R.A. 11057 to Help MSMEs Acquire Loans

Universal and commercial banks (U/KBs) in the Philippines are expected to hike their Agri-Agra rule compliance through the Personal Property Security Act, which effectively increases the list of assets that small businesses can use as loan collaterals.

“We hope that this will enable them to be able to comply with the mandatory credit allocation for MSMEs and Agri-Agra. That’s the hope,” Bangko Sentral ng Pilipinas (BSP) Office of the Governor Managing Director, lawyer Prudence Kasala said in a briefing Monday.

The Personal Property Security Act, otherwise known as Republic Act (RA) 11057, was signed into law in August 2017.

Under this law, any property that is not land or real estate is considered personal property or movable asset. These include farming equipment and machine used in a business operation, crops or produce, warehouse inventory and receipts, accounts receivable and intangibles like intellectual property.

This law is intended to give small enterprises ready access to credit even without using real estate as loan collateral.

Relatively, banks are required under Republic Act 10000, otherwise known as An Act Providing for an Agriculture and Agrarian Reform Credit and Financing System Through Banking Institutions, to allocate 10 percent of their funds for agrarian reform credit and 15 percent for other agricultural credit.

However, big banks have been unable to meet this rule, reportedly due to risk aversion, saying that rural banks and cooperative banks are the ones truly serving the smaller enterprises because they are focused on smaller businessmen. “It’s really the risk appetite of the banks,” Kasala said.

The BSP official said that as a regulator the BSP makes sure that it provides a viable ecosystem for the banks to extend loans to farmers and other small borrowers.

To date, the micro, small and medium enterprises (MSMEs) account for 66 percent of total jobs in the country and around 99.6 percent are registered with the Department of Trade and Industry (DTI)

However, its contribution to gross domestic product (GDP) is only around 36 percent to date.

Finance Undersecretary Gil Beltran, during the same briefing, said they have no specific figure as to how much the sector contributes to domestic output, saying “different countries have different experiences.” “It depends on how we implement it,” he said, but added that the government is firm on helping the MSMEs.

Kasala said small manufacturers will greatly benefit from RA 11057 since they can now use their inventories as good collateral. “If your inventories are just stored in the stockroom it won’t help your finances but now since you’ll be able to liquify it by using it as a collateral you’ll be able to keep generating funds for that,” she added.

The law’s Implementing Rules and Regulations (IRR) are now on the final stages of drafting and is expected to be finalized before the end of this year. (PNA)