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-sized enterprises (MSMEs) and startups.
The BSP in the draft circular stated that 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 land reform credit.
The guidelines for mandatory crediting followed the provisions of Section 23 of Republic Act No. 11293 or the Philippine Innovation Act which was enacted in 2019 and its rules and regulations. ‘application.
The BSP said 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.
“Banks must set aside at least four percent (4%) of their total loanable funds for innovation development credit,” the central bank said.
However, newly established banks will be exempted from the mandatory innovation development credit for a period of three years from the date of commencement of operations, the BSP said. These are banks that commenced operations after August 6, 2019. The circular will also not include banks formed through the acquisition/purchase of voting shares of an existing national bank or the merger or consolidation of banks.
The credit quota will be reviewed jointly by the National Innovation Council and BSP every three years.
“The Bangko Sentral recognizes that innovation plays an important role in driving inclusive development and promoting the growth and national competitiveness of micro, small and medium enterprises,” BSP said in the draft. circular, currently circulated among the banks. “Innovation encourages creative thinking, which in turn increases productivity and economic output. The banking system
plays a crucial role in providing credit needed to support the development of new technologies and other innovation-related activities,” the BSP said.
All banks are required to submit a quarterly report to monitor their compliance. The BSP will impose a penalty of half percent or 0.5 percent of the amount of non-compliance or sub-compliance.
About 90% of the penalties that BSP will collect will go to its “innovation fund”, while the remaining 10% is intended for administrative expenses. The fund, which will be administered by the National Innovation Council, will be set up to strengthen entrepreneurship and companies engaged in developing innovative solutions, the BSP said.
The proposed circular has a feedback deadline of March 25, by which time bank suggestions and comments should be submitted to the BSP.
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 draft circular noted that direct compliance means loans granted to qualified borrowers after the enactment of the law.
The BSP will also enable alternative compliance to compulsory credit for the development of innovation, such as: loans or investments in digital/technology platforms for MSMEs for e-commerce; and loans or investments in supply chain finance companies serving the MSME sector.
Other means for banks to comply include: investments in bonds issued by the Development Bank of the Philippines and the Land Bank of the Philippines, the proceeds of which will be used exclusively for on-lending for innovation development; and investment in other debt securities issued by banks and other blue-chip financial and non-financial corporations, the proceeds of which will be used for the development of new technologies, product innovation, process innovation, organizational innovation and marketing innovation.
BSP stated that investment in green/social/sustainable bonds will also be permitted as a compliance alternative if the product is used in one of the following priority innovation areas: food security and sustainable agriculture and natural resources; blue economy; education and academia, including STEM education; health; safe, clean, renewable and reliable energy; climate change and disaster resilience; Infrastructure; human capital development; Digital Economy; and transportation services; and investing in startup stocks.
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 No. 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.
However, banks had a compliance rate of 3.33% for medium-sized enterprises, more than the required 2%, releasing 284.99 billion pesos last year against a required minimum of 171.42 billion pesos.
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