Personal Property Security Act to ease bank lending to MSMEs

The enactment of the Personal Property Security Act (PPSA) into law will improve the access of micro, small and medium enterprises (MSMEs) to bank credit, and give way to the Duterte administration’s goal of expanding financial inclusion, the Department of Finance (DOF) said.

In a statement, Finance Undersecretary and chief economist Gil Beltran said the PPSA would set the stage for the implementation of a modern secured transactions system in the Philippines, which will enable MSMEs have easier access to bank loans.

The PPSA allows borrowers to secure loans from banks using non-traditional collaterals, particularly movable assets such as account receivables, inventory, warehouse receipts, crops, livestock, machinery and equipment.

“We expect that with the reform in place, MSME lending will rise to reduce part of the 34 percent unserved MSME clients who want to borrow but are unable to obtain a loan,” Beltran said.

Republic Act 11057 was signed into law by President Duterte last September. The DOF is in the final stages of formulating the implementing rules and regulations for the law.

Beltran said the government is also conducting roadshows to disseminate information about the law and gather support from stakeholders.

The DOF is also pushing for the swift approval of the Warehouse Receipts Bill in Congress to further expand financing options for MSMEs.

The measure aims to establish a computerized central registry for all warehouse receipts.

Warehouse receipts are issued to farmers as proof of ownership for their goods stored in warehouses. These are traded in exchange of credit to informal lenders as banks are often hesitant to extend loans with unreliable and easily tampered paper receipts as collateral.

“We have been advised that it will be passed next year before the midterm elections,” Beltran said.

Beltran said MSMEs contribute 36 percent of the Philippines’ gross domestic product (GDP). Despite this, their lending amounts to only 6.9 percent of total loans as of June.

MSME loans are growing by only nine percent per year since 2015 while total loans of all the other sectors are growing almost twice as fast at 15 percent, he said.