Access to financing still tops MSME concerns

CEBU, Philippines - Access to financing is still one of the primary concerns of the micro, small and medium entrepreneurs (MSMEs) in Central Visayas.

Record from the National Statistics Coordination Board (NSCB), revealed that the challenge of increasing capital intensity would require continued efforts to facilitate access by industry players to credit facilities and to develop alternative source for micro-financing.

According to the report, the limited access of industry players, particularly the small businessmen and farmers/fisher folks, to credit facilities has long been identified as a major constraint in maximizing their potential for increasing productivity.

As early as 1991, the government already tried to address the challenges confronting SMEs including the lack of access to financing. It enacted the Magna Carta for Small Enterprises, which had three important provisions; --creation of the Small and Medium Enterprise Development (SMED) Council to consolidate incentives a available for SMEs,; creation of SB Corporation to address SME financing needs; allocation of credit resources to SMEs by mandating all lending institutions to set aside eight percent of their total loan portfolio to SMEs (six percent for small and two percent for medium enterprises).

Notwithstanding the last two provisions of the Magna Carta, SMEs continued to experience difficulty in accessing loans or financing.

A paper prepared by Philippine Institute for Development Studies (PIDS), suggested that the problem of SMEs in accessing financing could be attributed to the following factors: --reluctance of private banks to lend to SMEs because of their general aversion to dealing with a larger number of smaller accounts; lack of awareness of many banks regarding mandatory lending to small businesses; and limited track record, limited acceptable collateral and inadequate financial statements and business plans of SMEs.

The paper also suggested that while banks appeared to have complied with the mandatory lending to SMEs, there is anecdotal evidence that showed that much funds loaned by banks did not actually go to SMEs but to some large firms that deliberately understated their assets to be classified as medium enterprises.

A separate study conducted by the FINEX and ACERD (Ateneo Center for Economic Research and Development), showed that loan funds particularly from large banks and financial institutions hardly benefited small firms.

Worse, much of the funds from government sponsored lending programs are directed not to real SMEs but more toward livelihood and micro-enterprise projects, many of which fail to grow.

Compared to other countries in Asia, the Philippines has relatively low gross fixed capital formation to GDP ratio. Its gross fixed capital formation to GDP ratio was only 14.68 percent in 2008, which was way below that of its peers like China, Laos, Vietnam, South Korea, Singapore, among others.

Among the regions in the Philippines, Central Visayas ranked only fifth in terms of gross fixed capital formation to GDP ratio in 2009.

Increase in real gross fixed capital formation in the region averaged only 0.96 percent annually in the past six years (2004-2009). — (FREEMAN)