MSME Recovery: a view from the unheard
Now that COVID-19 is nearly behind us, it is time to talk about recovery. How do we enable micro, small and medium enterprises (MSMEs) to recover? At the height of discussions and subsequent legislative work on stimulus plans, a lot of tribute was paid to MSMEs as the engine of employment, but the legislative and executive output that came out of those discussions sadly missed out the MSMEs. Unsurprisingly, the plans swept MSMEs into motherhood clauses and catch-all phrases that were not helpful to implementers. The MSME sector remains a beast that befuddles many who claim to be experts in it. For this reason, the authors of the plan took the easy way out by avoiding the nuts and bolts when it came to MSMEs, but generously laid out the details when it came to the segment that they obviously knew best, i.e., those who are too big to fail.
Maybe it’s time to give the microphone to those whose noses have been badly bruised by MSME life and whose views have thus far been drowned by noise from the learned pundits. Here is one perspective from one “drowned” voice.
The theme of the Plan is “Ano ang taya mo?” It is not a government plan. It is a country plan. Everyone needs to contribute to the Plan.
The spirit of volunteerism and Bayanihan is wrapped around the Plan. The Plan admits that the devastation wrought by COVID-19 and the aggravating effects of the terrible response are wide-ranging. Because mobility restrictions have prevented an honest-to-goodness assessment of the damage, everyone is underestimating the magnitude of the devastation today. Surely, the destruction has been worse than what we saw in 1997 and 2008.
The government tax take is weak and will continue to be so for the next few years after the pandemic, unless something drastic is done. Therefore, a solo government effort to fuel economic recovery will not be sufficient.
It cannot be business as usual. Big sacrifices need to be made across the board. Postpandemic, everyone must take a step back before moving forward.
The immediate objective of the Plan is to restore, as quickly as possible, to prepandemic levels, employment, consumption and business activity.
These short-term objectives must be swiftly addressed by executive action, not by the legislative mill, which can grind so slowly. Executive action can be swift if backed by voluntary action from the participants in the Plan.
The long-term objective of the Plan is to promote an inclusive economy. This can be achieved by a combination of executive action and legislative reform.
For now, let us talk about the short-term engine of the Plan since we have a problem to solve here and now.
Since MSMEs account for 68 percent of employment, every effort must be made to quickly revive and reenergize the MSME sector. The sector is almost mortally wounded today, weighed down by debt that cannot be serviced because revenue streams have nearly disappeared. Unless government intervenes, a huge percentage of MSMEs will die. This will in turn significantly impair the tax base and weaken the financial system. The financial institutions will not give them relief because the former are themselves under extreme regulatory pressure to keep their balance sheets strong. Around P600 billion of MSME loans are in the books of financial institutions today.
There is a way to take this albatross off the backs of the financial institutions.
Government can ask the financial institutions to convert all these loans, based on their prepandemic outstanding levels into seven-year loans with interest at 3 percent per annum, principal payable at maturity. Government can pay this interest on behalf of the borrowers. The annual cost of this to government will be P18 billion a year.
In addition, government will provide first-loss guarantee of 30 percent to the financial institutions on these MSME loans. Assuming, although highly unlikely, that the actual losses on these loans reach 30 percent, the cost to government will be P180 billion over a seven-year period or P26 billion a year.
The total annual cost of this program to the government will be P44 billion. The trade-off is that MSMEs will be able to continue or restart their businesses, and keep or rehire their employees without having to worry about the burden of the debt that piled up during the pandemic.
The MSMEs must move decisively to bring back their business volumes and staffing/payroll to prepandemic levels. In addition, they must commit to pay, every year during the seven-year period of the program, total taxes (income taxes and business taxes) equal to the average annual payments they made during the three years preceding the pandemic.
Microentrepreneurs must commit to take concrete steps toward assimilating themselves into the mainstream economy by registering their businesses and, to the extent possible, putting their businesses online so that they become part of the recorded economy.
On the other hand, local governments and national government agencies must create online portals for business registration, licensing, permit issuance and all other regulatory requirements for business establishments. The portals must be end-to-end and must allow completion of all regulatory procedures online.
Large companies participating in the Plan must commit to pay their MSME suppliers no later than 30 days after delivery. In addition, they must commit to pay every year, during the next three years, total taxes (income and business taxes) equal to their average annual payments during the three years immediately preceding the pandemic. As long as they comply with their commitments, participating companies will be exempt from tax investigations for the duration of their participation.
Financial institutions must provide fresh loans to the MSMEs equal to or more than the amount of outstanding loans granted by them to these borrowers before the pandemic. This will enable the MSMEs to bring their businesses back to pre-COVID levels.
Not included in this debt relief program are MSME borrowers whose loans, at the time the pandemic started, were already in nonperforming status.
The Small Business Corp. and the Philippine Guarantee Corp. will be asked to rechannel funds that have not yet been committed to specific uses towards this program to support the first-loss credit enhancement to be provided by government to the financial institutions.
The Plan is not easy and has many holes. A thousand and one obstacles can be pointed out. But in the search for solutions, it is useful to ask the learned pundits “Ikaw, ano ang taya mo?” Would you even give this Plan a shot and choose to work through its weaknesses, instead of freezing in the face of blockages?
There is nothing easier than talk about solutions where the “taya” is to come only from others and not from oneself. And when it gets too tough to justify one’s hesitation, there is always the politically correct option of putting the proposal in the hands of an “inter-agency committee,” there to languish and eventually die a lonely death. INQ
This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP. The author is past president of MAP. He is chair of Maybridge Finance and Leasing Inc.
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