As reported by the Bangko Sentral ng Pilipinas (BSP) this weekend, Philippine banks again failed to meet their obligation to provide loans to micro, small and medium enterprises (MSMEs) at the end of the third quarter of this year. In this regard, the “big charter” of MSMEs has yielded minimal results, and needs to be reassessed.
“The Magna Carta for MSMEs”, originally enacted in 1991 as the Republic Act (RA) 6977, and amended by RA 8929 and RA 9501 in 1997 and 2008, respectively, requires banks to set aside 10 percent of their total loanable funds to provide finance for MSMEs. Despite several rule changes by the BSP over the years to facilitate compliance with the mandatory threshold by banks, it was never reached, and the results reported by the BSP for the period ending September 30, 2021 are particularly disappointing. .
According to the BSP, out of the total of 8.44 billion pesos of loanable funds at the end of the third quarter, banks have set aside only 440.34 billion pesos for loans to MSMEs, or only 5.21 % of total. This was just over half of the 826.64 billion pesos that should have been made available.
As the economy as a whole struggles to recover from the negative effects of the coronavirus pandemic, this half-effort on the part of Philippine banks is worrying and most unwelcome. MSMEs, as is known, make up 99% of all Filipino business establishments, and precisely because they are small businesses, have been hit hardest by the economic downturn induced by the pandemic.
Banks, of course, had their reasons for reluctance, expressed in the BSP’s Q3 2021 senior bank loan officer survey. “The banks interviewed indicated that the reported tightening of global credit standards was mainly due to a deterioration in borrower profiles and the profitability of the banks’ portfolio, a less favorable economic outlook and reduced tolerance for risk, among others. factors ”the BSP explained.
The overall problem seems to boil down to two equally valid but apparently incompatible priorities. The country needs a strong and stable banking system. At the same time, the MSME sector, the backbone of the economy, needs access to credit in order to maintain its own stability and growth, which includes the sector’s significant contribution to employment.
The “Magna Carta for MSMEs” in its various iterations was intended to meet the latter priority, but it clearly failed to do so, and there is no reason to believe that continuing to try within the legal framework existing is never going to give the desired result. The BSP, to its credit, has tried to do what it can to make the system work, but the existence of the law also limits its options.
We suggest that the root of the problem lies in the somewhat lazy approach to actualizing what started out as good intentions to support the MSME sector through an irrationally broad “magna carta” law. This form of legislation has been so overused in this country that it has practically become a cliché and, more often than not, cannot work as intended, even through multiple amendments and extensive development of implementing rules and regulations.
Regarding specifically the issue of credit availability for MSMEs, a more effective approach would be to draft a law that expands the authority of the PASB to establish loan threshold mandates on a more targeted basis for different categories of creditors. banks, even for individual banks. Different banks have different markets, capacities and business priorities; a 10 percent mandate in one area or for a particular bank may be too high or too low, depending on its situation and that of its customers.
This, of course, would require lawmakers to do detailed work and harness genuine expertise on the issue rather than focusing on the performative spectacle of making the broadest possible laws, which is a choice that can be made. to be met with some reluctance. However, passing laws that continually fail is worse than not passing any at all; voters and relevant stakeholders in banking and MSME sectors should demand better.