Banks urged to provide credit access to MSMEs

CEBU, Philippines - Acknowledging the Micro, Small and Medium Enterprises (MSMEs) as the prime mover for the economic prosperity of the country, concerned stakeholders urged banks to provide improved access to credit for such industry through risk-based lending.

Professor Nestor Raneses, director of Institute for Small-Scale Industries of the University of the Philippines, said that it is appropriate for banks to offer financial assistance to the critical sector of the economic society.

According to the 2008 report of the National Statistic Office, MSME sector comprise 99.6 percent of the total 762 500 business establishments in the country and has a Gross Value Added contribution of about 34%.

96% of which belongs to micro enterprises with 697 000 establishments, 7.7% for the small-scale businesses with 61 400 and 0.4% for medium enterprises with 2 800 establishments.

Average growth rate also accounts to 1.3%, 0.7% and 0.4% for micro, SME and large-scale businesses respectively.

Based on the UPS Asia Business Monitor Survey, about 83% of SMEs in the Philippines have difficulty in accessing credits from banks.

Moreover, about 45% of MSMEs do not use credit based on the Deutsche Gesellschaftfür International Zusammenarbeit - Department of Trade and Industry (GIZ-DTI) evaluation of SME Plan 2004-2010.

During a symposium on micro-finance on August 4, 2010, Raneses cited that the micro enterprises has less probability to grow to another level since the cross-over rate from micro to small and medium is only 1.2%.

He then concluded that such figures represent vast opportunities that the banking industry could look into to help the MSME industry as the most dominant economic sector in the country.

“The MSME sector will not grow unless they will not be given enough money. And we are encouraging the banks to lend, lend and lend,” he said during the forum on risk-based lending for SMEs yesterday at Hotel Elizabeth.

He also noted that the mandatory allocation of credit resources to MSMEs is evident in the Republic Act 9501 or the Magna Carta for Micro, Small and Medium Enterprises and the Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009.

RA 9501 states that all lending institutions as defined under Bangko Sentral ng Pilipinas shall set aside at least 8%for micro and small enterprises and at least 2% for medium enterprises of their total loan portfolio.

RA 10000, on the other hand, states that all banking institutions shall set aside at least 25% of their total loanable funds for agriculture and fisheries credit in general, of which at least 10% of the loanable funds shall be made available for agrarian reform beneficiaries.

However, according to the International Finance Corporation 2006 Study Estimate, the bank lending gap to SMEs accounts P67 billion to P84 billion annually despite government intervention.

Raneses said that the improved access to finance does not only increase the capability of banks to understand the favourable SME lending environment but also the capacity of MSMEs to move forward with substantial funds.

With the aim to provide capacity building to increase access to finance, he added that the desired recommendations include financial literacy among clients, business development services for SMEs, risk management tools and product development for microfinance, rural, thrift and commercial banks.

Meanwhile, Filipino-Cebuano Business Club President Rey Calooy said that as backed up by law, entrepreneurs now have more access in credit due to liquidity and credit rating upgrade.

With the theme “Investing in SMEs”, the forum intended to promote better understanding on risk-based lending for the banking sector, speed up the lending process, and implement such policies to further help MSMEs.