ADB reports credit still scarce for mSMEs

loanFinancing resources remain scarce and inaccessible to micro, small and medium enterprises, despite the enactment of the Magna Carta for Small Enterprises (RA 9501), according to a report recently released by the Asian Development Bank (ADB)

The Magna Carte provides for the mandatory allocation  of  loan funds – at least 8 per cent of the bank portfolio —  by banks and financial institutions to the small business sector, at the pain of sanctions in the form of penalties.

The ADB report noted that big commercial banks would rather pay the annual fine than lend to small companies on account of the risks involved in mSME financing.

Reacting to the ADB findings, Bangko Sentral ng Pilipinas (BSP) deputy governor Nestor Espenilla said that more interventions other than mandatory allocation need to be laid in place to encourage banks to extend credit to small businesses.

”Banks exert a great deal of effort to comply with the law.  It’s just that, at the end of the day, it’s also a business call for the banks.  … On one hand, if they lend and they don’t lend prudently, they potentially can lose the whole principal.  As a prudent decision, they decide not to lend.  But if they don’t, there’s also a price to be paid.  They have to weigh between those two things.”

Among interventions Espenilla described to be “more constructive” are the following: having a good guarantee scheme, developing a credit information system, and making mSMEs more marketable which would lead to an improvement in their credit profile.

“For example, organizing them  supply chains, ecosystems … if they’re marketable, they’re more profitable and banks will be more encouraged to lend.”

Photo: From google.com.ph