Energizing MSMEs: The lifeblood of growth and the economy

The Securities and Exchange Commission is introducing new policies to implement Republic Act No. 9501, the amended Magna Carta for Micro, Small, and Medium Enterprises, recognizing their crucial role as they account for an estimated 99 percent of businesses. SEC Chair Francis Lim has announced reductions in filing and registration fees for new MSMEs.

We suggest the SEC chair look into:

1. the full thrusts conceptualized in the law, which aims to boost the productive capabilities of small business operators contributing 40 percent of the GDP and 60 percent of employment. Many MSMEs are experiencing a lack of capital resources to expand their operations. Despite the Bangko Sentral ng Pilipinas’ mandate to commercial banks to reserve 10 percent of their loanable reserves for MSMEs, the banking sector’s latest overall compliance ratio stood at only 4.59 percent, less than half of the 10-percent quota required under RA 6977 (as amended by RA 8289 and RA 9501). The reason could be that marginalized MSMEs cannot meet the stringent standards and terms of commercial loans.

2. RA 6971, the Productivity Incentives Act of 1990, was a landmark legislation enacted to provide tax incentives for companies like the MSMEs to invest in workers’ productivity programs, to encourage overall productivity, and, with the combined effort of labor and management, to increase revenues.

Under RA 6971, companies are given tax deductions for productivity incentives given to the workers. Incentives could be in more nonmonetary benefits to the workers and in increased take-home pay, as a result of increased revenues. A portion of the revenue increase will then be given as rewards for productivity under the program. Only a few companies, however, have availed themselves of the incentives, indicating flaws in the law that need amendments.

The SEC is the government agency focused on energizing the domestic economy, largely dominated by MSMEs. Under its new leadership, the SEC is well-positioned to leverage this productivity idea with other government agencies, such as the Department of Labor and Employment and the Department of Trade and Industry (DTI), and with private sector groups like the Employers Confederation of the Philippines.

Based on market research, in the first two years of operations, 20 percent of MSMEs close shop because of critical financial challenges, among them the difficulty complying with the minimum wage law and the sourcing of continuing operating capital.

It is suggested that MSMEs with up to P10 million capitalization, and employing 10 to 20 people be bracketed to receive the special assistance from the government under a program of enjoying 1. a tax holiday for two to three years of operations; 2. loan on special terms from the Small Business Corp. (SB Corp.), the DTI subsidiary created by law to provide small loans on liberalized credit terms; and 3. an exemption from payment of the minimum wage law during the transitory period.

These privileges can come if the MSME applying for benefits can show a productivity incentives program for their workers. The government will hardly lose tax revenue from underperforming MSMEs.

The SEC can also encourage employers’ groups to initiate crowdfunding for their MSME members, complementing the effort of SB Corp. Well-off members with extra funds can contribute to help MSMEs grow and expand.