Helping small businesses grow
In the Philippines, more than 15 million people are still living below the poverty line. Limited job opportunities and low income are some of the reasons why many Filipinos are having a hard time meeting needs of their families and sending their children to school.
But in spite of their situation, the Filipino poor should still be included in nation-building and in developing an inclusive economy and society. The Philippine Business for Social Progress (PBSP) has been responding to this call by providing help to the marginalized communities and offering livelihood opportunities for Micro, Small and Medium Enterprises (MSMEs) through the Small Medium Enterprise Credit (SMEC) Program.
PBSP’s lending program enables poor, enterprising Filipinos to secure their future.
PROVIDING OPPORTUNITIES FOR MSMEs
Since 1989, the SMEC Program of PBSP has been providing more financial opportunities to MSMEs through two components: providing wholesale credit to rural banks and microfinance institutions, and enhancing the institutional capacity of accredited intermediary, financial and microfinance institutions to do MSME credit.
The SMEC Program provides wholesale credit or loan fund to partner banks and microfinance institutions that do retail credit for MSMEs. The wholesale credit rates are the lowest in the market to ensure that when the partner banks and microfinance dispense the credit to the end-beneficiaries it is still affordable for the MSMEs.
The SMEC Program also enhances the institutional capacity of the partner banks and microfinance institutions by providing technical assistance on new methodologies on MSME credit such as risk-based lending. Risk-based methodologies are scientific, makes credit evaluation easier, and minimizes risk. The program also encourages rural banks and cooperatives to diversify its portfolio towards innovative MSME credit. Doing so would generate employment and increase capital and savings through retained earnings.
The SMEC Program started as a grant from the United States Agency for International Development (USAID) in 1989 when the USAID agreed to provide funds to Intermediary Financial Institutions (IFIs) for on-lending to small and medium enterprises located outside the National Capital Region (NCR). The Program received a grant credit $12 million or P288 million ($1=PhP24 at that time), research and policy analysis component, and training and loan development component worth $1 million.
A trust fund, managed by the Development Bank of the Philippines (DBP), was established for the SMEC Program. When the grant expired in 1992, the Department of Finance (DOF), representing the Republic of the Philippines as beneficiary of funds, assumed control and ownership of the Fund. In April 2009, DOF approved the third extension of SMEC, this time until September 2019. It has since been extended until the end of President Duterte’s term in 2022.
Despite the changing financial landscape, SMEC remains relevant in contributing to poverty alleviation, job creation, access to affordable loans, and capacity building programs for MSMEs.
PBSP has maintained a remarkable performance in administering the SMEC funds and has been able to disburse PhP4.6 billion in cumulative loans, or 16 times the utilization turnover of its original amount of PhP288M, which benefitted over 118,000 poor enterprising Filipinos. It has likewise remitted PhP365 million as income reflows to the government.
WHY MSMEs MATTER
Micro, Small and Medium Enterprises play a significant role in developing an inclusive economy. Strong and dynamic MSMEs are able to stimulate innovation and help increase the stability and income levels of communities. They may be smaller compared to large industries and corporations, but these businesses are able to provide livelihood opportunities, especially for people in the countryside.
The MSMEs help bridge the gap between the poor and society. But there are also barriers affecting the growth of MSMEs such as lack of resources and raw materials, low productivity, and most importantly, the lack of access to credit.
Access to credit is one of the means for MSMEs to fund their businesses, purchase materials and equipment and hire workers. However, for some MSMEs, especially those in the countryside, there are limited opportunities to access credit.
PBSP’s intervention helps address this. The SMEC program’s contribution to provide credit to small businesses in the countryside has helped generate some 25,986 jobs, mostly in the agriculture and trading industries.