Bank loans to MSME grow, but still short of threshold in Philippines

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Loans disbursed by banks to micro, small and medium enterprises (MSMEs) jumped by 21.6 percent to P552.41 billion from January to September last year, but remained below the mandated threshold.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the amount was P98.1 billion higher than the P454.31 billion released in the same period in 2022.

The data also showed that the banking sector's overall compliance ratio of 4.63 percent as of end-September was still well below the required 10 percent under Republic Act 6977 or the Magna Carta for SMEs.

The law mandates banks to earmark eight percent of their total loan portfolio for micro and small enterprises and two percent for medium enterprises.

The industry's total loan book net of exclusions also surged by 29.1 percent to P11.93 trillion during the nine-month period last year versus the previous level of P9.24 trillion. This means allocations for the MSME sector should have reached P1.19 trillion.

The BSP data showed that Philippine banks' disbursements to micro and small enterprises increased by 18.3 percent to P214.75 billion from P180.65 billion. The amount remained short of the mandated P954.82 billion or eight percent as it only accounted for a 1.8 percent compliance.

Likewise, funds allocated to medium enterprises jumped by 23.4 percent to P337.66 billion from P273.66, exceeding the required P238.71 billion. This, however, translated to a compliance ratio of 2.83 percent, higher than the mandated two percent.

MSMEs play an important role as they account for 99.5 percent of the total establishments and 62.8 percent of the total labor force. The sector also contributes 35.7 percent of the total value-added to the Philippine economy.

However, MSMEs are unable to reach their full potential because of difficulty in credit and financial access especially at the height of the COVID pandemic.

After adopting regulatory relief measures to reduce the financial burden on MSMEs during the global health crisis, the BSP has withdrawn all relief measures as the economy has fully reopened with the lifting of strict COVID-19 quarantine and lockdown protocols.