Proposed MSME Exchange awaiting BSP approval

MANILA, Philippines - The proposed MSME Exchange is still awaiting the approval of the Bangko Sentral ng Pilipinas (BSP) after it was introduced in the last half of 2008.

The proposed exchange is designed to fulfill lending provisions of Republic Act (RA) 9501, otherwise known as the Magna Carta for Micro, Small, and Medium Enterprises (MSMEs).

The intent of the law is to increase access to credit for MSMEs to boost economic growth in the face of volatile global economic conditions. In the 1997 Asian financial crisis and the ongoing global credit crunch, it has been noted that MSMEs have played a significant role in keeping the engines of growth running.

According to SB Corp. president and chief operating officer Benel P. Lagua, the Monetary Board of the BSP expressed concerns over the legality of setting up an MSME exchange.

“But the Office of the Solicitor General had already opined that there were no legal impediments fot the establishment of the Exchange,” Lagua told The STAR.

SB Corp., formerly known as the Small Business Guarantee and Finance Corp., is a line agency of the Department of Trade and Industry (DTI). It is the agency mandated by RA 9501 to look for better compliance alternatives for financial institutions for lending to MSMEs.

The sooner government can implement RA 9501, the sooner the country’s “engine of growth” can go full steam.

Lagua however expressed concerns over the issue of penalties for non-implementation of the law.

RA 5901 states that all banking institutions must allocate eight percent of their total loan portfolio for microfinance and small entrepreneurs, and another two percent for medium enterprises, or a total of 10 percent of the institution’s total loan portfolio.

Failure to follow the law results in penalties for the banking institution worth P500,000 per quarter.

There are reports however that some commercial banks prefer to pay penalties rather than implement the law, or some have devised ways to “go around the law.”

Lagua said the law becomes a piece of paper without the cooperation of the banking institutions

“If we have a rule and institutions don’t follow, they should be correspondingly penalized. If all they get is a slap in the wrist, the rule will never be followed and everything that the Magna Carta has envisioned will go to naught,” he said.

He cited the case of the Barangay Micro Business Enterprise Act or BMBE.

“It is not moving because some quarters are not prepared to yield the incentives contemplated in that law. The law has been promulgated but its executing agencies continue to debate its merits, putting brakes to its correct implementation It is stuck in administrative purgatory as implementing agencies cannot seem to put their act together,” the SB Corp. president added.

The MSME Exchange was conceptualized as banks found it difficult to comply with the law.

Commercial banks generally lend to medium-sized firms but find it difficult to comply with the eight-percent requirement for lending to small and micro-enterprises.

Thrift banks too find it difficult to comply with the eight percent portion of the law. Both commercial and thrift banks are not designed to deal with lower valued but numerous in quantity small and micro-enterprises.

In contrast, rural banks have an over-compliance of loans to the small and micro sectors, but find it extremely difficult to comply with two-percent loan portfolio for medium-sized entrepreneurs.

“It is just like carbon trading,” Lagua added.