BIG AND THRIFT banks were unable to disburse the minimum credit for small businesses required by law in the fourth quarter of 2020, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Loans disbursed by the banking industry to micro-, small-, and medium-sized enterprises (MSMEs) stood at just P480.501 billion versus their lending portfolio worth P8.412 trillion.

This was also 12% lower than the P547.022 billion lent a year ago but 3% higher than the P464.346 billion recorded as of the third quarter of 2020.

Republic Act 6977 or the Magna Carta for MSMEs requires banks to allocate at least 10% of their loan book for small businesses to boost the sector — 8% to micro and small enterprises (MSEs) and 2% to medium-sized enterprises.

Big banks have often opted to pay penalties for noncompliance instead of taking on the risks of lending to small firms.

Broken down, loans disbursed to MSEs amounted to P186.124 billion or just 2.21% of their loan portfolio, lower than the 8% required under the law, which is worth P673.013 billion.

Meanwhile, lending to medium-sized businesses reached P294.377 billion, which is equivalent to 3.5% of banks’ loan portfolio, beyond the mandated 2% allocation.

By type of lender, credit granted by universal and commercial banks to MSEs during the period amounted to P126.334 billion, equivalent to only 1.67% of their P7.574-trillion loan portfolio. They allocated P247.358 billion to medium-sized enterprises, which is 3.27% of their credit book.

Thrift lenders extended P31.582 billion in loans to MSEs or 4.39% of their P719.645-billion loan portfolio. These banks also granted credit worth P32.749 billion or 4.55% of their total lending book to medium-sized firms.

Meanwhile, rural and cooperative banks reached the quotas as their loans to MSEs amounted to P28.198 billion or 23.75% of their P118.722-billion portfolio. Loans to medium-sized businesses reached P14.27 billion or 12.02% of their lending book.

MSMEs made up 99% of the roughly one million business establishments in the country in 2018, based on data from the Department of Trade and Industry. They also accounted for 5.7 million or 63.19% of the new jobs that year.

The central bank provided lenders regulatory relief measures last year in a bid to boost lending to MSMEs as they were among the sectors worst hit by the pandemic. These include counting MSME loans as alternative reserve compliance and the reduced credit risk weight for loans extended to the sector.

Other initiatives are also in the works to bridge the gap in MSME financing, including a credit risk database project spearheaded by the central bank and the Japan International Cooperation Agency.

It has also teamed up with various institutions for a study on small businesses with a gender lens to look into boosting lending to MSMEs. The study will be a maiden national-level report on issues, challenges, and opportunities for businesses owned by women from a demand-side perspective. Its results are expected to be ready by the fourth quarter.

The BSP is likewise exploring supply chain financing for small businesses which will ease collateral requirements by leveraging on the credit profiles of their major customers. — Luz Wendy T. Noble