ENTREPRENEURS continue to have difficulty accessing credit, markets and technology while others lack entrepreneurial ability and human capital, making it difficult for their businesses to thrive.
Regulations have sometimes become disruptive for small businesses, leaving many of them failing to start, maintain or grow their enterprise.
These are the biggest challenges that entrepreneurs face, said Maria Elena B. Herrera, the Asian Institute of Management (AIM) academic program director for the institute’s Master in Entrepreneurship program.
Ms. Herrera, who also chairs AIM’s department of strategic management, said the first thing that should be addressed to allow entrepreneurs to start their business is to remove the barriers, many which come from regulations.
“Give them space,” she said, referring to the compliance burden imposed by the government. “Can you please, government, get out of our way.”
She said just to start a business, an entrepreneur has to take about 26 different steps, which may take weeks to complete. This process puts the country at a disadvantage since in other countries, all the legal and permitting requirements can be completed in one visit to the regulator, she added.
One student at the AIM even hurdled the process in six months, she said. The lengthy process is an even bigger burden for those who do not know the steps to take.
For those that pushed through, some have chosen to join the “gray” economy where it is hard to grow.
“It’s hard to grow if you’re in the gray economy,” she said, referring to a sector without legal documentation to do business. “The only way that you will grow properly is if you’re in the formal economy.”
Ms. Herrera said the “compliance burden” needs to be addressed by the government because doing business would be easier for entrepreneurs if they are in the real economy.
“Real economy means everything is open and transparent. They’re actually able to transact. They actually have a legal entity,” she said.
Entrepreneurs are also secure when they have a legal entity in case the business goes bust, which limits banks to take hold only of the company’s property, leaving the owner’s personal money and private property intact.
Those in the formal economy are also forced to pay the correct taxes and provide the proper benefits to workers, she said.
“The more people who are in the formal economy, the more taxes government is going to collect, the better it is for everyone,” she said. “So it actually benefits everyone.”
Ms. Herrera said the compliance burden also come in the changing regulations imposed by some government agencies.
“It’s not that we don’t want to comply, but it’s so difficult to comply even if you are already a company,” she said.
“Business requires consistency,” she added.
Those who hurdle the compliance burden will then face the most difficult part for entrepreneurs: access to credit.
“Getting credit is very difficult in the Philippines,” she said.
Part of the problem in accessing credit is the lack of credit ratings for individuals in the country, she said.
“The financial institutions are famous for not being cooperative in terms of giving their information to government [because that’s the basis of a credit rating — readily available credit information,” she said.
She said in other countries, individuals have “credit scores” based on their available credit history that serves as the most basic part to access credit. She said although microfinance is available in the country and it could indeed help entrepreneurs access credit in the formal economy, it is never enough.
“Microfinance is expensive credit,” she said. “It can be anywhere from a low of 20% to a high of 65% per annum.” That rate compares with 7% per annum offered by banks, she added.
Ms. Herrera said some enablers of the competitiveness of small and medium enterprises include: linking to global value chains; building the business owner’s management skills and human capital; business networking and getting external advise; better regulatory environment; and access to digital platforms or marketplaces such as e-commerce. — Victor V. Saulon
