Share of MSME bank loans reaches just below 5%

Bank lending to micro, small and medium enterprises (MSMEs) rose in 2025 but remained far below benchmark levels once set by law, as lenders remained wary of credit risks in a sector widely seen as a backbone of jobs and economic growth.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed total loans to MSMEs had reached P574.8 billion as of end-December. This increased 5 percent from a year earlier.

However, that amount only accounted for 4.73 percent of the Philippine banking industry’s P12.1-trillion lending portfolio. This was way below the prescribed ratio of 10 percent.

Under the Magna Carta for MSMEs, banks must allocate 8 percent of their portfolio to micro and small businesses. Also, 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, opting to just pay the penalties instead of assuming the risks.

Banks are typically hesitant to lend 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.

Despite the expiration of the mandated credit allocation in 2018, the BSP continues to monitor bank lending to MSMEs. The sector makes up about 99 percent of total business establishments in the Philippines and provides around 63 percent of employment.

Based on the industry’s total loan book, banks would have needed to extend at least P971.5 billion to micro and small enterprises to meet the former 8 percent benchmark. But banks only lent P238.5 billion.

Hitting the 2 percent threshold for medium-sized firms would have required P242.9 billion in lending. Data showed these businesses received P336.4 billion in loans, or 2.8 percent of bank’s total lending book, exceeding the benchmark.

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Universal and commercial banks handed out P442.7 billion in loans to MSMEs. That translated to a ratio of just 4.02 percent.

Thrift banks extended P74.5 billion, accounting for 8.31 percent of total outstanding loans.

Rural and cooperative banks continued to be the most reliable source of bank credit for MSMEs, which received P56.83 billion in loans. That was equivalent to a ratio of 32 percent.

Lastly, MSMEs received P810 million in loans from digital banks, which set aside 1.84 percent of their total lending portfolio to the sector.