The help that matters to MSMEs

Micro, small and medium sized enterprises (MSMEs) are the lifeblood of the economy. MSMEs account for 99.6 percent of all businesses that operate in the country and collectively employ 66 percent of the workforce.

With the 30-day lockdown of Luzon and key cities in the Visayas and Mindanao, MSMEs are fighting for their lives. The specter of bankruptcy faces thousands of MSMEs and only a financial lifeline from government can save them now. Severely affected are those involved in retail, trading, manufacturing, logistics, hospitality as well as service providers. 

Even now, thousands of MSMEs are running out of working capital due to the stoppage of business activity and the continuance of payroll and other overhead expenses. Without help from government, most MSMEs will be unable to restart their businesses when the lockdown is lifted. The few that have enough liquidity left will not last for more than one quarter given the anticipated drop in consumer demand. Based on China’s and Korea’s experience, demand for goods and services is seen to drop by 70 percent, post lockdown.

Unfortunately, most banks have not extended the support needed by MSMEs despite the call of government to do so. Banks have already begun withholding drawdowns of pre-approved credit lines citing business risks. Worse, some have even demanded the immediate payment of outstanding loans. With a recession looming, banks have began to lend selectively, denying loans to those that need them most. Opportunistically, they are even requiring MSMEs to sign a waiver of their rights under the Bayanihan Act before access or roll-over of loans are granted. This is definitely something the Department of Finance and the Bangko Sentral must look into.

Last week, President Duterte announced a bailout package of P200 billion for displaced families and MSMEs in distress. However, it remains unclear how much of this will go toward conditional cash transfers to needy families and how much will go towards saving MSMEs. We can only surmise that the lion’s share will go to the needy since their needs are more immediate. MSMEs fear that they will hardly feel the benefits of this bailout package. 

To the credit of DTI Secretary Mon Lopez, NEDA Secretary Ernesto Pernia and Go Negosyo founder Joey Concepcion, they have been in continuous dialogue with industry organizations to determine how government can best help the entrepreneurial sector.

One of the preeminent business groups in the country is the Entrepreneur’s Organization (EO). EO represents 183 small and medium sized businesses that provide jobs to about 80,000 of our countrymen. Companies from EO are not exempt from this existential crisis. They too are fighting for survival. Recently, the group submitted a package of recommendations to government to help MSMEs weather this storm. These were the recommendations in bullet form for ease in understanding:

General Recommendations:

•  Implement the unhampered movement of cargo nationwide to allow supply chains to flow unimpededly. Eliminate checkpoints and penalize LGU’s that prevent the free flow of people and cargo.

• Ease the burden of taxes and penalties until a sense of normalcy is regained. Extend income tax filing to September 30, 2020; Waive the minimum corporate income tax for 2020; And suspend all BIR audits for this year.

• Recognizing that MSME sales have dropped between 80 to 100 percent during the ECQ period, financial support must be extended to MSMEs through the following means: Mandate all banks to open up credit and extend emergency loans to credit-worthy MSMEs in distress; Penalize banks that require clients to sign a waiver of rights under the Bayanihan Act; Mandate banks to release credit lines that have been approved prior to the ECQ; and provide collateral-free emergency loans to distressed SMEs equivalent to three times their monthly payroll at an interest rate of three to five percent, payable in five years.

• On transportation, allow private vehicles and transportation network companies to shuttle employees who need to be physically present in their workplace, provided social distancing is observed

• On employees welfare, extend payment of SSS, PhilHealth and Pag-IBIG contributions for the months February onward until Dec 31, 2020 without penalties or suspension of benefits to employees.

Recommendations for the retail industry

• For malls and commercial spaces outside malls, mandate the waiver of rental, CUSA, and utility charges during the ECQ period; Mandate malls and commercial landlords to apply a straight percentage rent with a maximum of 10 percent of gross sales for a minimum period of ninety days from the lifting of the ECQ period; Allow e-commerce to restart operations and eliminate restrictions on their deliveries; And mandate the DTI to spearhead a marketing campaign to promote Filipino made products and Filipino owned stores. 

Recommendations for the logistics, services and trading industries

• Instruct ports to use the 1-5-day rate level for all port storage charges until the ECQ is lifted; Waive the 32 percent PPA share of Port Charges (arrastre and wharfage) for the ECQ period; And prohibit shipping lines from charging demurrage and detention charges during the ECQ period.

Recommendations for tourism, hotel and restaurant industry

• Realign Dept of Tourism’s budget to promote local tourism and patronize Philippine hotels, resorts and restaurants; And waive fees for marketing and promotional campaigns in fairs like ITB,WTM through 2021. 

Recommendations for the healthcare industry

• Ease restrictions on the importation of PPEs; provide frontliners with free preventive medicine and nutritional supplementation; Provide medical supply subsidies and training to hospitals that need them; Provide government compensation for infected frontliners and subsides for the hospitals that treat them; And mandate banks to provide financial support to hospitals, especially those that need to increase capacity.

The importance of MSMEs to the economy cannot be overstated. Assuming 50 percent succumb to bankruptcies on the back of this crisis, as much as 15 million Filipinos will lose their livelihood. Unemployment will shoot up from 2.41 percent to 20 percent and poverty rates will deteriorate from 20.8 percent to well over 35 percent. All these will lead to a spike in criminality and social unrest. As for the economy, the demise of MSMEs will trigger an economic depression that will take us decades to recover.

The clock is ticking … every single day without a lifeline means hundreds of MSMEs falling on the wayside. Government’s immediate and uncompromised support is critical if we are to save our struggling entrepreneurs.

The sooner these recommendations are adopted by government, the greater the fighting chances of MSMEs.