PCCI moves to improve small businesses’ access to credit

The Philippine Chamber of Commerce and Industry (PCCI) is forming a database of credit-worthy small businesses to improve the sector’s access to credit from risk-averse financial institutions.

In a statement Monday, the PCCI said it would also form a one-stop shop, in cooperation with local lenders and other organizations, that would help micro, small, and medium enterprises (MSMEs) to comply with borrowing requirements.

“Access to financing continues to be a hurdle for most small entrepreneurs,” PCCI president Miguel Varela said, adding that most companies had yet to feel the benefit of record-low interest rates offered by banks today.

“One of the challenges is the inability of MSMEs to comply with certain bank requirements, such as loan collateral and financial records, which make our banks reluctant to lend to them,” Varela said.

He added that most banks would rather pay the penalties for missing the Bangko Sentral ng Pilipinas’ (BSP) MSME lending requirement of 15 percent of a bank’s entire portfolio.

Commonly identified issues and challenges faced by small businesses include: poor track records, lack of collateral, inadequate financial statements, lack of business plans and lack of access to technology and skills.

All businesses that have fewer than 200 employees or with assets under P100 million are considered micro, small or medium, according to the government’s definition of MSMEs.

Varela said lending to MSMEs remained weak despite recent efforts by both the government and private sector to improve access to capital.

The BSP earlier cut the “risk weight” for SME loans to 75 percent from 100 percent, which means banks can set aside less capital cover for loans to small businesses than normal, reducing the strain on their balance sheets.

The BSP said that last year, only 20 percent of small businesses in the Philippines had access to capital from local banks. This was significantly lower than the 60 percent of businesses in Malaysia that were able to take out bank loans.

The BSP said small businesses made up 99.6 percent of all companies in the country. They also employ 61 percent of the country’s workforce and contribute 32 percent to gross domestic product (GDP).

Varela said the new credit database being formed would improve access to finance by making banks feel safer when lending to small businesses.