Micro, small and medium enterprises (MSMEs) compose 99.56 percent of the country’s business establishments, employing 7 out of 10 Filipinos in the sector. Ninety percent of these MSMEs fall under the micro category or those with total assets of less than P3 million.
MSMEs are considered the backbone of Southeast Asian economies as they account for 89 to 99 percent of total establishments and 52 to 97 percent of total employment. They also share 20 to 50 percent of most Asia-Pacific economies’ gross domestic product. But in the face of a crisis that forces them to deal with closures, whether temporarily or permanently, are they getting the help they need?
Compared to huge corporations that can negotiate for reliefs, loans or better credit terms, small businesses are usually left with higher loan rates from informal lenders or finance companies. Large firms have higher bargaining power because they possess more alternatives, meaning they can easily walk away from a deal without suffering much or any consequences. Since they also have more knowledge and experience in the field, they know exactly what constitutes a good deal than small businesses that are more susceptible to misinformation.
MSMEs are considered the backbone of Southeast Asian economies as they account for 89 to 99 percent of total establishments and 52 to 97 percent of total employment.
According to Bangko Sentral ng Pilipinas deputy governor Chuchi Fonacier, MSMEs are hesitant to approach formal lending institutions such as banks to avail business loans because there’s a lack of acceptable collateral, credit history, and credit knowledge. Oftentimes, MSMEs get intimidated by documentary requirements during the loan application process.
Much like the rest of the industry’s fate in this pandemic, MSMEs have to support their workers who are out of jobs, especially now that malls, one of the biggest venues for product and service showcases, have been temporarily shut down. With this, the government seeks to ease the weight off MSMEs’ shoulders by providing financial assistance to cover for losses and rebuild their businesses in the future.
“The government will provide a recovery package especially to micro, small and medium enterprises to help deal with the economic effects of this pandemic,” said President Rodrigo Duterte in his public address on Mar. 30.
Of the initial P27 billion economic package, P1 billion have been allotted to MSMEs. With the proposed allocation, micro enterprises can loan P10,000 up to P200,000 while small enterprises (businesses with total assets not exceeding P10 million) can borrow up to P500,000—all with a discounted monthly interest rate of 0.05 percent.
With their small operation, capital, and labor size, it would be better if MSMEs receive a budget that’s tailor-fit for their needs, especially since they make up almost the entire business sector.
The loan shall serve the following purposes: updating loan amortizations for vehicle loans or other fixed asset loans of the business, inventory replacement for perishable stocks damaged, and working capital replacement to restart the business.
In the new budget being prepared by the economic team, currently summing up to P200 billion as per budget realignments and low-interest loans from multilateral lenders such as Asian Development Bank and the World Bank, the allocation for MSMEs must be given more thought since these small businesses are the most vulnerable. With their small operation, capital, and labor size, it would be better if they receive a budget that’s tailor-fit for their needs, especially since they make up almost the entire business sector.
According to Bangko Sentral ng Pilipinas deputy governor Chuchi Fonacier, MSMEs are hesitant to approach formal lending institutions such as banks to avail business loans because there’s a lack of acceptable collateral, credit history, and credit knowledge.
To understand the severe effects the enhanced community quarantine has had on MSMEs and consumers, the Interagency Task Force-Technical Working on Anticipatory and Forward Planning conducted social media surveys for business owners and consumers. This will help the government to “experience the needs” of MSMES and come up with “appropriate policies and programs to mitigate loss and help the Philippine economy recover.”
“We must throw them a lifeline immediately, so they in turn can sustain their workers, too. The assistance that we will provide to them should be conditional on them keeping their workers now and until the economy recovers,” says Senator Joel Villanueva. He also cited DTI’s data from 2018 indicating that the MSME sector employed 5.7 million workers, representing 13 percent of all employed Filipinos.
So far, wholesale and retail trade as well as food and hospitality took the hardest hit from the Luzon-wide enhanced community quarantine, according to Philippine Statistics Authority. This accounts for 50 percent of the employment generated by MSMEs.
Because these small businesses contribute to a region’s economic activity, capital is brought back to the community and thus aid other local enterprises in expanding.
Aside from financial aid, MSMEs are also granted a 30-day moratorium on rent for commercial spaces in the same way residential units and loans were given an extension. Big businesses can help their MSME partners get a head start, too, by waiving rental fees or lowering them once the lockdown is lifted. If banks, on the other hand, would be able to give MSMEs payment holidays, or even just a reduction on loan interest rates, it will be a huge relief on an MSME’s total operational costs.
But one thing that is often overlooked is the role of consumers in supporting MSMEs. Because these small businesses contribute to a region’s economic activity, capital is brought back to the community and thus aid other local enterprises in expanding.
By patronizing MSMEs and keeping in mind that they carry the economy on their backs, thousands of workers in this sector could slowly be edged out of the crisis’ effects—at least for the time being.