What are Micro- Small and

Medium Enterprises (MSMEs)?

The Micro- Small and Medium Enterprises (MSMEs) are small sized entities, defined in terms of their size
of investment. They are contributing significantly to output, employment export etc. in the economy.
They perform a critical role in the economy by providing employment to a large number of unskilled and
semi-skilled people, contributing to exports, raising manufacturing sector production and extending
support to bigger industries by supplying raw material, basic goods, finished parts and components, etc.

               As per the ‘MSME at a Glance’ Report of the Ministry of MSMEs, the sector consists of 36
million units and provides employment to over 80 million persons. The Sector produces more than 6,000
products contributing to about 8% of GDP besides 45% to the total manufacturing output and 40% to
the exports from the country.

How MSMEs are classified?

The MSMEs are classified in terms of investment made in plant and machineries if they are operating in
the manufacturing sector and investment in equipment for service sector companies.

               Though the primary responsibility of promotion and development of MSMEs is of the State
Governments, the center has passed an Act in 2006 to empower the sector and also has formed a
Ministry (Ministry of MSMEs).  It was the Micro, Small and Medium Enterprises Development (MSMED)
Act which was notified in 2006 that defined the three tier of micro, small and medium enterprises and
set investment limits.

Table: Classification of MSMEs

Classification of the MSME Ceiling on Investment in Plant and Machinery (in Rs)

Micro Below 25 lakhs

Small 25 lakhs to 5 crores

Medium 5 crores to 10 crores

For the service sector, the investment limits are Rs 10 lakh, 2 crores and 5 crores in terms of investment
made in equipment. In 2015, the government has introduced an amendment bill to enhance the
investment limit in all categories.
Definitions of Micro, Small & Medium Enterprises In accordance with the provision of Micro, Small &
Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises
(MSME) are classified in two Classes:

1. Manufacturing Enterprises-he enterprises engaged in the manufacture or production of goods

pertaining to any industry specified in the first schedule to the industries (Development and
regulation) Act, 1951) or employing plant and machinery in the process of value addition to the
final product having a distinct name or character or use. The Manufacturing Enterprise
are defined in terms of investment in Plant & Machinery.

2. Service Enterprises:-The enterprises engaged in providing or rendering of services and

are defined in terms of investment in equipment..

The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as
notified,vide S.O. 1642(E) dtd.29-09-2006 are as under

Manufacturing Sector

    Enterprises  Investment in plant & machinery

    Micro Enterprises  Does not exceed twenty five lakh rupees

    Small Enterprises  More than twenty five lakh rupees but does not exceed five crore rupees

    Medium Enterprises  More than five crore rupees but does not exceed ten  crore rupees

Service Sector

    Enterprises  Investment in equipments

    Micro Enterprises  Does not exceed ten lakh rupees:

    Small Enterprises  More than  ten lakh rupees but does not exceed two crore rupees

    Medium Enterprises  More than two crore rupees but does not exceed five core rupees

Uplifting Micro, Small, and Medium Enterprises (MSMEs) in the Philippines thru DTI’s 7Ms: Suggested
Policies for Implementation

Posted on February 21, 2020February 21, 2020 by UP ISSI - Diliman

Introduction

Micro, small and medium enterprises (MSMEs) are the backbone of the PHL’s economy since they
serve as critical drivers of our economic development, particularly in fostering growth, employment, and
income. The government, as it continues to put its economic plan in place is an indication of recognizing
the importance of MSMEs in our country. Armed with this mission, effective and efficient actions such as
implementation of policy provisions is essential to carry out the plans in addressing, sustaining and
expanding the programs and services of the MSMEs which will undoubtedly contribute to the country’s
GDP and growing labor force.

In 2017, the MSMEs accounted 99.52 % of the total establishments in the Philippines and
employed 62.9% of its workforce who are expected to be empowered and competitive in the domestic
and global markets. The top five (5) industry sectors that include (1) Wholesale and Retail Trade, Repair
of Motor Vehicles and Motorcycles; (2) Accommodation and Food Service Activities; (3) Manufacturing;
(4) Other Service Activities; and (5) Financial and Insurance Activities, accounted for about 83.62% of the
total number of MSME establishments. (Department of Trade and Industry, 2020). Evidently, majority of
the business establishments in our country are MSMEs which signify that the largest bulk of our
workforce belong to this sector.

