Bill seeks to help MSMEs gain access to bank credit


A BILL seeking to reform the lending system in the country will enable more micro, small and medium enterprises (MSMEs) to gain access to bank credit.

Chester Abellera, legal consultant of World Bank-affiliate International Finance Corp., said over the weekend that it is high time the country’s outmoded financing laws are reformed so MSMEs can benefit from the lower interest rates offered by banks.

He pushed for support for the passage of the proposed secured transactions reform bill filed in both houses of Congress which seeks to make acceptable other forms of assets besides real estate as bank collateral.

Abellera said the draft bill aims to unify, simplify, and modernize the fragmented and outdated financing regulations in the country in order for small establishments with no traditional collateral to still secure trade financing.

Although said to be “awash in cash,” banks are reluctant to provide loans to MSMEs, which are seen as high-risk clients, thus crippling the growth and expansion of small establishments and startups, he said.

Sen. Paolo Benigno Aquino 4th filed in July Senate Bill 354, otherwise known as the Secured Transactions Act, to “enjoin our banks to take part in MSME development with less risk.”

“Despite being a growth area for banks, SME financing is still considered unattractive given the perceived risks without traditional collateral such as land and other real property,” the senator said in his explanatory note.

He said the problem is that MSMEs’ assets are mostly personal in nature, such as equipment, inventory, motor vehicles, accounts receivables, and more, making it difficult for them to meet bank requirements to get loan approvals.

The bill therefore underscores the urgency of overhauling old laws, particularly the Chattel Mortgage Law of 1906, which governs movable asset lending in the Philippines, Sen. Aquino said.

“The current regime recognizes a diverse set of movable assets acceptable as collateral for loan purposes (e.g., motor vehicles, standing crops, like rice, sugarcane, and other agri-aqua commodities, equipment, etc.); however, these assets are not being fully utilized nor preferred by banks as loan collateral, except motor vehicles, which leaves the law ineffective to increase trade or facilitate access to finance for MSMEs,” Aquino said.

Essentially, the Secured Transactions bill strives to “establish a comprehensive legal framework to govern lending transactions that involve the use of personal property as collateral, as well as . . . a unified, centralized, online notice-based national collateral registry to assure banks that the collateral being submitted has not already been utilized for another loan.”

These reforms, Aquino pointed out, can help increase credit access for women and small businesses, reduce the risks of non-payment of debt and interest rates, and cut the rate of non-performing loans of financial institutions.

This measure provides “an opportunity to create a win-win, balanced environment for financial institutions and small businesses, which will generate more employment and sustainable livelihood for Filipinos across the country,” he added.


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