BSP initiative secures source of credit to revitalize MSMEs – Manila Bulletin

Micro, small and medium-sized enterprises (MSMEs) make up 99.5% of business establishments in the Philippines, employ 63% of the workforce, and are responsible for around 40% of the country’s gross domestic product (GDP). This sector has been one of the hardest hit by nearly two years of quarantine and lockdown due to the coronavirus pandemic – and its revitalization is key to the goal of accelerating the pace of economic recovery.

The Bangko Sentral ng Pilipinas (BSP) has published proposed rules to guide banks in allocating at least four percent of their loanable funds to the development of innovation for the benefit of micro, small and medium enterprises (MSMEs) and startups. In the draft circular, the loanable funds for the innovation development credit will be calculated in the same way as the calculation of the loanable funds for agriculture and the agrarian reform credit.

This initiative also seeks to achieve the objectives set out in Republic Act No. 11293, the Philippine Innovation Act, which was enacted in 2019. Qualified borrowers for the Innovation Development Credit are MSMEs, startups, innovation centers and business incubators, as well as other entities that support the development of new technologies and innovative goods or services.

In the draft circular, currently circulated among banks, the BSP recognizes the key role of innovation in stimulating inclusive development, as well as in improving the growth and competitiveness of MSMEs: “Innovation encourages creative thinking, which in turn, increases productivity and getting out. The banking system plays a crucial role in providing the credit needed to support the development of new technologies and other innovation-related activities.

The BSP defines innovation as “the creation of new ideas that results in the development of new or improved products, processes, or services that are then released or transferred to markets.” The Innovation Development Credit includes loans and other financing activities for the development of new technologies, product innovation, process innovation, organizational innovation and marketing innovation.

The National Innovation Council (NIC) – a multi-sector policy-making body mandated by law to develop a national innovation agenda and strategy document – develops strategies to promote internationalization, digitalization and participation of MSMEs in local and global value chains. A comprehensive support program, from incorporation to internationalization, including industry-level collaborations, will be developed by NIC and implemented by relevant government agencies.

Banks have an existing compulsory credit allocation of eight percent of their loanable funds for micro and small enterprises and two percent for medium enterprises under RD No. 6977 for the development of the small and medium sector businesses. At the end of 2021, based on BSP data, banks’ compliance with RA 6977 is only 2.08% for micro and small enterprises. This translates into loans of 178.14 billion pesos for micro and small enterprises when banks should have loaned 685.60 billion pesos. For medium enterprises, banks released 284.99 billion pesos last year against the minimum requirement of 171.42 billion pesos.

Economic recovery could be greatly accelerated if the MSME sector receives a big boost, especially in terms of projects and activities that help create jobs and improve the well-being of Filipinos who have been severely affected by the global pandemic.

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