To comply with the reserve requirement, banks have released P14.9 billion more loans to micro, small and medium enterprises (MSME) for the month of September alone, based on Bangko Sentral ng Pilipinas (BSP) data.

centralbank with logo 2 - Banks lent P14.9 B to MSMEs in Sept. to comply with RRR
MB file photo.

This brings the average daily balance of bank loans to MSMEs to P120.9 billion as of the first week of October compared to end-August’s P106 billion. Versus the P8.7 billion average MSME loans used as alternative compliance with the reserve requirement ratio (RRR) in end-April, the latest average is up by 1,289 percent. 

BSP director for financial inclusion group, Ellen Joyce Suficiencia, of the central bank’s Center for Learning and Inclusion Advocacy said new MSME loans generated during the enhanced community quarantine (ECQ) amounted to P40.6 billion from 50 banks surveyed by the BSP.

About P25.6 billion of MSME loans were released from March to April – the strictest phase of the ECQ — as renewed borrowings while P1.8 billion were loans that were restructured following relief measures granted to MSME borrowers.

Suficiencia, in her presentation to the APEC Business Advisory Council forum on Wednesday, said that in the name of financial inclusion, the BSP is focused on ensuring the financing requirements of MSMEs are being met due to their “outsized role in providing employment and sources of income to a significant number of Filipinos.”

 “However, even prior to the pandemic, MSMEs have consistently cited access to finance as one of the top barriers to their development and competitiveness,” she said. Before the BSP applied the MSME loans as RRR compliance, bank loans to this sector only amounted to P1.7 billion.

Suficiencia said data from the BSP show a declining trend in bank lending to MSMEs as a percentage of the total loan portfolio and this was worsened because of the public health crisis. “As a result of the pandemic, the MSME sector has been among the hardest hit based on a survey conducted a few weeks into the ECQ,” she added, and that more than 60 percent of MSMEs – based on this survey — have stopped operations because of zero sales and lack of capital. 

For some, a “silver lining” was the opportunity to have an online presence. E-commerce revenue is expected to grow by 42 percent this year because with physical restrictions or social distancing, consumers are encouraged to conduct business online. There are an estimated 39 million e-commerce users which is a sizeable market, according to Suficiencia.

Suficiencia said the BSP’s time-bound regulatory reliefs and incentives to channel credit to MSMEs have been in place since March to ensure that “banks do not completely turn their backs away from MSMEs and to further stimulate financing especially at a time when it was most needed.”

The BSP approved the use of new loans to MSMEs as part of banks’ compliance with the RRR last April 24, and the use of new loans to large enterprises on April 29.

Aside from the RRR compliance, to channel more loans to the MSME sector, the BSP extended relief measures on the reporting of past due and bad loans, reduced the credit risk weights for these loans from 75 percent to 50 percent and assigned zero weight with government guarantees from the Philippine Guarantee Corporation, Agricultural Guarantee Fund Pool, and the Agricultural Credit Policy Council.

“These COVID 19-related policy measures have freed up additional bank liquidity, that were channeled to MSME financing, and we saw positive results and response from the banking sector,” said Suficiencia.

Post-pandemic, the BSP official said they want banks to continue to support MSME and to help BSP to “shape a sustainable ecosystem that facilitates meaningful participation.”

 “(And) by meaningful participation, we mean that banks (will) go into MSME financing not because of mandatory credit requirements, but because they really see the MSME sector as a strategic and viable market segment,” said Suficiencia.

To prepare for a post-pandemic environment, Suficiencia said the BSP has undertaken a series of initiatives to “develop market infrastructure to improve past credit risk assessment and management tools as well as bridge information asymmetries that prevent banks from lending to smaller firms, or make banks heavily reliant on the use of collateral.”

This initiatives include the credit risk database project with JICA assistance to “build a statistical scoring model to support past assessment of the probability of default of an SME borrower” and conducting international MSME demand site survey to generate “better and more granular data on the profile and needs” of MSMEs for targeted interventions. 

In addition, the BSP is also preparing an MSME demand site survey and supply chain financing. “Another investment in the pipeline is the conduct of a study in partnership with a global expert for the development of the supply chain financing market in the country,” said Suficiencia. This supply chain finance is an innovative approach to “support accessible bank financing of smaller firms who may lack credit history, or are deemed high risk.”

 “These are just some of the initiatives that are specifically being pursued by BSP to support MSME financing. But, we recognize the underlying enabler for innovative MSME financing is their digital infrastructure,” said Suficiencia. This is where the BSP’s 2020-2023 digital payments transformation roadmap comes in and its target to have 50 percent of total retail transaction in digital by 2023 and that 70 percent of Filipino adults will have formal accounts by that time.

Based on 2018 statistics, MSMEs accounted for 99.5 percent of total business establishments with 5.7 million jobs or 63.2 percent of the total workforce. 

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