Local MSMEs face funding gap of $2B

Lack of access to financing remains one of the biggest challenges faced by micro, small and medium-sized (MSME) enterprises in the Philippines, with the so-called “credit gap” estimated at about $2 billion, according to an official of the Asian Development Bank (ADB).

Documents provided by Ganeshan Wignaraja, adviser to the ADB’s economic research and regional cooperation department, showed that the funding gap, equivalent to about P94 billion at the current exchange rate, translated to an average of $59,000 per enterprise.

The credit gap referred to the difference between the formal credit provided to MSMEs and the total estimated potential need for formal credit.

According to Wignaraja, a study involving 8,000 firms from China, Indonesia, Malaysia, Philippines, Thailand and Vietnam showed that such gap existed as MSMEs typically resorted more to internal sources to finance their activities. In cases that they used external finance, MSMEs largely tapped non-bank sources, he added. The MSMEs that borrowed from banks were those that underwent financial audits or were into exports and tended to be older as well. Personal assets of MSME owners also mattered more as collateral for MSME borrowing banks.

While the MSME credit gap in the Philippines is relatively smaller than other Asian countries like Thailand and Indonesia, wherein the gap stood at $11.8 billion, there is still a need to address access to financing as these enterprises are now being touted as the new vehicle for economic growth globally.

The Philippines, for one, has trumpeted its advocacy to put the MSME agenda at the front and center of policy making in many fora, including the recently concluded meetings of the Asia-Pacific Economic Cooperation (Apec).

Thus, to enhance financial access for SMEs, Wignaraja called for the development of a sound and effective financial system by supporting bank privatization, facilitating the entry of reputable financial firms, fostering stock and bond market development, and ensuring adequate macro prudential regulation and capacity.