Manila, Philippines - The government is looking at providing incentives for banks that extend loans to small and medium enterprises (SMEs) to encourage lending to the sector, a cabinet official said.
Department of Trade and Industry (DTI) Secretary Gregory Domingo told reporters at the sidelines of the signing of a Memorandum of Understanding (MoU) and launch of a new SME loan portal that the government is studying a proposal to provide support or funds to banks that end to SMEs.
The proposal being studied, he said, involves government allocating P2 billion annually to be given to banks that lend to the SMEs.
A bank, he said, could receive funds equivalent to five percent of the loan extended to SMEs.
“It (proposal) is an idea that needs to be studied and pushed further,” Domingo said, citing that government wants to be careful with its disbursement of funds.
He said the DTI is studying the proposal to encourage financial institutions to lend to SMEs.
He said that based on studies, it is estimated that the shortfall of loans needed to be extended to SMEs ranges from P60 to P180 billion.
The SMEs, being small businesses, are considered to be risky by financial institutions.
“There is greater risk because there is no history, so for people to engage in lending to small enterprises, there has to be incentives because they are taking a bigger risk for it,” Domingo said.
By providing support to banks that lend to SMEs, the DTI head said the small businesses would be able to produce goods of better quality and increase their incomes.
He said the DTI would continue to engage with the Department of Budget and Management to push the proposal.
Apart from the proposal being studied, the government is also undertaking other programs to promote the development of SMEs.
In the same event, the DTI signed a MoU with the Department of Social Welfare and Development, Land Bank of the Philippines, Development Bank of the Philippines, Small Business Corp., People’s Credit and Finance Corp., National Livelihood Development Corp., Philippine Export-Import Credit Agency, Government Service Insurance System, Social Security System, Quedan and Rural Credit Guarantee Corp. and the National Anti-Poverty Commission to work together and explore areas of cooperation to harmonize lending programs and implement capacity-building programs to enhance access to credit of micro SMEs (MSMEs).
The DTI likewise launched with the FINEX Foundation for Entrepreneurship, Inc. the SMEplus loan portal which is intended to help MSMEs have greater access to credit.
Through the internet-based portal, MSMEs would be able to easily post their loan requests and communicate with lenders on the extension of loans.