BSP eyes guarantee fund for MSMEs

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is looking at the establishment of a guarantee fund, as the regulator withdraws incentives extended to banks providing financing to micro, small, and medium enterprises (MSMEs) affected by the pandemic.

In an interview with The Chiefs on Cignal TV’s OneNews/TV5, incoming BSP governor Felipe Medalla said the proposed fund would encourage banks and financial institutions to lend to MSMEs even without regulatory relief measures from the central bank.

Just like in other countries affected by the pandemic, Medalla said money is available for lending, but banks are reluctant to take risks.

“So the recommended measure there is to put up a guarantee for the medium small scale industry that will be funded by appropriations from the government. The lending will be done by banks,” he said.

Medalla said the fund would help absorb about 80 percent of loan defaults.

He said the proposed fund is similar to the Agricultural Guarantee Fund Pool (AGFP) established in 2008 to mitigate the risks involved in agricultural lending through the provision of guarantee.

Under the existing AGFP, the banks do the lending and the guarantee fund is deposited with the state-run Land Bank of the Philippines to absorb 80 percent of the total defaults.

“It will work, but it requires of course a good monitoring so that there’s no cheating. The problem is, of course, possible that there’s no default, but the banks are reporting default just to get the guarantee payments. So we need a good system of monitoring, verification that the loan was really made,” Medalla said.

Latest data showed the amount of loans extended to MSMEs, as well as large companies that are booked in compliance with the banks’ reserve requirements reached over P260 billion as the central bank continues to extend regulatory relief measures as the country gradually recovers from the impact of the pandemic.

Philippine banks allocated an average of P198.9 billion loans to MSMEs for compliance with the reserve requirement ratio (RRR), equivalent to 12.8 percent of the required reserves for the reserve week ending March 17.

Likewise, loans of banks to large enterprises used as compliance with the RRR amounted to P67.4 billion or 4.3 percent of the total required reserves for the same period.

The figures disbursed as of early December were still within the caps imposed by the regulator – P300 billion for MSMEs and P425 billion for large companies. Once the set limits are reached, the BSP could amend existing policy by closing the eligibility window on the use of the relief measure.

The temporary measure that allows banks to use additional loans to MSMEs and large enterprises severely affected by the pandemic as alternative compliance to the RRR has been extended to the end of 2022 instead of end of 2021.

“When that measure expires, we will reduce the reserve requirement by 200 basis points,” Medalla said, as outgoing BSP Governor Benjamin Diokno committed to reduce the level to single digit level by 2023.