Tuesday, 31 January 2023

Bangko Sentral ng Pilipinas to launch five new credit surety facilities

5 min read

The Bangko Sentral ng Pilipinas is looking to launch five new credit surety facilities for cooperatives this year, as the central bank seeks to provide an alternative lending platform for small businesses.

The central bank yesterday signed implementing rules and regulations for Republic Act 10744 or the Credit Surety Fund (CSF) Act, which would streamline the process of setting up the credit facilities for micro, small, and medium-scale enterprises (MSMEs) across the country.

The BSP and the Cooperative Development Authority signed the guidelines at the central bank headquarters in Manila yesterday. The new rules effectively make permanent the CSF program and provides a legal personality for the cooperatives in signing deals with banks and its partners.

BSP Governor Amando M. Tetangco, Jr. said the central bank is targeting to open six new CSFs this year, starting with the facility in San Fernando City in La Union launched last week.

There are 13 cooperatives that will pool P3.7 million under the La Union credit facility. In turn, the La Union provincial government will pour P3.5 million to the fund.

In his speech during the signing ceremony, the BSP chief said the CSFs provide a “reliable platform” for MSMEs to secure bank loans, which they can use to fund business expansions.

The central bank’s CSF program provides alternative collateral these small firms by organizing them into cooperatives, which will then serve as guarantor for its member-groups in seeking credit lines.

Under the scheme, the MSMEs pool their money into one collective fund which will then be accepted by banks as collateral. 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 may also pour in funds to CSF facilities in the form of grants or investments, so that the small firms can borrow bigger amounts.

As of April, existing CSFs have granted a cumulative P3.2 billion in loans to some 16,356 MSMEs.

Mr. Tetangco said the lending platform has been effective since the program’s launch in 2008, as it is able to spur rapid growth for micro-businesses.

“Credit obtained through the CSF by MSMEs allowed them to increase their average number of employees by 30%, their sales by 26%, and their monthly profit by 41%,” Mr. Tetangco said, referring to results of an impact assessment study conducted by the BSP covering the years 2014-2015.

BSP Deputy Governor Diwa C. Guinigundo added that the CSF program stands “sustainable” with a high repayment rate among these small borrowers, as past due loans account for only 1.01% of total borrowings as of end-April.

Mr. Guinigundo said the central bank is looking to put up the new CSF cooperatives in Tacloban City, Leyte; Mandaue, Cebu; Sta. Rosa, Laguna; Dinagat Island, and Batangas within the year.

The CSF program also provides a new avenue for micro-firms to secure loans, on top of the 10% credit quota imposed on universal and commercial banks provided under the Magna Carta for MSMEs.

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.

Re-disseminated by The Asian Banker from Business World Online

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