Maynard Sanchez is an owner of a small catering business whose clients are mostly non-government organizations in Quezon City. He sent a letter after reading our column last Thursday. His company stopped operations on March 15, a few days before the pandemic-induced enhanced community quarantine (ECQ) was implemented in Metro Manila.
He wrote to ask help in reaching out to Trade and Industry Secretary Ramon Lopez regarding loans extended to small businesses. He had visited the Department of Trade and Industry (DTI) office in Cubao, QC last June 4 to file a loan application. He was advised to wait for a call, but two weeks after, he still has not received any communication.
Mr. Sanchez’s letter impresses on me three points. First, that DTI is slow in responding to loan applications. Second, that DTI does not understand the urgency for loans of small companies like Mr. Sanchez’s. And third, that DTI does not really know the problems of micro, small and medium-sized enterprises or MSMEs.
Mr. Sanchez’s catering business is just one of the estimated hundreds of thousands of MSMEs that suffered during the lockdown, considered one of the harshest and longest in the world, and also one of the most ineffective for its failure to curb the virus spread.
In the early days of the pandemic, Vietnam had instigated effective measures, thus keeping the number of reported cases below 400 till today, with no deaths and no lockdown. In contrast, the number of cases in the Philippines has already breached the 30,000-mark, and is still climbing.
Quick loans needed
Back to the MSME problem, as a rule, micro businesses that employ less than 10 people have been the most vulnerable during the lockdown. Many business owners may have availed of the moratorium on rent payments, but some overhead utility expenses still need to be paid.
Small businesses, on the other hand, worry about loan repayments on vehicles, land, and even equipment. Most companies have continued to pay the salaries of their workers, but with no income, this comes at a high cost.
Faced with slow business returns in the coming few months under the new normal, many are forced to let go of staff. Other operating bills that have piled up during the quarantine now need to be paid, even if on an installment basis.
For these reasons, quick loans are necessary to help MSMEs hurdle the cash requirements of the business during and after the lockdown, and until a return of some semblance of normality happens. Otherwise, loan defaults will happen, more workers will get laid off, the businesses will irrevocably collapse.
Too little, too late
Unfortunately, even with all the million-dollar loans that the government has acquired to respond to the pandemic, very little had been allocated to rescue MSMEs other than to help displaced employees survive the days after payrolls were affected.
Through the DTI, the Small Business Corp. (SBC) opened a P1.5-billion COVID-19 Pondo Para sa Pagbabago at Pag-asenso Enterprise Rehabilitation Fund (P3-ERF), also known as COVID-19 Assistance to Restart Enterprises (CARES) Program.
With hundreds of thousands distressed MSMEs, we can well speculate how many ailing entrepreneurs will get help, and how little each can receive. SBC reported recently that they expected to approve loans applications of at most 20,000 borrowers at an average of P85,000 each.
SBC has the capacity to process only 500 loans a day, clearly not enough to respond to the barrage of applications for financial assistance. We need more agencies or a better plan to channel the P3-ERF funds, as well as other money allocated to helping MSMEs affected by the lockdowns.
We also need to relax some of the loan conditions. Many buy-and-sell traders, for example, will not be able to show enough bankable assets that will allow them to borrow enough money to restart their micro businesses. Often, these types of entrepreneurs will be forced to seek informal lenders who charge much higher interest rates, which does not really help them.
The credit window opened by the Philippine Guarantee Corp. of P120 billion to support working capital loans for badly hit MSMEs through accredited lenders is not attractive enough, and few lending institutions are making use of it despite the 50-percent guarantee given. PhilGuarantee needs to work with its lenders to find ways of getting the P120 billion to save more businesses.
Tapping MFIs
The government needs to closely monitor how quickly loans are approved and released to distressed MSMEs, and to find new ways of reaching out to those who need help most. A number of non-government organizations specialize in micro lending, and may be worth collaborating with.
In particular, micro financing in the Philippines has improved over the last decade to become a vibrant partner to over six million individual clients, many of them women who are self-employed. Traditional lenders don’t really pay attention to this sector because of the high risk and low income potential.
Yet, this sector has a bigger potential to stave off poverty, which has dug deeper into the grassroots level as a result of the pandemic. The microfinance industry last year boasted of some 3,000 branches with a good grasp of the urban poor and disadvantaged agricultural work force.
Let us give more importance to the value of MSMEs, and even our self-employed countrymen. They may represent a teeny fraction of the banking system, but when properly cranked up, could provide the life line for many of our people.
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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reydga1mboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.