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The country’s top financial regulator wants the central bank’s financial inclusion initiatives to bring not only so-called “unbanked” individuals into the formal economy, but also small businesses and entrepreneurs who currently have limited access to bank loans.
As such, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said his agency would conduct a nationwide survey, develop a loan application form for micro, small and medium-sized enterprises (MIPYMES), and launch a study on supply chain financing next year as part of its broader efforts to boost small business access to finance.
“In 2021, the BSP will again have a busy year in terms of expanding small business access to needed funds,” he said in an online briefing. “These initiatives are considered to support economic recovery and strengthen [small businesses’] role as an engine of growth in the new economy “.
The survey is expected to fill the information gap by generating new knowledge and more detailed data on the financing of MSMEs. The results will support evidence-based policy formulation and help financial service providers tailor products and services for the sector.
Meanwhile, the development of a standard business loan application form will allow the banking industry to meet the preferences of smaller businesses for streamlined and borrower-friendly processes. The initiative also aims to improve the risk assessment of banks and speed up the response time for loan applications.
Additionally, the BSP will conduct a study on supply chain financing, an innovative approach whereby lenders can use small business accounts receivable and inventory flows as collateral for financing, as these Companies generally find it difficult to acquire formal loans under traditional financial approaches.
The head of the BSP said that he recognized that the long-standing problem of access to financing came from a series of interrelated factors both on the demand side, or from small businesses, as well as on the supply side, or from banks as lenders. These included information asymmetry, inadequate financing products and processes, and a lack of acceptable collateral and credit history on the part of borrowers.
According to the World Bank, 81.2 percent of companies were financed internally, while only 10.1 percent were financed by banks. Data from the BSP at the end of 2019 showed that bank loans to micro, small and medium-sized enterprises accounted for only 8.8 percent of total commercial loans and 6.1 percent of total banking system loans.
In addition to ongoing projects, BSP is also working on ongoing initiatives such as the credit guarantee fund, the credit risk database, and the agricultural value chain financing pilot project.
The BSP also supports the implementation of the Personal Property Security Act, the approval of the depository receipt invoice, and the improvement of the country’s credit information system and guarantee programs.
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