Reforms are underway to ease the tight credit squeeze that has for long fettered the growth and development of the country’s micro, small and medium enterprises (MSMEs), in line with the Duterte administration’s goal of financial inclusion, the Department of Finance (DOF) said.
Finance Undersecretary and Chief Economist Gil Beltran said the government has developed the microinsurance market to cover 34 million lives–about a third of the population–as of the first quarter of 2018, and is now working to expand coverage to include farmers and more MSMEs as they are most affected by climate change.
Moreover, President Duterte has signed into law the Personal Property Security Act (PPSA) that has set the stage, said Beltran, for the implementation of a modern secured transactions system in the Philippines to enable MSMEs to use non-traditional instruments as collateral to secure financing or loans from banks.
“Despite the success, we face great challenges ahead. Now that the law has been signed, we have to implement it for the benefit of our MSMEs. This is when the tire meets the road,” said Beltran.
The PPSA allows borrowers to secure loans from banks using as collateral their “moveable” assets such account receivables, inventory, warehouse receipts, crops, livestock, machinery and equipment.
Finance Secretary Carlos Dominguez III has said that “President Duterte signed this measure into law in sync with his vision for sustained high growth and greater financial inclusion.”
During last month’s 6th Financial Infrastructure Development Network (FIDN) meeting held in Manila, Beltran said he expected to learn anew from stakeholders at the conference about how to make the PPSA work and the next steps needed to keep “the reform momentum strong and advancing.”
Beltran said the lessons learned from the previous FIDN conferences, from the sharing of both local and international experiences, have provided insights for Filipino lawmakers in crafting the PPSA.
The government, Beltran said, is now conducting roadshows to disseminate information about this MSME-friendly law and to solicit support from stakeholders.
“We are also in the final stages of formulating the implementing rules and regulations which we hope could be signed soon,” Beltran, who is also the DOF’s anti-red tape chief, said. “We expect that with the reform in place, MSME lending will rise to reduce part of the 34 percent unserved MSME clients who want to borrow but are unable to obtain a loan.”
Aside from this law, the DOF is also pushing the swift approval of the complementary Warehouse Receipts Bill in the Congress to further expand financing options for MSMEs, Beltran said.
“We have been advised that it will be passed next year before the midterm elections,” he said.
According to Beltran, although MSMEs contribute 36 percent of the Philippines’ gross domestic product (GDP), their lending amounts to only 6.9 percent of total loans as of June 2018.
Moreover, MSME loans are growing by only 9 percent per year since 2015 while total loans of all other sectors are growing almost twice as fast at 15 percent, he said.
“The road toward reform is long and we should be prepared for a rough ride,” Beltran added.
A key goal of the FIDN, which was launched under the Cebu Action Plan (CAP) during the 2015 Asia-Pacific Economic Cooperation (APEC) Finance Ministers Meeting, is to remove the obstacles to the growth of MSMEs through reforms on secured transactions, warehouse receipts and credit information.
The FIDN has become an important platform for dialogue in sharing ideas on enhancing the financial ecosystem by developing financial infrastructure and the legal and regulatory environment.
Since its launching three years ago, FIDN events have been held in the Philippines, China, Thailand, and Vietnam. (DOF)
