MSME lending doubles in H1

Loans extended by Philippine banks to micro, small, and medium enterprises (MSMEs) posted a double-digit growth of 10.4 percent in the first half, but still falls short of the mandated amount for the sector.

Latest data released by the Bangko Sentral ng Pilipinas (BSP) showed loans extended to MSMEs reached P549.89 billion from January to June, P52.12 billion higher than the P497.77 billion recorded in the same period last year.

This resulted in the banking system’s overall compliance ratio of 7.97 percent, slightly lower than the required 10 percent mandated under Republic Act 6977 as amended by RA 8289 and RA 9501, otherwise known as the Magna Carta for SMEs.

The law mandates banks to earmark eight percent of their total loan portfolio for micro and small enterprises and two percent for medium enterprises.

The industry’s loan book grew faster at 17.1 percent to P6.9 trillion in the first semester from a year-ago level of P5.89 trillion

The BSP data showed the banking system’s total credit allocation to medium enterprises rose by nearly 11 percent to P330.36 billion from P298.75 billion. This translated to a compliance ratio of 4.79 percent exceeding the required two percent.

Likewise, the banking system’s funds allocated to micro and small enterprises increased by 10.3 percent to P219.53 billion from P199.01 billion, but was short of the mandated eight percent as it only accounted for 3.18 percent of the total loan book.

The MSME sector is a crucial driver of the economy, making up 99.6 percent of the country’s enterprises or registered business firms and generates 61.6 percent of employment.

However, BSP Governor Nestor Espenilla Jr. had said MSMEs are unable to reach their full potential because of difficulty of credit and financial access.

Espenilla said other challenges with MSME development also include the lack of access to resources such as technology, skilled labor, and information.

Currently, only 6.6 percent and 9.8 percent of total loans in the banking system and total businesses comprise investments to the sector, compelling MSMEs to resort to internal savings or earnings.

A World Bank report states that 81.2 percent of Philippine enterprises rely mostly on internal funds to finance their investments, while only 10.1 percent of enterprises use bank financing.