With the renewed thrust of recognizing MSMEs as substantial contributor to our country’s
economic growth and employment, improved and innovative initiatives from the government have been
crafted including convergence of available development resources and coordination among stakeholders
to ensure MSMEs’ sustainable growth and accelerate the achievement of our country’s economic goals.
Among the initiatives of the government is the DTI’s 7Ms which aims to help Filipinos to set up their own
business and be smarter entrepreneurs. With the planned projects in attaining the seven-point strategy
that includes Mindset, Mastery, Mentoring, Markets, Money, Machines, and Models of Business, the
Department of Trade and Industries hopes that these ways can make a difference in the market which
will consequently contribute to the larger cause of sustaining the Filipino entrepreneurship revolution
(Department of Trade and Industry, 2018b).

Uplifting Micro, Small, and Medium Enterprises (MSMEs) in the Philippines thru DTI’s 7Ms: Suggested
Policies for Implementation

The 7Ms of Successful Entrepreneurs Source: https://www.dti.gov.ph/business/msmes/the-7ms-of-

successful-entrepreneurs

In implementing the seven-point agenda of 7Ms, several factors must be put in place since this
initiative remains a big challenge bearing in mind the limited resources and technical people who can
provide the proper approaches and methodologies to ensure that the required entrepreneurial
competencies needed by Filipinos to start and manage a business venture along any of its risks would be
achieved. In most cases, the government programs despite the availability of the budgetary allocation
still fail due to lack of comprehensive strategic planning and prioritization of activities. For more
strategic implementation of activities, the use of research findings including statistics pertaining to
knowledge and experiences on entrepreneurship of Filipinos should serve as a baseline in determining
what agenda among DTI’s 7Ms must be prioritized to ensure strategic allocation of funding and
resources. Furthermore, research findings can also serve as a point of reference in the determining the
effectiveness of the existing programs on entrepreneurial promotion and improving the training
programs on entrepreneurship, particularly in the curricular and instructional enrichment by the
different agencies to eliminate duplication of efforts. To achieve its overall goals and objectives, this
policy brief suggests implementation policies which may serve as a guide in implementing the DTI’s 7Ms
to uplift the MSMEs in Philippines.

Assessing Entrepreneurial Behaviors and Competencies of Filipinos

Filipino entrepreneurs are known for their practicality, passionate about business, confident and
self-reliant; hard-working and goal oriented; and a leader and an innovator. These character traits are
indicators that Filipino entrepreneurs, no matter how successful they are, they never loss sight of why
they are striving to make their business thrive and grow (Philippine Daily Inquirer, 2012). In 2013, the
Global Entrepreneurship Monitor (GEM) reported that Filipinos have a high regard on entrepreneurship,
with 85 percent expressing interest to make entrepreneur as a good career choice and respondents
showed a very high intention (44.1 percent) to start a business (Reyes, 2015). Meanwhile, the results of
the 2015 Philippine APS (Adult Population Survey) and NES (National Experts Survey) revealed that more
than half of the population sees business opportunity in the country and close to 70% believe that they
have the necessary skills to seize the entrepreneurial opportunities in the economy (Velasco et al.,
2017). Likewise, studies show that women entrepreneurs in the country are strong in the goal setting,
information seeking, and systematic planning and monitoring competencies ((Resurreccion, 2012);

Although most Filipinos may possess many positive entrepreneurial behavior and competencies,
the 2015 Philippine APS and NES however revealed that there is a high business closure rate mainly due
to unprofitable business operations and difficulty in accessing financing to continue business operations
(Velasco et al., 2017). According to the Social Enterprise Development Partnerships, Inc. (SEDPI) Filipino
millennials, who represent almost half of the country’s work force are least financially literate. In the
study conducted by Mendoza (2015) on the financial performance of MSMEs found that enterprises
performed favorably in liquidity, activity and leverage but suffered from a low-level profitability. Aside
from financial skills, a study on entrepreneurial competencies among 100 college level SME operators of
Ozamiz City Public Mall revealed that almost 43 percent were found to have moderate competencies on
time management skills, marketing management skills and technical skills (Betonio, 2014). Furthermore,
research findings on personal entrepreneurial competencies of students and practicing Entrepreneur in
Cordillera Administrative Region and Cities of Baguio, Dagupan, and San Fernando, La Union show that
they are weak in risk taking ((Bautista et al., 2007).

