BSP unveils reforms to boost lending to MSMEs

The country’s top financial regulator wants the central bank’s financial inclusion initiatives to bring not just so-called “unbanked” individuals into the formal economy but also small businesses and entrepreneurs who currently have limited access to bank loans.

As such, Bangko Sentral ng Pilipinas (BSP) Gov. Benjamin Diokno said his agency would conduct a nationwide survey, develop a loan application form for micro, small and medium enterprises (MSMEs) and roll out a study on supply chain finance next year as part of its broader efforts to boost small firms’ access to finance.

“In 2021, the BSP will again have a busy year in terms of widening the access of small businesses to needed funding,” he said in an online briefing. “These initiatives are seen to support economic recovery and strengthen [small businesses’] role as a growth driver in the new economy.”

The survey is expected to bridge the information gap by generating new insights and more granular data on MSME financing. Results will support evidence-based policy-making and aid financial service providers in tailor-fitting products and services for the sector.

Meanwhile, the development of a standard business loan application form will enable the banking industry to meet smaller firms’ preferences for borrower-friendly and simplified processes. The initiative is also aimed at improving banks’ risk assessment and speeding up turnaround time for loan applications.

Moreover, the BSP will roll out a study on supply chain finance, an innovative approach whereby lenders can use small firms’ receivables and inventory flows as collateral for financing as these companies usually encounter difficulties in acquiring formal loans under traditional financing approaches.

The BSP chief said he recognized that the long-standing access to finance problem stemmed from a number of interlinked factors from both the demand-side, or the small firms, and the supply-side, or the banks as lenders. These included information asymmetry, unfit financing products and processes, and borrowers’ lack of acceptable collateral and credit histories.

According to the World Bank, 81.2 percent of enterprises were being financed internally, while only 10.1 percent were financed by banks. BSP data as of the end of 2019 showed that bank loans to micro, small and medium firms accounted for only 8.8 percent of the total businesses loans and 6.1 percent of total banking system loans.

Aside from projects in the pipeline, the BSP is also working on ongoing initiatives like the credit surety fund, credit risk database and the agriculture value chain financing pilot project.

The BSP also supports the implementation of the Personal Property Security Act, the passage of the warehouse receipts bill and the enhancement of the country’s credit information system and guarantee programs.