The World Bank, in a recent report, said the government’s success in achieving inclusive growth rests on its ability to create decent jobs for Filipinos. This is an incontestable point because certainly, at the core of this campaign toward inclusive growth is poverty reduction.
One of the sectors that have significantly contributed to the empowerment of Filipinos is the micro, small and medium enterprises sector (MSME), employing roughly 61 percent of the country’s total labor force and contributing 32 percent of our gross domestic product (GDP).
With such potential, the government, through the Bangko Sentral ng Pilipinas (BSP) and the Department of Trade and Industry (DTI), has been urging banks to increase their exposure to the MSMEs. In fact, laws mandating banks to allot a certain portion of their loan portfolio to small business have been put in place.
The Magna Carta for MSMEs, for one, requires financial institutions to earmark 8 percent of their total loan portfolio for small businesses and 2 percent for medium enterprises.
Such orders seem necessary as majority of banks keep a conservative stance when it comes to lending to MSMEs, fearing defaults considering the borrowers’ poor credit history and insufficient income.
However, the rural banking industry—setting itself apart from the majority—has always taken an active role in microenterprises lending.
Being deeply rooted in the countryside, with almost 600 head offices and over 2,000 branches nationwide, rural banks are the most ideal point of transaction for financial services for budding businesses.
Besides being in the tactical position to serve, rural banks are also experienced financial service providers for micro and small businesses as frontrunners of microfinance.
The provision of micro finance services such as micro loans and savings accounts by rural banks to small and micro entrepreneurs should allow them to improve themselves financially and eventually contribute to the progress of the community where they belong.
These MSMEs are critical growth drivers in the countryside, providing people with decent jobs and thus, empowering them financially. By serving the micro and small businesses sectors, rural banks are not only serving their mandate as champions of development in the underserved areas, they are also actively pursuing the government’s goal of financial inclusion.
Another welcome initiative for this is the proposal of the BSP to create a guarantee fund that will serve as banks’ cushion from losses in case of loan defaults.
This, coupled with the government’s move to create a centralized credit information system, will definitely encourage more banks to open doors for the MSME sector.