THE government’s move to borrow more from the domestic debt market next year would not crowd out micro and small enterprises, as a new law now provides for a mechanism that would allow these businesses to tap convenient, flexible and affordable microfinance loans, the Department of Finance (DOF) said.
Owing to excess liquidity in the market, commercial banks would be more willing to take risks and lend to entities that provide microfinance services and operations because of higher yields than from the government, Finance Secretary Carlos Dominguez 3rd said in a statement on Tuesday.
“Our financial markets are very liquid at the moment, and there is really very little overlap between government funding. We are not crowding out commercial enterprises nor the small and medium enterprises,” Dominguez said.
Central bank data showed that domestic liquidity as a percentage of the gross domestic product (GDP) was at 63 percent as of June 2016, while domestic credit as a percentage of the GDP was at 60.1 percent.
“In fact, the banks would be more encouraged to lend to the smaller enterprises because they certainly get higher yields than they get from us,” Dominguez said.
As a matter of policy, the Duterte administration intends to source much of its financing needs from domestic sources to help protect the welfare of exporters and overseas Filipino workers who would otherwise be at the mercy of foreign exchange fluctuations if the government borrows more from foreign sources.
Dominguez made the assurance amid concerns by legislators about the government’s preference to borrow from domestic, rather than foreign sources, which could shut out small enterprises from the local debt market.
Banks would be earning only about 1.8 percent per annum if they lend to the government, but at least three times as much if they provide funds for small and medium enterprises, the Cabinet official noted.
“If they lend it to the private sector, particularly the small and medium enterprises, I think their interest rates at least would maybe be three times as much, and I think it’s worth the risk,” Dominguez said.
Under Republic Act 10693, or the Microfinance NGOs Act, aspiring small entrepreneurs who would otherwise be considered as “unbankable” by traditional lending sources would be able to access loan facilities through accredited nongovernment organizations (NGOs) that exclusively provide microfinance services to small enterprises.
The DOF said qualified microfinance NGOs are eligible for preferential tax treatment of 2 percent tax—in lieu of national taxes—based on their respective gross receipts from microfinance operations under the recently signed Implementing Rules and Regulations (IRR) of the new law.
Thus, poor families considered as unbankable clients may tap government funding to open up small businesses by accessing credit facilities provided by microfinance NGOs, it added.
A key feature of the RA 10693 IRR is the set of guidelines for establishing a Microfinance NGO Regulatory Council, to accredit NGOs that provide financial products and services to small entrepreneurs.
The DOF said this new law is attuned to the 10-point socioeconomic agenda designed to sustain the economy’s high growth path and make its benefits felt by all Filipinos.
RA 10693 defines microfinance as the “viable and sustainable provision of a broad range of financial services to poor and low-income individuals engaged in livelihood and microenterprise activities.”
Under the law, microfinance NGOs are maintain a compensating balance or the proportion of the total loan of a microfinance client, which is retained with the microfinance institution as capital build-up (CBU) or micro-savings.