Strengthening MSMEs key to economic recovery – ADB

STRENGTHENING micro, small and medium enterprises (MSMEs) with innovation and internationalization is key to revitalizing Southeast Asian economies, including the Philippines’, that were devastated by the coronavirus disease 2019 (Covid-19) pandemic.

This is according to the first volume of the Asian Development Bank’s (ADB) “Asia Small and Medium-Sized Enterprise Monitor (ASM) 2020” report, which presents a detailed assessment of financial and nonfinancial issues MSMEs face in the region. It also analyzes policies and regulations surrounding MSME development and access to finance in each Southeast Asian country.

The report said that, in the Philippines, MSMEs — which account for 99.5 percent of the total number of enterprises and 63.2 percent of the total employed force — played a critical role in driving the national economy. More than 80 percent of them are into wholesale and retail trade, it added.

Access to finance continues to be a hindrance to Philippine MSMEs’ growth, according to the report.

“Access to finance is a chronic problem blocking MSME survival and growth. The share of MSME credit to total bank credit has been falling to a single-digit percentage share since 2013,” the report said.

“Meanwhile, microfinance operations by banks have been expanding since 2016, although compliance with mandatory lending to micro and small enterprises has not improved satisfactorily,” it added.

“The nonbank finance industry represented by microfinance institutions and pawnshops is small in scale, but a viable funding source for microenterprises and those self-employed. The capital market [is] yet to become an alternative funding source for MSMEs to expand.”

The Manila-based multilateral lender noted the Bangko Sentral ng Pilipinas’ promotion of digital financial service solutions for MSMEs under its national financial inclusion strategy, saying “[i]nfrastructure such as a national payment switch, digital ID (identification) and standardized QR (quick response) codes help boost digital financial service solutions.”

It also said corporate income tax (CIT) and incentives reform should benefit MSMEs, given that the CIT rate placed a heavy burden on their operations.

ADB Chief Economist Yasuyuki Sawada said MSME development remained key to promoting inclusive growth in developing Asia, calling such businesses “the backbone of Asia’s economy.”

“They stimulate domestic demand, create jobs, innovate and compete nationally, and potentially, regionally. Access to finance and expanded markets remain at the core of MSME growth,” he added.

“Asia’s economic transformation and pandemic recovery offer the chance to accelerate business opportunities for MSMEs to learn how to digitize and embrace digital financial services and e-commerce, without abandoning the traditional MSME strengths in wholesale and retail trade, agribusiness, food processing, accommodation and other service-related business.

“A recovery in demand, trade and investment is needed, and MSMEs should be at its heart.”