BSP Planning Guarantee Fund for MSMEs Affected by the Pandemic

The Bangko Sentral ng Pilipinas (BSP) is currently eyeing the establishment of a guarantee fund. This comes after the BSP has chosen to pull out incentives to banks currently giving funds to micro, small and medium enterprises (MSMEs) that were affected by the COVID-19 pandemic. 

Incoming BSP Governor Felipe Medalla has said that this guarantee fund would motivate financial institutions and banks to give out loans to MSMEs even without relief measures from BSP. 

Due to the pandemic, banks are hesitant to take risks. 

“So the recommended measure there is to put up a guarantee for the medium small scale industry that will be funded by appropriations from the government. The lending will be done by banks,” says incoming Governor Medalla. 

The funding aims to take in around 80% of loan defaults. 

This fund is comparable to the Agricultural Guarantee Fund Pool (AGFP) of 2008 which was established to lessen the risks included in agricultural lending with the guarantee provision.

According to incoming Governor Medalla  “, It will work, but it requires of course a good monitoring so that there’s no cheating. The problem is, of course, possible that there’s no default, but the banks are reporting default just to get the guarantee payments. So we need a good system of monitoring, verification that the loan was really made,” 

With the most recent data, figures have shown that the number of loans given to MSMEs and large companies hit well over ₱260 billion with the central bank continuing to extend relief measures as businesses are still recovering from the pandemic. 

Source: Philstar