Soco calls out lending firms for non-compliance

CEBU, Philippines —  Cebu provincial board member and businessman Glenn Soco called the attention of financial institutions to be compliant with their 10 percent requirement to be made available through credit to Small and Medium Entrepreneurs (MSMEs) in Cebu.

In a resolution submitted to Sanguniang Panglalawigan of Cebu, with copies furnished to Bangko Sentral Ng Pilipinas (BSP), Department of Trade and Industry (DTI), Mandaue Chamber of Commerce and Industry (MCCI), Cebu Chamber of Commerce and Industry (CCCI) and the Cebu Bankers Association, Soco said that despite the apparent difficulties of MSMEs recovering from COVID-19 crisis and typhoon Odette, credit access remained elusive.

Financial institutions are falling short in complying with the mandated 10 percent of the total loan portfolio to MSMEs.

“With the latest statistics and reports, it is apparent that banks, financial institutions, and loan facilities are not extending enough loans, and are not compliant with the required 10 percent total bank credit to MSMEs. This is aside from the procedural difficulties in accessing these loans because of lengthy documentary requirements, processes, etc. Clearly, these translate to poor sector growth of MSMEs in the country. The MSMEs are unable to reach their full potential due to these hindrances,” said Soco who is also the former president of MCCI.

Soco’s resolution urged banks, financial institutions, and loan facilities to extend help and assistance to the MSMEs sector by giving more loans and other financing opportunities, simplifying loan access, expediting loan processing and approval, and designing more advantageous programs for the sector.

Soco underscored that now that the economy is bouncing back, only those businesses with capitalization access can take advantage of the promising post-pandemic economy while leaving the micro and smaller businesses behind due to a lack of financial access.

“Undeniably, the pandemic had caused a major economic shock which most, if not all of the businesses, are still trying to manage until the present time. Just when the protocols caused by the pandemic started to ease sometime end of 2021, Super Typhoon Odette struck some provinces in the Visayas and Mindanao, including Cebu Province which once again affected operations. At present time, inflation and rising prices worsened the global economies. With all these challenges, the MSMEs are one of the most affected business sectors. With their limited capitalization and market reach, the successive events considerably injured them. They are grasping for more assistance and help when most of them had to close shop and lose some of their employees,” Soco further explained.

As per Asian Development Bank (ADB), MSMEs make up 99.5 percent of total businesses and 63 percent of the total labor force in the country. Despite its importance and impact on the national economy, the MSME sector is experiencing difficulties to recover, let alone achieve growth due to apparent difficulty obtaining bank financing and other financing opportunities.

Based on ADB records the share of MSMEs' credit to total bank credit has been falling to less than 10 percent since 2013. It is below the mandated threshold of 10 percent by virtue of RA 6977 or the Magna Carta for MSMEs, as amended by RA 8289 and RA 9501. The law mandated banks to earmark eight percent of their total loan portfolio for micro and small enterprises, and two percent for medium enterprises.

The share of MSME loans to banks’ total lending portfolio fell to 6.1 percent (P588.8 billion) in 2022 from 11.7 percent in 2010 as more lenders did not comply with the mandatory credit allocation to the sector, preferring to just pay the penalty rather than take on the risks associated with lending to MSMEs.

Soco stated that most of the MSMEs are looking for options and opportunities to expand and take advantage of the improving economy. However, with their limited capitalization, they are hampered in their efforts. “Most of them are dependent upon loans extended by banks and other financial institutions and facilities in order to finance their businesses. Worse, in desperation, some resorted to loan sharks, fly-by-night, opportunistic informal businesses which take advantage of the MSMEs. These businesses charge exorbitant rates.”

BSP record showed that the bank’s disbursements to micro and small enterprises slipped by 1.2 percent. The percentage remained short of the mandated eight percent, as it only accounted for 1.98 percent compliance.