Wednesday, November 16, 2011

SMEs seek informal lenders for assistance

Tuesday, 15 November 2011 19:40 Dennis D. Estopace / Reporter 

AMID the drop in formal sector lending in the past decade, micro, small, and medium enterprises (MSMEs) turned more to informal sources of cash, a 2009 survey recently released by the Asian Institute of Management reported.

Data from 1,740 respondents noted that while majority of the country's MSMEs consider access to credit to be important in their operation, a document survey by the Asian Development Bank (ADB) bared formal sector lending has dropped from a high of nearly 20 percent of the total loan portfolio in 2008 to a mere one  percent by 2010. 

"There is still room to grow for SME financing, especially in the micro-small segments," Niny Khor of the ADB economics research department said in her presentation at an AIM-sponsored forum Tuesday.

Citing the ADB 2011 SME financing survey, Khor said that this room is built on a significant increase in bank branches from 1980 to 2010 and that the total amount of bank loans increased through the global financial crisis.

"Universal and commercial banks [UKBs] remain as the primary source of MSME funds," Khor said, adding that this accounts "for over 72 percent of the total amount lent to the sector."

Last year, Khor said that the average UKB released about P6 billion ($134 million) to MSMEs in direct loans.

"While this is seven times the average of thrift banks, thrift, rural and cooperative banks have managed to increase their market share to 27 percent last year from just 16 percent more than a decade ago."

Nonetheless, the graph based on the author's calculations using Bangko Sentral ng Pilipinas (BSP) data showed total bank loans to MSMEs as share of total loan portfolio net of exclusions declined.

Still, the decline from UKB lending reached its 1999 level of 20 percent while thrift, rural and cooperative banks' lending has declined below the levels they posted prior to a new millennium.

Khor's data coincide with the AIM survey that showed majority of the respondents (35 percent among micro-enterprises and 34 percent among small and medium businesses) consider access to credit to be important in their operations.

Majority, too, tapped their savings accounts for the largest financing requirements of their businesses.

Interestingly, relatives, immediate family, friends and usurers were tapped as sources for loan or credit before these businesses went to rural banks, other financial institutions and government banks.

More than half (54 percent) of micro-enterprises and majority (74 percent) of small and medium businesses said they borrowed from informal sources because these had no or very little interest.

These capitalists also cited that they went to such sources because the transaction was fast; no or fewer guarantee requirements were needed; they are required to pay only when able or offered flexible payment schemes; and there was no collateral needed.

Majority of the respondents said they didn't need much when they started a business, citing that low capital was the top-most consideration.

Thirty percent of the enterprises surveyed by AIM started with less than P150,000 capitalization.

The AIM Policy Center, which conducted the survey, said that there is a need "to match the requirements of the financial institutions to the capacity of the MSMEs to produce such requirements for loan availments."

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