Finance (DOF), Bangko Sentral ng Pilipinas, Securities and Exchange Commission, Land Bank of the Philippines, Cooperative Development Authority, Credit Information Corp. and Development Bank of the Philippines.

For the private sector, signatories include the umbrella bank groups, the Philippine Center for Entrepreneurship, PinoyME Foundation, Microfinance Council of the Philippines and the Philippine Finance Association.

The International Finance Corp., the private sector arm of the World Bank, was also a signatory to the document.

“The reluctance of banks to accept movable assets as collateral for loans is one of the main barriers to inclusive economic growth,” Finance Undersecretary Gil Beltran said in a statement.

Joselito Almario, a DOF director, said only a third of micro, small and medium enterprises (MSMEs) have access to bank credit. This is because banks usually require real estate as collateral for loans.

According to DOF data, 73 percent of loans are financed with property collaterals.

In contrast, 78 percent of MSME assets are movable objects that do not match bank requirements.

A total of 96 percent of local firms are MSMEs, based on DOF estimates.

“But it is not the fault of the banks why they do not want to lend precisely because we do not have that environment that will allow them to feel secure when they lend,” Almario explained during the signing ceremony.

Beltran, for his part, said credit is necessary to allow MSMEs “to grow.”

“The opportunity for future growth is when you give (MSMEs) the opportunity to grow by giving them credit,” he explained.

With MSMEs’ expansion, Beltran said, more jobs will be created which shall help in making growth more inclusive and sustainable.

Funding for the registry was not revealed, though Almario said the government would look at “existing” systems to set up the necessary infrastructure at less cost. The target is to set this up “by 2015”.

The establishment of a movable collateral registry is part of the Aquino administration’s Medium Term Development Plan.