Banks open to other properties as collateral for MSME loans

Banks and other financial institutions are open to a proposal allowing micro, small and medium enterprises (MSMEs) to use other properties as collateral for loans, aside from land and other immovable assets, Sen. Paolo Benigno Aquino IV said yesterday.

During the technical working group (TWG) meeting conducted by the Senate committee on banks on Senate Bill 354 or the proposed Secured Transactions Act, different financial associations and concerned government agencies have supported the passage of the measure.

The TWG was attended by representatives from the Department of Finance, Land Registration Authority ( LRA), Securities and Exchange Commission (SEC), Credit Information Corporation (CIC), Bangko Sentral ng Pilipinas, banks, financing organizations and MSMEs.

Aquino, who authored SB 354, said the proposal can provide a win-win situation for both MSMEs and banks with a healthier loan environment.

He said the measure can address the lack of capital of MSMEs to promote their growth.

“The proposal encourages financial institutions to take part in MSME development without the fear of great risk,” the senator said.

Usually, banks prefer immovable assets, such as houses or land, as loan collateral, he said.

However, assets of MSMEs are mostly personal in nature, including equipment, inventory, motor vehicles and receivables, making it difficult for them to meet bank requirements to get loan approvals, he said.

During the TWG, different stakeholders said MSMEs can easily acquire loans they need if banks would accept movable collaterals such as goods, livestock and crops and personal properties such as accounts receivables and sales contracts.

The measure will establish a comprehensive legal framework to govern lending transactions that involve the use of personal property as collateral, reducing the risk on the part of financial institutions and enticing them to provide loans to small businesses.