Council calls for monitoring of MSME loan applications

CEBU, Philippines - The Export Development Council (EDC) has called the Micro, Small and Medium Enterprises Development (MSMED Council) to improve its monitoring of banks’ compliance and noncompliance with requirements on loan portfolio distribution.

This after a study conducted by the PhilExport showed that half of the total loan portfolio of the banking sector for small and medium enterprises (SMEs) came from government financial institutions and the other half from the private banks, but 50 percent of this portfolio was said to be provided by only one bank.

The study mentioned that all other banks are sharing on the other half, leading exporters to the question “how could there be over-compliance when half of the banks do the lending and other half does not?”

Because of this, EDC, a private-public sector organization that oversees the export sector in the country, urged the MSMED Council to set up the appropriate systems to monitor all loan applications for MSMEs in order to account for their absorptive capabilities.

Under this sytem, the Bangko Sentral ng Pilipinas (BSP) shall furnish to the MSMED Council on a quarterly basis comprehensive reports on the banks’ compliance, noncompliance with and penalties on the violations of  the provisions on mandatory credit allocation for the sector.

In a PhilExport report, EDC is pushing for the amendment of the implementing rules and regulations (IRR) of the Magna Carta for MSMEs that will facilitate its full implementation.

At the heart of this advocacy is a provision in the BSP Circular 625 released in 2008 that provides a graduated fine ranging from only P180,000 to P500,000 on non-compliant lending institutions.

Republic Act 9501, otherwise known as the Magna Carta for MSMEs, mandates all lending institutions to set aside at least eight percent for MSEs and at least two percent for medium-sized firms of their total loan portfolio based on their balance sheet as of the end of the previous quarter, and make it available for MSME credit.

Otherwise, they pay a penalty of least P500,000 even if these were partial compliance only.

Meanwhile, in a separate statement, PhilExport said that this BSP provision that lessens the penalties weakens the spirit of the law and provides a loophole in the implementation.

Likewise, EDC also suggested that the amount of sanction can even be raised to P10 million for large banks depending on the size of their portfolios and should be in proportion to the amount of non-compliance.

This is on top of the administrative penalty of P500,000 that may be filed against each office of non-compliant banks.

“Considering the size and magnitude of the monetary sanction involved, it would now be wise for banks, especially the big ones to consider lending to MSMEs,” the EDC position paper stressed.

Earlier, PhilExport-Cebu president Venus Genson also called the attention of the government to help the sector’s need for capitalization support.

“We need to strengthen the PPP [private-public partnership] by introducing bolder micro or SME financing schemes as part of the whole package,” said Genson.

Genson said although exporters are seeing recovery in the export market, lack of financing “is a big bane for exporters and their supply chains.”

She said from 2008 to 2010, a lot of exporters suspended operations while others ultimately closed shops due to high supply and low demand of local crafts.

However, a number of exporters and their respective supply chains are still hanging on with the belt tightening measures until the worse situation is over.

“To effectively address this situation, a more lenient but secure lending policies for our banks and credit institutions should be adopted. For instance, we can include as one of the requirements for credit accommodation the exporting company's practice of ‘inclusive business’ policy so that we can really attain our present administration’s call for inclusive growth,” Genson said.   /JMD (FREEMAN)