In this context, these findings have significant implications on the implementation of the DTI’s
7Ms for these will serve as bases in determining the appropriate programs, activities and projects and
address emerging issues that will obstruct the goal achievement of the seven- strategic agenda.
Suggested Policies for Implementation

In assuring the long-term viability of the DTI’s 7Ms, policies for the implementation of the planned
programs, activities and projects is formulated to make certain that all strategic agenda will be achieved
to their fullest possible extent.

Policy 1: Dissemination of the 7Ms Strategic Plan

It shall be the policy of DTI that:

The programs and projects in relation of 7Ms shall be disseminated through various ways to all
government agencies and stakeholders to ensure active participation of all concerned authorities.

Policy 2: The priority strategic agenda shall drive the budget process

It shall be the policy of the DTI that:

The strategic agenda of the 7Ms shall provide the basis upon which the MSME Council establish annual
priorities, the government training institute identify annual programs and for the DBM’s
recommendation on annual budget.

Policy 3: Integration of entrepreneurial mindset, mastery, and mentoring in the curriculum of

educational system

It shall be the policy of the DTI that:

All levels of the educational system shall integrate the programs, activities and projects of DTI with
respect to the 7Ms strategic agenda on mindset, mastery and mentoring. All government
entrepreneurial education and training institutions shall be directed to identify and use appropriate
instructional designs including the development of instructional materials needed on these aspects to
ensure that the required skill and competencies shall be transferred to students’ long-term memory.
Evaluation on the delivery of instructional services on entrepreneurial education shall be done at the
end of the semester and results shall be submitted to DTI for review and enrichment of the programs,
activities and projects.

Policy 4: Conduct Training of Trainers on Entrepreneurial Development

It shall be the policy of the DTI that:

The MSME Council in collaboration with all concerned government entrepreneurial education and
training institutions in the country shall conduct annual training of trainers on entrepreneurial
development to enhance the capabilities of entrepreneurial trainers and increase the number of human
resources who will be involved in facilitating the training programs.

Policy 5: Conduct series of regional entrepreneurial education and training on financial

management, profitable machines, market access and business models

It shall be the policy of the DTI that:

The Bureau of Micro, Small, and Medium Enterprise Development (BMSMED) shall coordinate with all
concerned government entrepreneurial education and training institutions including Local Government
Units (LGUs) in the country to conduct series of regional training on financial management, proven
profitable machines, market access and types of business models that are suitable for MSMEs business
venture. Training shall include interactive activities that would align the skills of participants with the
potential industrial development in their respective regions. Regional trainings shall provide activities
that are align with the participants’ skills and the needs of the local industries.

Policy 6: Assessment of Implementation of Programs, Activities and Projects

It shall be the policy of the DTI that:

Through BMSMED, all government educational and training institutions and LGUs shall submit annual
reports reflecting the extent to which the programs, activities and projects that are connected to
strategic agenda of 7Ms for review purposes.

Policy 7: Annual Updating of Programs, Activities and Projects

It shall be the policy of the DTI that:

The BMSMED and the MSMED Council shall update the programs, activities and projects in relation to
7Ms to positively respond to the emerging needs in entrepreneurial development. In coping with
emerging needs, government educational and training institutions and LGUs shall be allowed to
recommend in writing to the BMSMED for the MSMED Council’s review and appropriate actions.
Conclusion

Empowering marginalized sectors with the right mindset to move up in life requires comprehensive
programs that will align the skills of Filipino entrepreneurs with the needs of the Philippine industries.
With the implementation of the suggested policies, this would address the issue on provision of
appropriate training programs that will enhance the skills and competencies of every individual that will
consequently eradicate issues on mismatch of entrepreneurial skills and expectations that commonly
lead more labor workers to give up looking for jobs.

