BSP sets Batangas launch of credit enhancement fund

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is set to launch a credit enhancement scheme in Batangas City as part of efforts to develop a more inclusive financial system.

BSP Governor Nestor Espenilla Jr. said the credit surety fund (CSF) program would be launched in the next two weeks,  bringing the total number of cities and provinces covered by the CSF program to 51.

Total CSF loans to 16,000 beneficiaries amounted to P3.8 billion as of last month.

The CSF was initiated by the BSP in 2008 for micro, small, and medium enterprises (MSMEs) that could not access bank credit due to lack of hard collaterals and credit history. The fund is created through the pooling of monetary contributions from cooperatives, non-government organizations, local government units, and partner institutions.

The fund serves as an alternative security in lieu of the hard collaterals required by banks, thereby helping capital-short MSMEs with viable business plans gain access to bank loans.

The scheme aims to enhance the creditworthiness of MSMEs and broaden their access to the credit facilities of banks and at the same time sustain the continuous flow of credit in the countryside through the establishment of well and prudently managed CSFs which shall serve as surety covers.

Based on the 2015 statistical data provided by the Philippine Statistics Authority, 99.5 percent of the establishments in the Philippines are MSMEs.

One of the roadblocks for their continued growth is access to financing prompting MSMEs to succumb to loan sharks or the “5-6” lenders who charge exorbitant interest rates. 

Based on an impact assessment survey conducted in 2014 and 2015, the credit obtained from CSFs by MSMEs allowed them to increase their average number of employees by 30 percent, their sales by 26 percent, and their monthly profit by 41 percent.

Likewise, revenues of local government units increased 37 percent from taxes and fees.

To promote MSME access to finance, Espenilla said the BSP pursued continuing prudential reforms to improve the overall environment for credit allocation in the economy. 

This include the implementation of the comprehensive credit risk management (CRM) guidelines for banks so banks could be more flexible, extend more credit, and implement innovative credit products and lending programs.  

“The intention is for banks to focus on cash flow analysis and ability-to-pay rather than collateral when determining a borrower’s creditworthiness.  Collateral (particularly real estate) should only play a secondary role in credit decisions,” he said.