The Bangko Sentral ng Pilipinas on Friday announced its intention to develop a standard loan application form for micro, small and medium enterprises (MSMEs) next year, with the aim of boosting the sector’s access to formal finance.
âMSMEs are engines of economic growth. The sector, however, has been limited in accessing formal finance, âBSP Governor Benjamin Diokno said in a virtual press chat.
MSMEs represent 99% of the country’s business enterprises. The sector also accounts for over 60% of total employment in the Philippines.
Citing data from the World Bank, Diokno said that a “significant number” of Philippine companies are financed internally, around 81.2%, while only 10.1% are financed by banks.
The latest PASB data also showed that in Q4 2019, loans to MSMEs only accounted for 8.8% of total business loans and 6.1% of total banking system loans.
âThis is a significant drop from the 12.4% and 8.3% shares of total business and bank loans in 2014, respectively. Year over year, loans to MSMEs increased from 7.6% in 2014 to 1.9% in 2019, âsaid the head of the central bank.
âThese numbers reflect the long-standing challenge of accessing finance that MSMEs face,â said Diokno.
The BSP chief attributed the difficulty MSMEs have in obtaining bank loans to the general opinion of lenders that the sector is ‘unbankable’ due to limited information on their market operations and viability, which results in a perception of high risk and ignorance of MSMEs are “intimidated” by banking requirements.
“A limited understanding of the MSME market prevents banks from performing adequate credit risk assessments and tailoring products and services for MSMEs,” Diokno said.
“MSMEs are less likely to obtain bank financing due to the lack of collateral and acceptable credit history,” he added.
To address the challenges MSMEs face in accessing formal finance, PASB “will develop a standard commercial loan application form to improve the application process for micro, small and medium enterprises”.
Diokno noted that the development of a standard commercial loan application form will enable the banking sector to meet MSMEs preference for streamlined and borrower-friendly processes.
In addition, the initiative aims to improve the risk assessment of banks and speed up loan processing times, the central bank chief said.
In addition to developing a standard loan application form, PASB will also conduct a nationwide survey aimed at âfilling the information gap by generating new information and more granular data on MSME financingâ .
The results of the survey will support the development of evidence-based policies and support financial service providers in tailoring products and services to the sector.
In addition, PASB will launch a study on Supply Chain Finance (SCF), an innovative approach whereby lenders can use MSME’s receivables and inventory flows to finance MSMEs, which typically experience difficulties. to obtain formal loans under traditional financing approaches.
âPASB recognizes that the long-standing challenge of accessing finance stems from a number of factors related to both the demand side or MSMEs, and the supply side or banks as lenders, âDiokno said.
âThese include information asymmetry, unsuitable MSME financing products and processes, and the lack of collateral and acceptable credit histories for MSMEs,â he added.
According to him, PASB is also working on ongoing initiatives such as the Credit Guarantee Fund, the Credit Risk Database and the Agricultural Value Chain Finance Pilot Project.
In addition, the central bank supports the implementation of the Personal Property Security Law, the adoption of the Warehouse Receipt Law and the improvement of the country’s credit information system and guarantee programs. , according to Diokno.
âIn 2021, BSP will once again have a busy year in terms of expanding the access of small businesses to the necessary finance. These initiatives are supposed to support economic recovery and strengthen the role of MSMEs as an engine of growth in the new economy, âhe said. âLBG, GMA News