Aframework document involving the setting up of a movable collateral registry system that aims to further encourage micro, small and medium enterprises (MSMEs) to participate in the country’s economic activity and contribute to job creation was signed on Friday at the Department of Finance (DOF).
The finance department said that MSMEs provide one of every three jobs in the Philippines and contribute nearly 30 percent to the gross domestic product. However, these enterprises usually have only movable assets to offer as collateral.
Signed by private and government sector representatives, a movable collateral registry system will be set up to provide small businesses greater access to credit at lower costs.
With the establishment of the movable collateral registry system, financial institutions will be encouraged to accept nonreal property assets as security for lending to MSMEs.
The DOF said that the system will also enhance and simplify the processes on taking movable assets, such as inventory, equipment, sales contracts, quedan and other intangible assets, as collateral.
With the movable collateral registry in place, banks and other financial institutions will no longer rely heavily on real estate as collateral, since the system will enhance transparency and accessibility to information on the other assets provided as collateral, it added.
The agency also said that the absence of a centralized registry for movable collaterals has been cited as a major reason why majority of the financial institutions are not keen into accepting assets other than land as collateral for loans.
The framework is an offshoot of a memorandum of understanding between the DOF and the International Finance Corp. (IFC) to jointly develop better regulations governing movable assets taken as collateral, and establish a centralized electronic notice registry to publicize lenders’ security interests on movable assets.
“The reluctance of banks to accept movable assets as collateral for loans is one of the main barriers to inclusive economic growth,” said Department of Finance Undersecretary Gil Beltran who is also concurrently the executive director of the National Credit Council.
Beltran added that an improved registry and other regulatory reforms involving the use of movable assets as collateral will help banks mitigate the risks, and enable them to lend more to small businesses for their additional capital requirements and expansion plans.
“We need to use our [government’s] excess savings. Give MSMEs the opportunity to use the money, so that they can grow faster and create employment,” the undersecretary also said.
Better financial system
For his part, IFC resident representative Jesse Ang said that the comprehensive reforms complementing the movable collateral registry can help promote credit diversification and thus create a more robust financial system.
“The reforms will help reduce the cost of credit and increase credit availability,” Ang said, adding that small and medium enterprises will then be able to leverage their movable assets and obtain capital to further invest in their businesses and contribute to inclusive economic growth.
The DOF said that the establishment of a Centralized Movable Collateral Registry is a major financial infrastructure commitment of the Aquino administration under the 2011-2016 Philippine Medium-Term Development Plan.