The Market Monitor Minding the Nation's Business
By Jerry Maglunog
Small and medium enterprises (SMEs) are the main cogs of the economy, as 94 percent of local firms are classified under this category.
Many government agencies, led by the National Economic and Development Authority, the Philippine Institute for Development Studies (PIDS), the Department of Trade and Industry, and the Department of Finance, however, said this category is a marginalized sector.
An economist at PIDS, Dr. Gilbert Llanto, said there is a severe lack of support from the national government for SMEs in the country. Llanto said being an SME is literally “small, mean and profitability is very limited.”
These features make those in this classification very hard to raise capital, especially if they go to proper channels that spur credit, like banks.
“They are not listed, capital is only P50,000 to P100,000. How can you expect banks to approve their loan applications?” asked Sergio Ortiz-Luis, president of the Philippine Exporters Confederation (PhilExport), an entity that looks after the benefit of small firms.
“For big banks, it’s better to lend to one giant, triple-A firm than to 100 small ones only applying for P100,000 loan,” he added.
The sentiments aired by Llanto and Ortiz-Luis are just some of the reasons many SMEs in the country are always in a near-death situation.
When one asks banks if they approve loans of an SME-classified firm, only the Rizal Commercial Banking Corp. (RCBC) has the solid reputation of being a reliable partner of these businesses.
RCBC President and Chief Executive Officer Lorenzo Tan said that since time immemorial, the bank has been an able ally of SMEs.
Tan, also president of the Bankers Association of the Philippines, said Lucio Co, chairman of many big firms such as Puregold, Liquigaz, Office Warehouse, PSBank and Cosco Holdings, was once their client some two-and-half-decades ago.
Now, Co has become one of the most successful SMEs in the country, becoming a billionaire and joining the list of the Philippines’s richest men.
“Co has ABC (ability, break and courage) that’s why he succeeded,” Tan said in an earlier interview.
The Asian Development Bank also said that in order for firms classified under this category, more government subsidies are needed.
In its “Asia Small and Medium-sized Enterprise (SME) Finance Monitor 2014” report, the ADB outlined the crucial roles being played by firms under this category.
The annual report, which assesses 20 countries in developing Asia, including the Philippines, noted that SMEs make up an average of 96 percent of all registered firms and employ 62 percent of the labor force in the Philippines.
“Asia has millions of SMEs, but few of them are able to grow to the point where they can innovate or be part of the global supply chain,” Noritaka Akamatsu, head of the ADB team that prepared the report, said.
Like Llanto and Ortiz, Akamatsu agreed that limited access to bank credit is a persistent problem in Asia and the Pacific.
The report said lending to SMEs has declined over the course of the global financial crisis.
“In 2014, they received only 18.7 percent of total bank loans,” the report added.
Even the United Nations Economic and Social Commission for Asia and the Pacific (Escap) released a study calling for government-initiated reforms that would make trade-finance services more flexible and tailored to the requirements of SMEs.
“SMEs in the region have limited access to trade finance, making it difficult for them to engage in international trade or to participate in international supply chains,” explained the Escap study.
The body said that even a slight increase of 5 percent in the availability of state financing could result in an increase of 2 percent in production and employment.
In June, Filipino economist Mario Lamberte, in a talk, underscored the importance of having Philippine SMEs gain access to capital, so they can compete and grab opportunities with the integration of the Association of Southeast Asian Nations (Asean).