FILIPINO entrepreneurs’ lack of access to affordable credit is stunting the growth of many micro, small and medium firms and crimping job growth, as a result — a situation that the country’s top banking regulator is worried about.
To remedy this situation, Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla has laid down a plan that would unclog bottlenecks in the financial system and reform outdated policies that result in banks charging often unwarranted risk premia on small businesses wanting to take out loans for operations or expansion.
“MSMEs are unable to reach their full potential due to a range of barriers, including financial access,” the central bank chief said, adding that the Philippine situation mirrors those of other countries. “Bank lending to MSMEs leave much to be desired comprising only 8.4 percent of total loan portfolio.”
Because of this, 80 percent of small businesses are “internally financed” while only 10 percent are bank financed, unlike large corporations that can load up on credit for expansion while enjoying substantially lower interest rates.
MSMEs make up 99.5 percent of all registered businesses in the Philippines and contribute the largest share of total jobs generated at 61.6 percent.
Despite this, small businesses account for only 35.7 percent of the total value of the country’s economic output as measured by its gross domestic product.