The situation of MSMEs

MICRO, Small and Medium Enterprises (MSMEs) are supposed to be the economic backbone of the Philippines. They make up 99.5% of the country’s business establishments, provide 63% of the jobs for the Filipino workforce, and contribute around 40% of the country’s gross domestic product (GDP). Yet they only receive a total allocation of 5.4% of the Philippine banking sector’s loan portfolio. Are they being left behind?

For those interested in the situation of MSMEs, there is a 2017-2022 MSME Development Plan. And it is interesting that the Ministry of Trade and Industry (DTI) released a 2020 MSME Development Plan Completion Report. In terms of initiatives and efforts, the DTI team is to be commended for documenting what the ministry has done given that MSMEs are the hardest hit sector in this Covid-19 pandemic.

A reading of the report will show that there is no shortage of initiatives undertaken to help the sector. In summary, the MSME development plan focuses on three areas: the business environment, business capacity and business opportunities. And it sets out its five major objectives: 1) improving the business climate; 2) better access to finance; 3) improved management and workforce capacities; 4) better access to technology and innovation; and 5) better market access. The interested reader is invited to consult the DTI website for a better overview of how the programs are developed.

This column will select key statistics to check the current situation of the country. In all fairness, the government is doing all it can, but results are all that matters. As a caveat, we need to understand that the Covid-19 pandemic that began in 2020 was beyond the purview of the original writers of the plan.

The very clear measures of the plan can be found in employment figures, gross value added, funding amounts and sales, when available.

Employment increased slightly, but not as much as expected. The baseline figure for total employment in 2016 was 4,879,179 with a 2022 target of 8.284 million. The number increased until 2017, when it reached 5.714 million, but has since declined to 5.381 million in 2020, or 65% of the 2022 target. With containment underway, the outlook for 2021 does not look promising and the targets may no longer be achievable.

The gross MSME value of 50-55% has been set in line with the objectives of Asean-6. The report does not provide figures so far, but indications regarding the country’s overall GDP performance are not encouraging.

Despite the expiration of Republic Law 9501, which requires banks to reserve 8% of their total loanable funds for micro and small businesses and 2% for medium-sized businesses, the Bangko Sentral ng Pilipinas continues to monitor allocation of banks. The share of MSMEs is decreasing: a) 2017: 3.32% of micro and small enterprises (MSE) and 5.03% of medium enterprises (ME); b) 2018: 3.12% MPE and 4.55% ME; c) 2019: 2.8% MEP and 4.3% ME; and d) Q12020: 2.09% MPE and 3.31% ME.

An interesting financial report in the DTI paper is the number of borrowers in Small Business Corp.’s P3 program. for micro-entrepreneurs which reached 209,189 in 2020. In addition, the document reports on Bayanihan 1 and 2 which prescribe funds of 275 billion pesos. and 165.5 billion pesos, respectively for emergency grants and for the injection of capital into government financial institutions in support of MSMEs, cooperatives and overseas displaced Filipino workers. We need an accounting of these funds. In theory, these should have had an impact to meet the needs of MSMEs in these difficult times.

The value of export sales increased from $ 14.35 billion in 2016 to $ 17.33 billion in 2018. The number of MSMEs engaged in export sales also increased from 5.048 in 2016 to 4,146 in 2018. There is no data from 2019.

There are several key performance indicators in the achievement report that will need to be worked on. And future reports should attempt to include the impact of funds made available by the government in response to the Covid-19 crisis.

The initiatives are there, but is there enough follow-up to get things done? Let us underline a specific case. In a UNDP report on its July 2020 survey of issues and challenges faced by Philippine MSMEs, they make the following observations. “Another key aspect of business continuity is funding. Access to finance remained a major concern for the majority of survey respondents … To maximize this, a key element that can contribute to increasing bank lending to MSMEs is the credit guarantee program for MSMEs. Government MSMEs. The accreditation process for interested financial intermediaries should be reviewed and streamlined so that a greater number of financial institutions, including rural banks present in the field and working with microenterprises in rural areas, can benefit from the guarantee system and increase their confidence in loans to MSMEs. “

The 2020 Achievements Report is silent on actual guarantee data and only mentions that “BSP is stepping up engagement with the Philippine Guarantee Corp. (PGC) to identify interventions aimed at helping financial institutions, including non-governmental microfinance organizations, to serve their target. clientele mainly belonging to the MSME sector. On its website, however, PGC reported guaranteed loans of 207 million pesos in December 2020 and 952.5 million pesos in February 2021. This is still a far cry from the 60 billion pesos cited by UNDP.

Overall, it is clear that there are indeed various government initiatives in place. But will this be enough given the scale of the problems facing our MSMEs? Hopefully these initiatives will intensify as we don’t want the backbone of the economy to be left behind.

Benel Dela Paz Lagua was previously Executive Vice President and Director of Development at the Development Bank of the Philippines. He is an active member of FINEX and an advocate for risk-based lending for SMEs. The opinions expressed here are his own and do not necessarily reflect the opinion of his office or that of FINEX.

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