Informal lenders as partners in MSME financing

ONLY 15 percent of the micro, small and medium sized enterprises across member economies of the Asia Pacific Economic Cooperation have access to financing from formal financial institutions, thus underscoring this lack of access to be among the biggest difficulties that many firms have to deal with.

Such a number was considered dismal considering that MSMEs account for more than 90 percent of registered businesses in the region. In the Philippines, MSMEs comprise about 99 percent of registered enterprises and two thirds of employment, but only a third of the value of the country’s gross domestic product (GDP).

To increase the level of access, Finance Undersecretary Gil Beltran stressed the need to be “innovative” in coming up with financing tools and instruments to make MSMEs less susceptible to economic downturns and disasters.

Discussions over the past days saw proposals being floated such as establishing financing infrastructure like credit information bureaus and movable collateral registries across the region to be able to get the MSMEs to have adequate access to financing, he added.

“Disasters take away one percent of our annual GDP in Apec every year. And in the case of the Philippines, we are hit by many disasters, which result in many MSMEs losing their livelihood. There has to be a better way of making sure that they rise from the disaster very quickly,” Beltran explained in a press briefing here.

Beltran, however, noted that there was no need to put in place additional tax measures, noting that better government spending and repairing damaged infrastructure could help MSMEs move forward rather than any other type of support.

Information dissemination, he added, would also be crucial. This included enabling entrepreneurs to know more of their financing options, and know how they can get access to the low interest rate lenders.

In the case of the Philippines, the government’s microfinance program now has some 10 million microcredit beneficiaries, many of whom come from small communities in the rural areas. There are also some 35 million policy holders of microinsurance, which was a result of the microinsurance program that the Philippine government launched in 2010.

“For Apec, we haven’t pinned down the target for the medium term and how many of these MSMEs should be having access to the formal financial system. We are more interested in getting their informal lenders like the nongovernment organizations and the cooperatives to be partners. This will be crucial because in the Philippines, of the 10 million micro credit borrowers, 9 million are being catered to by Land Bank of the Philippines. Big banks, however, have started providing wholesale loans to microfinance providers—there has been a leap since,” Beltran added.