Philippine bank lending to small enterprises misses target in H1

Legislative requirements were not met despite recording 10.4% growth.

Loans extended by Philippine banks to micro, small and medium enterprises (MSMEs) fell short of the required legislative target despite booking double-digit growth at 10.4% to $10.12b (PHP548.89b) in the first half of 2018.

The latest figure represents volume $961.05m (PHP52.12b) higher than the $9.18b (PHP497.77b) recorded in same period last year.

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This pushed the half-year compliance ratio of the banking system to 7.97% which is lower than the 10% required by law under Republic Act 6977 or Magna Carta for SMEs. The law requires banks to set aside 8% of their total loan portfolio for micro and small enterprises and the remaining 2% for medium enterprises.

Although funds lent by banks to micro and small enterprises hit $4.05b (PHP219.53b) in H1 2018, it fell short of the required 8% as it only represented 3.18% of total loan book.

On the other hand, allocation to medium enterprises exceeded the 2% requirement after rising by nearly 11% to $6.09b (PHP330.36b). This translated to a compliance ratio of 4.79%.

Also read: Philippine rural banks remain flush with money despite consecutive branch closures

The MSME sector plays a crucial role in the Philippine economy as they account for 99.5% of the country’s registered business firms in 2015 and generate more than half of total employment, data from the statistics authority show. Despite their economic contribution, the sector is plagued by a chronic credit crunch hampering their growth.

Photo from Ramon FVelasquez - Own work, CC BY-SA 3.0