Hike in local debts won’t hurt MSMEs

The Duterte administration’s plan to increase borrowings from the domestic debt market this year won’t crowd out medium, small and micro enterprises (MSMEs), Finance Secretary Carlos Dominguez III said.

Dominguez said a new law provides for a mechanism that would allow MSMEs to tap con­venient, flexible and affordable loans through mi­crofinance services.

With the excess liquidity in the market, com­mercial banks would be more willing to take risks and lend to MSMEs and other entities that pro­vide microfinance services and operations be­cause they would get higher yields from them than from the government, Dominguez said.

Under the 2017 budget, borrowings will to­tal P631.29 billion, the bulk of which will be from local sources of some P505.03 billion, while the balance of P126.26 billion will come from foreign borrowings such as the sale of bonds and from official development assistance (ODA).

“Our financial markets are very liquid at the moment and there is really very little overlap be­tween government funding. We are not crowding out the commercial enterprises nor the small and medium enterprises,” Dominguez said.

Bangko Sentral ng Pilipinas (BSP) data showed domestic liquidity as a percent­age of the Gross Domestic Product (GDP) was at 63 percent as of June 2016, while domestic credit as a percentage of the GDP was at 60.1 percent during the same period.

“In fact, the banks would be more encouraged to lend to the smaller enter­prises because they certainly get higher yields than they get from us,” Domin­guez said.

The finance chief earlier told Con­gress that the new administration’s policy “is to source much of our financing needs from domestic sources.”

He said this borrowing mix would help protect the welfare of exporters and overseas Filipino workers who would otherwise be at the mercy of foreign ex­change fluctuations if the government borrows more from foreign sources.

Dominguez made the assurance in response to concerns raised by legisla­tors over the government’s preference to borrow from domestic, rather than from foreign, sources.

Dominguez said banks would be earning only about 1.8 percent per an­num if they lend to the government, but at least three times as much if they provide funds for small and medium enterprises.

“If they lend it to the private sector particularly the small and medium enter­prises, I think their interest rates at least would maybe be three times as much, and I think it’s worth the risk,” Dominguez said.

He informed lawmakers that under a new law, aspiring small entrepreneurs who would otherwise be considered as “unbankable” by traditional lending sources would be able to conveniently access loan facilities through accredit­ed nongovernment organizations (NGOs) that exclusively provide microfinance ser­vices to small enterprises.

At the 13th Association of South­east Asian Nations (Asean) Business and Investment Summit held last Sep­tember in Vientiane, Laos, President Duterte called on Asean to support the development of micro, small and medi­um enterprises (MSMEs).

Mr. Duterte said in his speech that for the Philippines, “our economic fo­cus will be toward the promotion of inclusive growth through innovation in four areas,” including MSMEs.

Dominguez informed the hear­ing that the Philippines has signed the implementing rules and regulations (IRR) ) for the new law on microfinance non-governmental organizations “and we gave them a very big tax credit.”

Qualified microfinance NGOs are eligible for preferential tax treatment of 2 percent tax—in lieu of national tax­es—based on their respective gross receipts from microfinance operations under the recently signed Implementing Rules and Regulations of Republic Act No. 10693, or the Microfinance NGOs Act.

Thus, poor families considered as “unbankable” loan clients can now tap government funding to open up small businesses by accessing credit facili­ties provided by microfinance NGOs.

One key feature of RA 10693’s IRR is the set of guidelines on the creation of a Microfinance NGO Regulatory Council, which is tasked to accredit NGOs that provide financial products and services to small entrepreneurs.

This new law is attuned to Pres­ident Duterte’s 10-point socioeco­nomic agenda designed to sustain the economy’s high growth path and make its benefits felt by all Filipinos.

RA 10693 defines “microfinance” as the “viable and sustainable pro­vision of a broad range of financial services to poor and low-income in­dividuals engaged in livelihood and microenterprise activities.”

Under the law, microfinance NGOs are required to maintain a com­pensating balance, defined as “the proportion of the total loan of a micro­finance client, which is retained with the microfinance institution as capital buildup (CBU) or micro-savings.”

LUIS LEONCIO