In granting loans: SME directories formed to guide rural, thrift banks

The joint project of the German government and the Philippines, called Small and Medium Enterprise Development for Sustainable Employment Program (SMEDSEP) has developed three SME directories in the Visayas to guide rural and thrift bankers in providing financial assistance to more qualified borrowers.

The directories, prepared by Celenita Francisco, an SME finance consultant, who also conducted an extensive market survey for the German Technical Cooperation's (GTZ) Smedsep, will serve as guide for rural and thrift bankers on how to search and identify SMEs that are potential loan borrowers.

In a recent coaching seminar on credit marketing, Francisco, a former executive of the Development Bank of the Philippines (DBP) challenged the decision makers, and owners of 10 rural and thrift banks in the Visayas to be innovative in seeking out prospective SMEs who badly need financial assistance to back up their businesses.

"A banker should be a catalyst for development. Together with the LGU and the government line agencies, banks should intensify support to the SME sector to create more jobs in the countryside", Francisco emphasized.

For her part, Department of Trade and Industry (DTI-7) regional director Asteria Caberte said the introduction of the SME directories will give way to bridge the long-standing gap between banks and small and medium businesses.

There are a number of small and medium entrepreneurs right now that are pleading for financial support via credit facilities, either from banks or from Government Financial Institutions (GFIs).

Because of strict requirements imposed by some banks, especially the development, and commercial banks on loans, and GFIs' limited capacity to reach out to a broader client base to provide monetary assistance to struggling entrepreneurs, the underground loan trade is still an easy option for SMEs.

SMEDSEP's SME credit expert Danter Portula said that the directors will be posted in the Cebu Chamber of Commerce and Industry's (CCCI) Web Portal as soon as it gets operational within the year. The CCCI's Web Portal is also a Smedsep-assisted project.

According to Portula Smedsep's financial services component, has been providing training to 48 rural bansk and two thrift banks in the Visayas.

"These partner banks have undergone training on SME finance for bank executives, credit appraisal and monitoring, SME finance strategy and marketing, credit risk management, and credit pricing," he said.

With the growing demand for other rural branks and thrift banks for SME finance-related trainings, he said GTZ will soon accredit training providers that will run training activities on a regular and wider-reach basis, Portula added.

Smedsep is advocating a cash flow based approach to SME lending. Under the system, the viability of a proposed business is given more weight in assessing loan applications more than the collateral presented.

He said more banks are now adopting and are willing to adopt other collateral substitute, aside from the traditional real estate collateral requirement.

Smedsep is a technical cooperation project, between the Philippines the Federal Republic of Germany. This program aimed at addressing the challenges that SMEs are facing specifically in the third world countries, like the Philippines. Smedsep's end goal is to enable public and private institutions to create favorable business conditions to develop entrepreneurial potential and encourage competition.