Lack of credit access stalls MSME growth — ADB

Micro, small and medium enterprise (MSME) growth has stalled due to continued difficulties accessing credit, the Asian Development Bank (ADB) said.

In its Asia Small and Medium-Sized Enterprise Monitor 2025, the ADB said critical constraints continue to impede MSME development.

“A primary challenge is the lack of acceptable collateral to access credit, which, along with high credit risk perceptions and operational costs, makes MSME lending high-risk and low-return for financial institutions,” it said.

As of the end of 2024, the Philippines had 1.2 million MSMEs, representing 99.6% of all registered establishments.

MSMEs employed approximately 6.3 million individuals, with employment declining 1.8% year on year.

However, the ADB said while the MSME credit market expanded in 2024, its share of the broader banking portfolio remains limited.

“Addressing structural challenges — such as risk-based lending,collateral requirements, and regional disparities — will be critical to unlocking the full potential of MSMEs in driving inclusive economic growth,” the ADB said.

The bank said challenges are compounded by the continued reliance on traditional credit assessment methods and limited reliable data available on MSME operations, market viability, and credit history.

It also said the lack of a fully functional online registry for movable assets limits the ability to monetize “alternative forms of collateral.”

In addition, the ADB said regulatory and bureaucratic inefficiencies also pose significant barriers, as MSMEs often encounter inconsistent and time-consuming processes across local government units, delaying registration and increasing compliance burdens.

The limited access to capital hindered by high interest rates, low financial literacy, and limited awareness of formal financial channels chokes growth of MSMEs and investing in innovation and expanding operations.

The Bangko Sentral ng Pilipinas reported that bank loans granted to MSMEs grew 10.8% to P540.92 billion as of the end of June.

This was equivalent to 4.59% of their total loan portfolio of P11.78 trillion, below the 10% overall requirement for banks under the Magna Carta for MSMEs.

Under the law, banks must allocate 8% of their loan portfolio to micro and small enterprises, and 2% to medium-sized businesses. — Aubrey Rose A. Inosante