MSMEs not getting enough funding support from PH banks
Loans to micro, small and medium enterprises (MSMEs) fell below the prescribed level in the first quarter, as banks remained hesitant to lend to the crucial sector due to perceived high risk of possible default.
Latest data from the Bangko Sentral ng Pilipinas (BSP) showed total loans to MSMEs reached P546.82 billion as of end-March, 15 percent higher compared with the same period last year.
However, that amount only accounted for 4.63 percent of the Philippine banking industry’s P11.8-trillion lending portfolio, way below the prescribed ratio of 10 percent.
Under the Magna Carta for MSMEs, banks must allocate 8 percent of their lending portfolio for micro and small businesses, while 2 percent must be extended to medium-sized enterprises.
The lending quota was in effect for a decade starting in June 2008. But many banks were not compliant at the time and just opted to pay the penalties instead of assuming the risks.
Banks are typically hesitant to extend credit to MSMEs due to factors like lack of acceptable collateral, unstable income or cash flows, and lack of credit track record. This forced many MSMEs to borrow funds with high interest rates from informal sources like loan sharks, hampering the sector’s growth.
Despite the expiration of the mandated credit allocation, the BSP continues to monitor bank lending to MSMEs, which make up about 99 percent of total business establishments in the Philippines and provide around 63 percent of employment in the country.
Minimum
Broken down, banks lent P220.82 billion to micro and small businesses, cornering just 1.87 percent of their total loan book. Figures showed lenders should have allocated a minimum amount of P945.5 billion as financing to micro and small enterprises to meet the prescribed quota of 8 percent.
Medium enterprises received P326 billion in total credit, accounting for 2.76 percent of lenders’ total outstanding loans. This is, however, above the mandated ratio of 2 percent.
By size of lender, universal and commercial banks handed out P418.73 billion in loans to MSMEs. That translated to a compliance ratio of just 3.88 percent.
Thrift banks extended P67.56 billion in financing to the key sector, which accounted for 9.18 percent of their total outstanding loans.
Rural and cooperative banks continued to be the most reliable source of bank credit for MSMEs, which received P59.92 billion in loans. That was equivalent to a compliance ratio of 24.44 percent, way above the mandated quota of 10 percent.
Lastly, MSMEs received P600 million in loans from digital banks, which set aside 1.98 percent of their total lending portfolio to the sector.
