BSP lowers risk weighting for MSME loans vis CSFs

By Melissa Luz T. Lopez, Senior Reporter

LOANS to small-scale businesses secured through credit surety cooperatives will be given a lower risk premium, as the Bangko Sentral ng Pilipinas (BSP) eyes to prod more banks to lend to this sector.

The central bank through Circular 979 said loans extended to micro, small and medium enterprises (MSMEs) will be assigned a 20% risk weight, provided that these borrowings are guaranteed by a credit surety fund (CSF) cooperative.

Previously, all MSME loans come with a 75% risk weight, which makes it tasking for these small firms to borrow from banks and financial institutions.

The Monetary Board eased the rules covering CSF-guaranteed credit lines “to further support the growth of the micro, small and medium enterprises,” it said in a statement published on Friday.

“This policy intends to facilitate the increased flow of funds to MSMEs that will translate to the further growth of the sector and of the domestic economy,” the BSP said in the statement.

Philippine MSMEs account for 99% of local firms and 60% of employment but contribute only 36% of gross value added, according to the May 2016 Investment Policy Review of the Organization for Economic Cooperation and Development.

The central bank’s CSF program provides alternative collateral for MSMEs by organizing them into cooperatives with a pooled fund. CSF units serve as guarantor for its member groups and non-government organizations as they make formal loans from banks, which in turn improves the chances for these small businesses to secure bank loans.

A firm can incur a loan worth as much as 10 times the amount which they poured into the surety fund, with a minimum placement of P100,000.

Local government units and state-run agencies like the Industrial Guarantee and Loan Fund, the Development Bank of the Philippines, and the Land Bank of the Philippines also extend aid to CSF facilities in the form of grants or investments, so that its members can borrow bigger amounts.

There are currently 50 CSFs in the country.

Banks have been stringent towards lending to small firms despite a mandatory 10% credit quota as provided under Republic Act 9677 or the Magna Carta for MSMEs.

Under the law, banks must set aside 8% of its total loan portfolio for micro and small firms, while 2% should be allotted for medium-sized companies. However, only rural and cooperative banks are able to meet the lending requirements, with the bigger players opting to pay fines rather than lend to the “risky” sector.

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