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Saving the MSMEs

GOVERNMENT figures place about 27 million Filipinos as out of work, and this is umbilically tied to the fragile state of the micro, small, and medium enterprises (MSMEs) in the country, as the COVID-19 pandemic continues to affect their operations.

When the enhanced community quarantine was first implemented in March, the Department of Trade and Industry (DTI) already reported that more than half of these businesses had to close down because of unsteady cash flow. While some were forced to work around what’s left of their funds, others had to permanently cease operations.

For a sector that is a pillar of the economy—forming 99 percent of registered businesses in the country and accounting for 67 percent of local employment—this situation is alarming. More than ever, they need support to survive the effects of the pandemic on their businesses.

Jenny Wieneke, project head of the “BUYanihan” campaign, launched recently by the Association of the Filipino Franchisers Inc. (AFFI), pointed out that cash flow is the “lifeblood” of MSMEs. “If you stop the flow, what do you think would happen next? Cash flow is what MSMEs need to survive,” she said. BUYanihan is a movement that seeks to “encourage Filipino consumers to patro­nize MSMEs and slowly breathe back life into their businesses.”

Here is how the government and the private sector have responded. Banks have aligned their credit facilities with the government’s Bayanihan Act—from lowered interest rates, loan payment deferral programs, to new digital financial tools, among many others.

Even pre-COVID, Bank of the Philippine Islands (BPI), has been supporting MSMEs in line with its objective of making banking financially inclusive. BPI believes that MSMEs are prepared to get back in the game provided they are given ample microfinancing support.

But banks need cushion as well. In April, the Bangko Sentral’s policy-making Monetary Board approved a package of measures to further reduce banks’ financial burden on loans to MSMEs amid the ongoing pandemic. In particular, monetary authorities said loans granted to MSMEs shall be counted as part of the banks’ compliance with reserve requirements.

Makati City Pabakuna

This was supplemented by the partnership of state-owned Philippine Guarantee Corporation (PHILGUARANTEE) with local banks. A government-owned and controlled corporation attached to the Department of Finance, PHILGUARANTEE is mandated to perform a development financing role through the provision of credit guarantees in support of trade and investments, exports, infrastructure, energy, tourism, agricultural business/modernization, housing, MSMEs (Micro, Small and Medium Enterprises) and other priority sectors of the economy, with the end in view of facilitating and promoting socio-economic and regional development.

Risk sharing

Recently, BPI inked an agreement with state-owned Philippine Guarantee Corporation (PHILGUARANTEE) for the latter’s MSME Credit Guarantee Program to bolster its capacity to provide loans for the purpose of mitigating the impact of the pandemic on MSMEs.

This partnership has granted BPI a combined guarantee of P6.5 billion, with P5 billion allotted to BPI’s Business Banking segment and P1.5 billion for its microfinancing arm BanKo, to help MSMEs recover.

The program hopes to encourage lending banks to continue releasing loans, by mitigating the risk of banks via partial guarantee against credit losses in the event of non-payment of MSME loans. The 50-50 risk sharing agreement puts banks in a better position to help more MSMEs dodge the impact of the pandemic.

Earlier, BPI pioneered in the issuance of social bonds – the COVID Action Response Bonds or CARE Bonds. The public’s reception to the bonds was overwhelming. While initially, BPI planned to raise only P3 billion, the final issuance reached a total of P21.5 billion. That’s a lot of resources to finance and refinance qualified MSMEs.

Quote of the week

“I think we have a golden opportunity to actively shape the future that is fast approaching. Leading through the unknown requires reimagination guided by the many signs and clues all around us. And if we listen, we use data and we get a pulse of how things are changing, the world becomes far less uncertain and we start to see ways that we can begin to shift and change.”Jaime Augusto Zobel de Ayala, 5th Ayala-FINEX Summit, September 9, 2020.

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Publication Source :    People's Tonight
Ignacio “Toting” Bunye
Lawyer-Banker, former member of Monetary Board (Bangko Sentral ng Pilipinas), former cabinet member, former legislator, former city mayor, former broadcast and print journalist.