How BSP's credit program helps small businesses

by Jon Carlos Rodriguez,

Posted at May 04 2014 06:06 PM | Updated as of May 06 2014 07:06 PM

MANILA, Philippines (UPDATED/CORRECTED) – The Bangko Sentral ng Pilipinas (BSP) is looking to beef up its credit program to address low lending to micro, small and medium enterprises (MSME) operating across the country’s municipalities and provinces.

Under the BSP’s Credit Surety Fund (CSF), MSMEs facing financing constraints are given access to bank credit.

CSFs are formed through the pooled contributions of cooperatives, local government units, Development Bank of the Philippines, Land Bank of the Philippines, and Industrial Guarantee and Loan Fund.

“It is incumbent upon the BSP to support greater financial inclusion. How did we that? We tweak our regulations to allow microfinance banks and microfinance-oriented banks to grant collateral-free loans,” said BSP Deputy Governor Diwa Guinigundo.

MSMEs make up 99.6 percent of registered firms in the Philippines and employ 62 percent of the total workforce.

However, the sector accounts for only 35.7 percent of the country’s gross domestic product (GDP).

BSP data showed that compliance of banks for loans to micro and small enterprises was at 5.6 percent as of end-2013, below the 8 percent prescribed allocation.

Compliance for loans to medium enterprises had a better showing last year at 6 percent, above the 2 percent prescribed allocation.

According to Guinigundo, among the reasons for low lending in the sector are the banks’ fear of unsecured loans, high transaction cost, and lack of credit information.

MSMEs, meanwhile, cite the lack of acceptable collateral, lack of knowledge on credit sources and processes, fear of dealing with banks, and numerous documentation requirements as reasons for low lending.

Apart from facilitating access to bank credit, BSP said CSFs improve credit, management and marketing skills of coops’ officers/staff and their MSME-members through CSF trainings.

It also reduces banks’ credit risk from extending loans to MSMEs and promotes a more inclusive financial system since more people will have better access to banking services.

The CSF program also supports poverty alleviation by encouraging more economic activities, more job opportunities and reduces susceptibility of its constituents to high cost of borrowing

As of March 31, 2014, 29 CSFs have been established with 8,421 total beneficiaries.

In 2013, the number of beneficiaries was at 8,396, 56 percent of them are engaged in commercial and trading business.

Total loans approved as of March 31, 2014 of P1.122 billion was also an improvement from the P1.069 billion extended in 2013.

The BSP aims to establish 13 more facilities across the country, with seven expected to be launched this year in Quezon City, Bataan, Marikina, Batangas, Camarines Sur, Muntinlupa, and Quezon Province.

In 2015, CSFs are targeted to be established in Agusan del Norte, La Union, Nueva Ecija, Isabela, Nueva Vizcaya and Surigao del Norte.