If you ask a small businessman about what causes the biggest concern in running his business and making it grow, chances are his answer would be: LACK OF CAPITAL.
This is not surprising. Shortage of capital and other resources is inherent in smallness. However, this is not a problem that cannot be overcome — if you knew your law.
The Magna Carta was passed in 1991 as RA 6977, amended by Republic Act 8289 in 1997, and further amended by RA 9501 in 2008.
The law is considered a landmark legislation which reflects the current national policy to foster a dynamic SME sector, particularly rural and agri-based manufacturing ventures.
This Law is guided by three principles in setting the pace for small and medium enterprise development:
- Minimal set of rules and simplification of procedures and requirements.
- Participation of private sector in the implementation of SME policies and programs
- Cooordination of government efforts.
There are three major provisions contained in Law:
- Creation of the Small and Medium Enterprise Development Council
- Creation of the Small Business Corporation
- Mandatory allocation by lending institutions of a portion of their loan portfolio for lending to small and medium enterprises – 8 per cent for micro and small enterprises and 2 per cent for medium enterprises
Other salient provisions of the Magna Carta are:
- Establishment by the BSP of an incentive program to encourage lending to mSMES beyond mandatory credit allocation to said enterprises, such as possible reduction in bank’s reserve requirements.
- Monitoring by the SMED Council of all loan applications by mSMEs in order to account for the absorptive capacity of these enterprises.
- Quarterly reporting to the SMED Council by lending institutions on the status of their compliance with the mandatory allocation provision.
- Imposition of administrative sanctions and other penalties (including a fine of not less than P500 thousand) by the Bangko Sentral on non-compliant lending institutions.
The law has spurred the private banking sector to lend more to small enterprises. Government financing institutions, on the other hand, like the Small Business Corporation, Development Bank of the Philippines and LandBank have put up wholesale credit programs using private commercial, rural and thrift banks as conduits or retailers.
Today, there is the perception that credit resources for mSMES are bountiful and are just waiting for takers. It is possible some small businessmen do not know these facilities are available or are reluctant to apply for loans for one reason or another.
Banks and under lending institutions that fall short of complying with the credit allocation requirement have the option to avail of alternative compliance instruments being offered by of the Small Business Corporation — mSME notes and preferred shares.
Click here to read or download a copy of the Magna Carta for mSMEs.