Loans to MSMEs drop below 10% mandated threshold

MANILA, Philippines — Loans disbursed by banks operating in the country to micro, small, and medium enterprises (MSMEs) slipped by 1.6 percent to P447.7 billion in the first half of the year from P454.84 billion in the same period last year, remaining below the mandated 10 percent threshold.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the banking sector’s overall compliance ratio of 5.08 percent, as of end March, remained below the required 10 percent under Republic Act 6977, as amended by RA 8289 and RA 9501 otherwise known as the Magna Carta for SMEs.

The law mandates banks to earmark eight percent of their total loan portfolio for micro and small enterprises, and two percent for medium enterprises.

The industry’s total loan book, net of exclusions, went up by 5.5 percent to P8.81 trillion in end June from P8.35 trillion in end June last year. This means allocations for the MSME sector should have reached P881.59 billion.

BSP data showed that Philippine banks’ disbursements to micro and small enterprises slipped by 1.2 percent to P174.36 billion  from P176.55 billion. The amount  remained short of the mandated P705.27 billion or eight percent, as it only accounted for a 1.98 percent compliance.

Likewise, funds allocated to medium enterprises declined by 1.8 percent to P273.34 billion from P278.29 billion, but exceeded the required P176.32 billion. This translated to a compliance ratio of 3.1 percent, higher than the mandated two percent.

MSMEs play a very important role, accounting for 99.5 percent of the total establishments and 62.8 percent of the total labor force. The sector also contributes 35.7 percent of the total value added to the Philippine economy.

However, MSMEs are unable to reach their full potential because of difficulty of credit and financial access, especially now that banks are risk averse during the height of the COVID-19 pandemic.

The BSP adopted regulatory relief measures to reduce the financial burden on MSMEs. The central bank’s Monetary Board approved the temporary relaxation in the assigned credit risk weight for MSME lending in the computation of risk-based capital adequacy framework to 50 percent from 75 percent.