MICRO, SMALL AND MEDIUM ENTERPRISES: WHAT

BUSINESSES ARE CONSIDERED MSMES

The determination of what constitutes a Micro, Small and Medium Enterprise (MSME) is based on its
total assets. This is provided in Republic Act No. 6977, as amended (also known as the “Magna Carta for
Micro, Small and Medium Enterprises (MSMEs)“, previously called the “Magna Carta for Small
Enterprises”.

The term MSME refers to any business activity or enterprise engaged in industry, agribusiness and/or
services, whether single proprietorship, cooperative, partnership or corporation whose total assets must
have value falling under the following categories:

 MICRO : not more than P3,000,000

 SMALL : P3,000,001 – P15,000,000

 MEDIUM : P15,000,001 – P100,000,000

Total assets include those arising from loans, but exclusive of the land on which the particular business
entity’s office, plant and equipment are situated.

These definitions are subject to the review and adjustment by the Micro, Small and Medium Enterprises
Development (MSMED) Council, taking into account inflation and other economic indicators. The Council
may use other variables such as number of employees, equity capital and assets size.

The Council shall ensure that notwithstanding the plans and programs set for MSMEs as a whole, there
shall be set and implemented other plans and programs varied and distinct from each other, according
to the specific needs of each sector, encouraging MSMEs to graduate from one category to the next or
even higher category.

ELIGIBILITY FOR GOVERNMENT ASSISTANCE

To qualify for assistance, counseling, incentives and promotion under the Magna Carta for Micro, Small
and Medium Enterprises (MSMEs), businesses falling under the definition of MSMEs must be:
  a) duly registered with the appropriate agencies as presently provided by law. In the case
of micro enterprises, registration with the office of the municipal or city treasurer shall be
deemed sufficient compliance with this requirement;

 b) one hundred percent (100%) owned, capitalized by Filipino citizens, whether single

proprietorship or partnership. If the enterprise is a juridical entity, at least sixty percent (60%) of
its capital or outstanding stocks must be owned by Filipino citizens;

 c) a business activity within the major sectors of the economy, namely: industry, trade, services,
including the practice of one’s profession, the operation of tourism-related establishments, and
agri-business, which for purposes of R.A. 6799 refers to any business activity involving the
manufacturing, processing, and/or production of agricultural produce; and

 d) it must not be a branch, subsidiary or division of a large scale enterprise.

However, this requirement shall not preclude MSMEs from accepting subcontracts and entering into
franchise partnership with large enterprises or from joining in cooperative activities with other MSMEs.

Programs of the Small Business Corporation (SB Corporation) as provided in subsequent provisions of
the Magna Carta for Micro, Small and Medium Enterprises (MSMEs) shall be exclusively delivered and
directed to bonafide MSMEs.

Any MSME, its directors, officers or agents, found to have committed fraud or misrepresentation for the
purpose of availing the benefits under the Magna Carta for Micro, Small and Medium Enterprises
(MSMEs) shall be immediately disqualified as a beneficiary, without prejudice to any administrative,
criminal or civil liability under existing laws.

Eligible MSMEs shall be entitled to a share of at least ten percent (10%) of total procurement value of
goods and services supplied to the Government, its bureaus, offices and agencies annually.

The Department of Budget and Management (DBM) shall monitor the compliance of government
agencies on the required procurement for MSMEs and submit its report to the MSMED Council on a
semestral basis and to the Congress of the Philippines, through its appropriate committees on a yearly
basis.

ACCOUNTANTS CODE OF ETHICS

ntegrity.
A professional accountant should be straightforward and honest in all
professional and business relationships

Objectivity.
A professional accountant should not allow bias, conflict of interest or undue
influence of others.
Professional Competence and Due Care.
A professional accountant has a continuing duty to maintain professional
knowledge and skill at the level required to ensure that a client or employer
receives competent professional services based on current developments in
practice, legislation and techniques. A professional accountant should act
diligently and in accordance with applicable technical and professional standards
when providing professional services.

Confidentiality.
A professional accountant should respect the confidentiality of information
acquired as a result of professional and business relationships and should not
disclose any such information to third parties without proper and specific
authority unless there is a legal or professional right or duty to disclose.
Confidential information acquired as a result of professional and business
relationships should not be used for the personal advantage of the professional
accountant or third parties.

Professional Behavior.
A professional accountant should comply with the relevant laws and regulations
and should avoid any action that discredits the profession.