SEC introduces crowdfunding to raise capital for MSMEs
DAVAO CITY — Crowdfunding portals can provide much-needed access to additional capital for micro, small, and medium enterprises (MSMEs), including those in the agricultural sector.
This as the Securities and Exchange Commission (SEC) has initiated a roadshow for capital formation which kicked off here on Wednesday, February 15.
At the sidelines of the event at Pinnacle Hotel here, SEC Chair Emilio Aquino pointed out that with crowdfunding platforms as the third party in the value chain, requirements are a bit relaxed, although measures are implemented to ensure that the capital flow and return of investments are achieved.
“There are willing lenders (to provide funding to MSMEs),” said Aquino, pointing out that these portals will “hand-hold,” or help borrowers access the fund that is needed to grow their small businesses.
This new mechanism in raising capital is a welcome development for the business sector as those looking for new capital, particularly the MSMEs, will have choices where to run to, said Arturo M. Milan, Philippine Chamber of Commerce and Industry area vice president for Mindanao.
“Our MSMEs have long been looking for access to funding. We hope that they can benefit from this new one,” Milan told the Inquirer.
Milan added that he and Aquino have agreed to include crowdfunding in the topics in the upcoming Mindanao Business Conference in Pagadian City this year.
Director Vicente Graciano P. Felizmenio Jr. of the SEC Markets and Securities Regulation Department, explained that crowdfunding companies usually focus on key pieces of information that they need in order for them to be able to conclude that funding seekers need capital infusion for them to grow their businesses.
“Even if you already raise the capital (you need to continue to provide information to the portal) until such time that your business matures,” Felizmenio added.
He likewise said that unlike other capital providers such as banks, funding providers in the portal usually do not require collaterals provided that these funding seekers are able to “show that they are part of the supply chain,” including invoices, and eventually achieve business growth.
“The flip side of that is that on the part of the investors, you make your investment decision on the basis of the information,” he said, adding that for investors who are “risk averse,” crowdfunding portals are not their place.
Felizmenio said some funding providers not only are willing to lend because of the profit that they will make out of their investments, but because they believe their capital can help grow the economy.
Another major come-on in lending using a crowdfunding portal is leveraging the use of technology, said Aquino, who once served as the director of the SEC-Davao Extension Office between 1998 and 2000.
However, he said the SEC is heavy on regulating these portals because “we don’t want also unscrupulous people using the portals (to scam either the fund seekers or the fund providers).”
“We have to make sure that our borrowers and lenders are legitimate,” he said.
On the part of the portals, aside from documents required of them to show their legitimacy, Felizmenio said they are also required to provide a business model and a technology that they will be able to match a borrower and a lender. “We would like to make sure that indeed this is legitimate, that they will be running long-term, that this is not a fly-by-night (operation),” he added.
An official of one of the portals that joined the roadshow said that in the case of their portal, among their requirements are sales invoices and purchase orders.
“We do supply chain financing. All our loans are non-collateralized,” said Maria Cecilia Rada, Investree Philippines relationship manager.
Borrowers who want to access funds through the portals will need to upload all documentary requirements into the system, including sales voices and purchase orders and other pieces of information that will show the potential growth of their businesses,
Once the loan application is approved, this is auctioned among the investors who will offer the funding value including the interest rates. “Once everything is in place, the investor will transfer the fund to the borrower,” she added as investors have a commitment in value of loans that they can offer.
She added that loans can run between P300,000 to P15 million, dependent on the business, and the assessment, which is a function of the experts of the portal, although the amount can go higher if need be.
Unterest rates could run between 2% to 4% a month, dependent on the offer of the funders and based on the assessments, Rada added.