BSP vows to remove ‘market frictions’ in financing MSMEs

Despite the Philippines’ high-growth GDP targets which are achievable, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. is concerned that the backbone of the economy – the small businesses sector – are not getting the support it needs in terms of access to financing.

“MSMEs (micro, small and medium enterprises) are unable to reach their full potential due to a range of barriers, including financial access, characteristic of MSMEs even in other countries,” Espenilla told industry players during the 43rd Philippine Business Conference and Expo in Manila, organized by the Philippine Chamber of Commerce and Industry. The BSP has been “hard at work” collapsing these barriers to MSME’s full growth, according to Espenilla. “Indeed, bank lending to MSME leave much to be desired, comprising only 8.4 percent of total loan portfolio,” he said. About 80 percent of small and medium enterprises’ investments are still internally financed while the banking sector finance only 10 percent of this sector.

Espenilla said they are “troubled” by what the data is telling them. “(We) take them (these numbers) seriously. We have been hard at work providing the regulatory environment that will create a more inclusive financial system. We strongly believe that the deeply ingrained barriers to financial access – cost, information asymmetry, and lack of infrastructure, among others – are market frictions that can be addressed without compromising on other policy objectives.”

The BSP chief reiterated that he is optimistic that GDP will achieve its target growth range of 6.5 percent to 7.5 percent for this year, the second-quarter real growth of 6.5 percent is a positive indication of this confidence.

This growth is also an improved quality of growth, said Espenilla. “Economic expansion is driven by broad-based factors with the re-emergence of the industry sector, particularly manufacturing, as another key growth driver.”

Espenilla said as the economy sustains its expansion, the BSP is re-emphasizing its support of the MSME sector as the backbone of the economy. “We all know the statistics. MSMEs comprise 99.5 percent of all registered business firms nationwide and contribute the largest share of total jobs generated at 61.6 percent. However, MSMEs account for only 35.7 percent of the country’s GDP,” he noted.