Banks’ exposure to MSMEs below 10%
Credit to Author: Mayvelin U. Caraballo, TMT| Date: Tue, 26 Nov 2019 17:21:33 +0000
TOTAL exposure of the banking industry to micro, small and medium enterprises (MSMEs) remains below 10 percent, according to the Bangko Sentral ng Pilipinas (BSP), which has adopted a three-pronged approach to further promote MSME financing.
In his speech at the 17th Citi Microentrepreneurship Awards at the central bank’s headquarters in Manila on Tuesday, BSP Governor Benjamin Diokno attributed the low figure to lenders’ limited understanding of the MSME sector as a market.
“They tend to perceive MSME financing as high-risk and low-margin, which leads to [the] lack of availability [and] variety of MSME financing products,” Diokno explained.
These small businesses, he said, are reluctant to approach formal lending institutions because they lack acceptable collateral and credit history.
“They will also get intimidated by the documentary requirements and [thier] limited financial literacy,” the Bangko Sentral chief added.
These conditions resulted in the banking sector’s MSME exposure of only 6.2 percent of the total loan portfolio and 9.2 percent of total business loans.
Latest data show that banks also continue to fall short of the mandated credit for the MSME sector as of the first half of the year.
A total of P552.09 billion was set aside for lending last year, short of the P776.07 billion mandated under Republic Act 6977 or the “Magna Carta for MSMEs.”
It was also equivalent to just 7.11 percent of the P7.760 trillion in total loanable funds for
last year, below the 10-percent threshold set by the law.
Nevertheless, MSME lending in the first six months of 2019 was P48.42 billion higher than the P503.67 billion extended in the same period in 2018.
Broken down, big banks extended P431.85 billion in loans, followed by thrift banks (P78.79 billion) and rural and cooperative banks (P41.44 billion).
“We recognize these issues and have undertaken a three-pronged approach to improve MSME access to finance,” Diokno said.
The first approach, he said, is putting in place the digital financial and digital infrastructure to mitigate the risk and lower costs of MSME financing.
“Such infrastructure includes a robust credit information system, digital ID platform, movable collateral registry, warehouse receipt system and credit surety fund,” the BSP head added.
The second strategy is promoting innovative approaches to MSME financing.
According to Diokno, the Bangko Sentral has put enabling regulations for banks and other lenders to roll out innovative solutions and strategic use of cutting-edge technologies to serve the MSME market.
“Our efforts to promote digital payments are meant to facilitate the delivery of financial services, including credits that are designed around the needs and preference of small value transactions,” he added.
The central bank is also promoting MSME financing by bridging the information gap.
“[The] BSP’s key initiative under this theme is a comprehensive MSME study that will generate new and more granular data on MSMEs that can lend to a more nuanced understanding of the characteristics, segmentation and needs of the sector,” Diokno said.
“This can support evidenced-based policymaking and equip banks and other lenders with valuable market insights for customer-centric product development,” he added.
Diokno also assured MSMEs that the BSP and its partners in financial inclusion were more committed to support microentrepreneurs reach their full potential.