The Export Development Council (EDC) has sought stiffer penalties for financial institutions that fail to comply with the mandatory allocation of credit resources to micro, small and medium enterprises.
This move is expected to further encourage lending to local MSMEs, EDC said in a statement issued by the Philippine Exporters Confederation Inc. (Philexport) over the weekend.
Under Republic Act 9501 or Magna Carta for MSMEs, all lending institutions are mandated to set aside at least eight percent for micro and small enterprises and at least two percent for medium firms of their total loan portfolio based on their latest balance sheets. Institutions that are noncompliant, whether partial or full, will be slapped a penalty of at least P500,000.
But according to EDC, a provision under Bangko Sentral Circular 625 released in 2008 allows a graduated fine ranging from only P180 to P500,000 on noncompliant lending institutions.
Philexport stressed in the same statement that this BSP provision “that lessens the penalties weakens the spirit of the law and provides a loophole in the implementation.”
“This watered-down penalty weakened the spirit of the law. [This] shows a violation of law which imposed a minimum of P500,000 while the Bangko Sentral ng Pilipinas imposed a maximum of P500,000,” Philexport explained.
EDC has thus proposed to raise the amount of sanction to as much as P10 million for large banks, depending on the size of their portfolios and should be in proportion to the amount of noncompliance. This, it said, should be on top of the administrative penalty of P500,000 that may be filed against each officer of noncompliant banks.
“Considering the size and magnitude of the monetary sanction involved, it would now be wise for banks, especially the big ones to consider lending to MSMEs,” EDC added.
A study commissioned by Philexport reportedly showed that half of the total loan portfolio of the banking sector for SME came from government financial institutions. The other half came from private banks, of which half were provided by only one bank.
“That means, all other banks are sharing the other half, leading us to the question, ‘how could there be over-compliance when half of the banks do the lending and other half does not?’ The spirit of the law is for each and every bank to comply with the lending provision,” EDC further stressed.