17% Decline in Bank Loans for MSME Sector in 2020

The micro, small, and medium enterprises (MSMEs) sector was heavily affected by strict mobility and quarantine restrictions, which led to massive shutdowns. As a result, bank loans to MSMEs have declined by 17% to ₱ 480.5 billion in 2020 from ₱ 579.13 billion in 2019, according to the Bangko Sentral ng Pilipinas (BSP).

Under Republic Act 6977 or the Magna Carta for MSMEs, banks are mandated to reserve 8% of their loan portfolio for micro and small enterprises and 2% for medium enterprises. The aforementioned amount was only equivalent to a 5.71% compliance ratio, falling short of the 10% threshold.

The total loans allocated to micro and small enterprises fell by 18.5% to ₱ 186.12 billion from ₱ 228.36 billion, as shown by the BSP data. This only accounted for a 2.21% compliance, short of the mandated 8%.

Similarly, credit allocations to medium enterprises slumped by 16% to ₱ 294.38 billion from ₱ 350.77 billion. This was equivalent to a 3.5% compliance ratio, exceeding the mandated 2%.

MSMEs have a difficult time reaching their full potential due to financial burdens and lack of funding accessibility, especially in the time of a pandemic when banks are risk-averse.

It’s important to note that the sector contributes 35.7% of the total value added to the economy, accounting for 99.5% of the total establishments. It also employs 62.8% of the total labor force.

In this light, the BSP has begun adopting various regulatory relief measures to help ease the financial constraints on MSMEs.

The Monetary Board of the BSP has approved a temporary lower credit risk weight, which would allow banks to lend more to the MSME sector, among other resolutions.

According to the BSP, certain relief measures are necessary in order to safeguard the financial sector from the risk of volatility, particularly because of the global developments that have been unfolding due to the current crisis.

Source: Philstar