MSME lending grows 12% to P776 B in H1

Loans extended by Philippine banks to micro, small, and medium enterprises (MSMEs) rose by double-digit rate of 12.4 percent in the first half, but still fall short of the mandated amount for the sector.

Latest data released by the Bangko Sentral ng Pilipinas (BSP) showed loans extended to MSMEs reached P776.07 billion from January to June, P85.7 billion higher than the P690.37 billion in the same period last year.

This resulted in the banking system’s overall compliance ratio of 7.12 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 by 12.5 percent to P7.76 trillion in the first semester from a year-ago level of P6.9 trillion.

The BSP data showed the banking system’s total credit allocation to medium enterprises went up by 8.4 percent to P338.08 billion from P311.97 billion. This translated to a compliance ratio of 4.36 percent, exceeding the required two percent.

Likewise, the banking system’s funds allocated to micro and small enterprises increased by 11.6 percent to P214 billion from P191.72 billion, but was short of the mandated eight percent as it only accounted for 2.76 percent of the total loan book versus the required eight percent.

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, MSMEs are unable to reach their full potential because of difficulty of credit and financial access, prompting MSMEs to succumb to loan sharks or the “5-6” lenders who charge exorbitant interest rates.

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

The BSP initiated the credit surety fund (CSF) program in August 2008 as a credit innovation designed to help those who cannot access bank credit due to lack of acceptable collaterals and credit information.