Rural banks as partners in MSME development

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As an engine for jobs creation and a major contributor to the gross domestic output, the role of the micro, small and medium enterprises (MSME) sector in the country’s economic growth cannot be overemphasized.

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And so, when the Rural Bankers Association of the Philippines (RBAP) inked a Memorandum of Cooperation with the United States Agency for International Development (USAID) last March 31, it envisioned the untapped potential of small entrepreneurs and their impact on the Philippines’ economic boom.

The RBAP-USAID partnership, anchored on USAID’s Advancing Philippine Competitiveness (COMPETE) project, specifically seeks to enhance the borrowing capacity of MSMEs by promoting property rights as collateral.

USAID’s COMPETE project aims to improve access to credit, among others. Under it, the US agency—in accordance with the Residential Free Patent Act—has been supporting the issuance of patents to Filipinos without land titles, hoping that it would address the problem of inadequate collateral.

Initiatives, like the COMPETE project, are imperative in a country where small entrepreneurs still find it difficult to secure financial assistance, despite existing laws supporting them.

Under the Magna Carta for MSMEs, financial institutions are required to set aside 8 percent of their total loan portfolio for small businesses and 2 percent for medium enterprises. However, the Asian Development Bank recently said the Philippines still scores low in terms of MSME lending as some banks would rather be fined for violating the mandatory loan allocation than engage in risky situations.

As the new partner for the project, the RBAP shall promote the acceptance of property rights as collateral among its member-rural banks, and help them set up land titling services for free patent holders.

Besides improving the country’s credit system, the RBAP-USAID partnership also offers great prospects for both the rural banking industry and the MSME sector.

The venture, on one hand, would expand rural banks’ client base to free patent holders and broaden their product line-up with the offering of titling services. On the other, it would allow more MSMEs to access formal bank financing, thus increasing their chances to grow into mega businesses and become more effective drivers of rural development.

The COMPETE project is not the first collaboration of RBAP and USAID.

Fifteen years ago, the two parties teamed up to establish the Microenterprise Access to Banking Services (MABS) program, an initiative designed to accelerate national economic transformation by encouraging local banks to engage in microfinance.

The MABS Program provided technical assistance and training to partner-rural banks to help them develop better microfinance services for their underprivileged clients.

As of June 2012, a total of 643 banks received technical assistance from MABS, which, in effect, translated to 1,019,183 new microloan clients.

The partnership of the RBAP and USAID—with their earnest efforts and dedication—became an impetus for the development of the microfinance sector. With the same fervor, this new undertaking to boost MSME’s growth would certainly not disappoint.

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