House Bill 5796 seeks sovereign guarantee capacity for SB Corp

One of the key features of House Bill (HB) 5796 is the introduction of a credit guarantee system as well as the establishment of a credit records and information system for the Small Business Guarantee and Finance Corp. (SB Corp.).

HB 5796, authored by Rep. Wilhelmino M. Sy-Alvarado, introduces amendments to Republic Act (RA) 6977 or the Magna Carta for Small Enterprises. RA 6977 defines the national policy to foster and develop the small and medium enterprises (SMEs) in the country.

It likewise established two core SME institutions, which are: the Small and Medium Enterprise Development (SMED) Council, and the Small Business Guarantee and Finance Corp. (SBGFC or the forerunner of the SB Corp.).

The proposed amendments explains that the ability of SB Corp. to provide additional credit support for SMEs "hinges largely on the provision of sovereign guarantee cover on the loans guaranteed by SB Corp. in order to increase its capability to leverage on its credit."

It also sought to increase SB Corp.’s capital from P5 billion to P10 billion as well as expand its corporate powers.

Addressing Chapter 3, Section 13, of the existing mandate, the bill states that all lending institutions would set aside six percent for small enterprises, and another two percent for medium enterprises, from their total loan portfolio based on their balance sheets as of end of the previous quarter."

It instructs that Bangko Sentral ng Pilipinas (BSP) to formulate rules effecting the above proposals "provided that the purchase of government notes, securities and other negotiable instruments, with the exception of such instruments as may be offered by the SB Corp. will not be deemed compliance with the earlier provision."

Quarterly reports regarding the compliance of such ruling would also be made to the BSP.

To balance the proposed provision, the bill instructs the BSP to offer incentives to financial institutions lending to SMEs "beyond the mandatory credit allocation, such as the possible reduction in the bank’s reserve requirement."

In his note, Alvarado called the SMEs as the "unsung heroes" compared to the overseas Filipino workers (OFWs) who are often referred to as the "new heroes."

SMEs are the major drivers of the country’s economic growth. It constitutes 99 percent of all the country’s business establishments, with the remaining one percent making up large enterprises. In terms of employment, the SMEs accounted for 69 percent of all jobs generated.

"They constitute 32 percent of value-added to the economy and constitute approximately 60 percent of all exporters," the solon said.

The bill complements the National SME Development Plan, a key objective to graduate microenterprises into small businesses. That should result in a total increment of 38,000 new SMEs in three years. It could increase productivity in terms of gross value added of SMEs to the level of the Asean average of 32 percent to 40 percent. – TPT