Small firms still underserved by banks

Small- and medium-sized firms dominate the Philippine business scene in numbers and employment figures but account for only a miniscule part of the country’s economic output—an imbalance that can be addressed through financial inclusion, according to the head of the Bangko Sentral ng Pilipinas,

Speaking before members of the Philippine Exporters Confederation Inc. on Friday, BSP Governor Benjamin Diokno said small businesses—many of which were part of the export sector—remained largely “unserved and underserved” by the local banking system.

“By bringing financial products to [them], we can empower them and at the same time, nurture economic activity and invigorate static industries by linking businesses to new and untapped markets,” he said. “I also believe that financial inclusion is vital in bringing about a sustainable economy.”

Diokno said micro, small and medium enterprises (MSMEs) in the Philippines number 911,768 as of the latest count, representing 99.6 percent of all registered firms in the country.

These companies also generate 61.6 percent of employment nationwide.

“Despite having considerable growth prospects and being a source of livelihood for millions of Filipinos, the MSME sector has not realized its potential,” Diokno lamented.

“MSMEs account for only 3.32 percent of the country’s gross domestic product, while their gross value added sits at 35.7 percent,” he said.

In addition, capital investment remains low, with MSME loans in the banking system accounting for less than 10 percent of total loans in the banking system.

“Knowing that a significant number of members of Philexport are MSMEs, I’m sure you know that the lack of access to credit remains a fundamental obstacle to the further development and sustainability of our MSMEs,” Diokno said.

He said that, on the supply side, issues included the prevalent perception that MSMEs were low-profit and high-risk endeavors compared to larger firms.

“This aggravates the lack of understanding of the MSME segment,” he said. “It results in the scarcity of appropriate financing products and inability of banks to cater effectively to MSMEs.”

“On the demand side, MSMEs are reluctant to approach banks due to the lack of collateral and credit history needed for loan application,” Diokno said. “They have limited business capacity and financial management skills to capably meet loan requirements. In addition, they have limited knowledge of alternative modes of financing.”

Recognizing these challenges, Diokno said the BSP was set on strengthening the country’s financial infrastructure, supporting innovation and bridging the information gap.

The central bank chief said regulators were working to reform the financial system to allow MSMEs more access to needed resources.