Dilemma of Go Negosyo Act (Part II)

As I mentioned in my article last week, there are a myriad of laws and regulations on micro, small, and medium size enterprises. Not to mention the pending resolutions and bills in Congress and the different circulars and administrative orders being issued and proposed to be issued by many government agencies. The latest law being Republic Act No. 10644 (An Act Promoting Job Generation and Inclusive Growth Through the Development of Micro, Small and Medium Enterprises) known as the Go Negosyo Act approved on July 15, 2014.

A popular question often asked about micro, small and medium-size enterprises is: what is their biggest headache? Financing, what else. Whether the enterprises have no historical track record of performance; or those with no collaterals to back up their proposed loans; or those with lack of education or training to prepare the complicated documentary requirements in applying for the traditional/conventional bank loans; or those who are part of the underground economy and have no interest to join those formally registered with government agencies. It is indeed very difficult to be able to get bank loans whether one is a would-be or existing micro, small or medium enterprises. Simply, because banks are in the business of business and not in the business of charity.

Here and abroad, the entrepreneurial revolution has touched the lives of millions of people. Every day, there are more and more people who are inspired to form/organize/launch micro and small enterprises. Especially those who hear/read of true-to-life success stories about micro and small enterprises like the stories of thieves and beggars in Kenya becoming successful entrepreneurs; or stories about the Grameen experience that has created awe and wonder all over the world. Many of us are familiar with the Grameen bank project that was started in 1976 by Dr. Muhammad Yunus of Bangladesh, then a Professor and head of the Rural Economics Program in a University. With his own money in the amount of $27 he extended the funds to 42 people. Dr. Yunus was a Nobel Peace Prize awardee. The Grameen Bank project is simply a program to provide funds to the rural poor (Grameen means rural) without need of collateral which is normally required by conventional banking practice; mutual trust takes the place of collateral.

The peculiarities of the GB project today are as follows: a) GB does not require collateral against its micro loans; b) no legal instrument is signed by the borrower; c) while the borrower belongs to a 5-member group, the group does not guarantee the loan to any of its 5 members; neither is there any form of joint liability (a form of group lending); d) ninety-seven (97%) per cent of GB borrowers are women; e) loan recovery rate is 98.55% f) GB finances 100% of its outstanding loan from its deposits; g) over 63% of the deposits come from bank’s own borrowers; GB offers very attractive rates for deposits; and h) GB lending interest is lower than the government interest rate.

Today, many entrepreneurs (especially those who are not successful in getting bank loans) are wondering why the government cannot provide for a continuing funding project leading to more employment and reduction of poverty – in same manner the government is providing funds for its 4Ps program. In the past, there have been some short-term funding programs offered by some government agencies and/or foreign agencies like the Tulong sa Tao Program under Executive Order No. 158. Another shortlived government program loans and grants to help poor enterprises in the rural areas in partnership with the International Fund for Agricultural Development (IFAD) was the RuMEPP program which focused on the 19 poorest provinces then.

On May 23, 2008, Congress approved Republic Act No. 9501, otherwise known as “An Act to Promote Entrepreneurship by Strengthening Development and Assistance Programs to Micro, Small, and Medium Scale Enterprises, Amending for the Purpose Republic Act No. 6977, As Amended) which defines what are micro, small and medium-sized enterprises. Republic Act No. 9501 otherwise known as the Magna Carta for Micro, Small, and Medium Enterprises” and for Other Purposes was published in the national dailies on June 2, 2008.

Under the provisions of R.A. 9501, the total assets (inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated) of micro, small and medium enterprises are as follows:Micro: not more than 3,000,000; Small: 3,000,001 – 15,000,000; and Medium: 15,000,001 – 100,000,000. (To be continued)

Have a joyful day! (For comments/reactions please send to Ms. Villafuerte’s email: villafuerte_nelly@yahoo.com).