Congress OKs incentives for lending to micro enterprises

Congress has approved a package of incentives for micro enterprises, which include exemption from taxes, fees and the Minimum Wage Law, in an attempt to spur barangay level investments capable of mobilizing the massive inflow of remittances from overseas Filipino workers.

The incentives are contained in Republic Act 9178, known as the Baranggay Micro Business Enterprises (BMBE) Law which provides generous incentives to banks that lend to micro-enterprises.

The Bangko Sentral ng Pilipinas (BSP) welcomed the enactment of the law, saying it would boost small businesses that have high economic multipliers, specifically job creation.

BSP Governor Rafael Buenaventura said the new law would encourage banks to lend to BMBEs since loans to micro enterprises would qualify as compliance with the Agri-Agra Law and the Magna Carta for Small and Medium Enterprises.

These laws require banks to set aside a portion of their loan portfolios for lending to the agriculture and agrarian reform sectors.

The law defines micro enterprise as any enterprise with total assets not exceeding P3 million, including loans, plant and equipment but excluding the land where the business is situated.

The law directs the creation of special credit windows catering to BMBEs by the Land Bank of the Philippines, Development Bank of the Philippines, the Small Business Guarantee and Finance Corp. and the People’s Credit and Finance Corp.

The law also directs the Social Security System and the Government Service Insurance System to create a similar special window for their members that want to set up BMBEs.

Loans to BMBEs will also be covered by guarantees from the Small Business Guarantee Fund Corp and the Quedan and Rural Credit Guarantee Corp. under the Department of Agriculture.

The BSP has also liberalized the moratorium on bank branching even for commercial banks but only if the new branches would be opened specifically for micro-financing purposes.

The BSP has been pushing for the creation of microfinancing institutions all over the country and even plans to set up a foundation that will solicit funds from multilateral and bilateral donors to finance the program.

"Our goal is to have at least one micro-finance institution for each province. We plan to set up a specialized micro-finance branch in areas where there is economic activity and from which they could expand their businesses by borrowing from micro-finance institutions. We might also tie up with local financial institutions," Buenaventura said.

The BSP also liberalized the certification requirement for agrarian reform credit granted to the National Food Authority (NFA), effectively allowing the grains body to certify its own loans as eligible compliance with the Agri-Agra Law.

The Monetary Board of the BSP approved recently a new regulation that effectively removed the Department of Agrarian Reform (DAR) from the qualification process, leaving it up to the NFA to certify that its loans would ultimately benefit agrarian reform beneficiaries.

According to BSP deputy governor Alberto Reyes, banks have had little problem meeting the agri component of the law but have been facing difficulties in meeting the requirement under the agra portion.

Reyes explained that loans granted by banks to the NFA have long been qualified as compliance with the Agri Agra Law but there was an added requirement for agrarian reform credit, namely the DAR certification.

The objective of this requirement was to make sure that even if agrarian reform beneficiaries could not borrow directly from banks, they would at least benefit indirectly from loans granted by banks to the NFA.

To make it easier for banks to comply, Reyes said the BSP would no longer require the NFA to get the DAR certification. He said the BSP will now accept NFA certification that its palay procurement would be undertaken through "direct and indirect linkage with agrarian reform beneficiaries."

This means that it is now up to the NFA to make sure that its borrowing will somehow benefit agrarian reform beneficiaries since the DAR will no longer be required to make sure that these borrowings actually trickle down to CARP farmers.

The NFA routinely borrows from banks to finance its palay procurement program, a price intervention scheme intended to regulate palay prices at the farmgate level.