Vol. XX, No. 188
Monday, April 23, 2007 |
Banking & Finance
The central bank now recognizes banks’ wholesale lending to microfinance institutions as an alternative compliance with a law that mandates lenders to set aside 8% of their total loan portfolios to fund small businesses.
The move is expected to boost lending, which grew slower in February from a month earlier. Loan activity went up by 7.7% year on year to P1.967 trillion in February, 1.7% slower than 9.4% in January.
Banks have been shying away from small and medium enterprises (SMEs) given perceived risks. Banks’ SME loan growth barely moved at 12.67% in 2002 from 11.82% in 1998, a year after the Magna Carta for Small Enterprises took effect.
"Some banks, especially foreign banks, are not geared up for SME loans so to provide an alternative, they may lend to microfinance institutions. We will consider that as eligible compliance with the credit allocation to small enterprises," Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. said.
Covered by the relaxation, approved by the Monetary Board on Friday, are universal and commercial banks, as well as local branches of foreign banks that lend in bulk to microfinance institutions.
The Magna Carta for Small Enterprises was enacted to support the SME sector, which comprises more than 90% of local firms and employs 80% of the country’s labor force. Earlier estimates by the Philippine Exporters Confederation, Inc. showed that the sector needs access to credit of as much as P180 billion for expansion or working capital.
While central bank data showed that banks’ compliance with the law remains well above the required 8%, SMEs still complain of increasing difficulty in accessing credit due to stringent bank requirements for loans. "We’re providing for this flexibility so commercial banks can lend to microfinance or microen-trepreneurs via this scheme," Mr. Tetangco said. — MEIC
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