Strengthening Access To Credit

AN ACT STRENGTHENING ACCESS TO CREDIT OF
MICRO, SMALL, AND MEDIUM ENTERPRISES, AMENDING

FOR THE PURPOSE REPUBLIC ACT NO. 6977, AS
AMENDED, OTHERWISE KNOWN AS THE “ MAGNA
CARTA FOR MICRO, SMALL AND MEDIUM ENTERPRISES”
AND FOR OTHER PURPOSES
EXPLANATORY NOTE
Despite the significant According to a 2017 The study also noted
contribution of MSMEs study published by the that the size of the
in the Philippine International Finance
Philippine’s MSME
economy, however, Commission, the
MSMEs continue to finance gap accounts
Philippine MSME sector
have difficulty in lacks US $221.79 billion for 76% of its gross
accessing credit from in supply of credit or domestic product.
lending institutions. financing.
EXPLANATORY NOTE
According to the
In 2018, World Bank This deficit is largely
Bangko Sentral ng
noted that 81.2% of due to the inability of
Pilipinas, as of March
Philippine MSMEs the country’s
2019, banks allocate a
rely mostly on financial institutions meager 2.72% of their
internal savings or to allocate a loan portfolio to micro
earnings to finance sustainable portion and small enterprises
their investments. of their loan portfolio and 4.19% to medium
to MSMEs. enterprises.
SECTION 1. Section 15 of Republic Act No. 6977, as amended, otherwise
known as the Magna Carta for Micro, Small and Medium Enterprises (MSMEs)
Mandatory Allocation of Credit
Resources
R.A 6977 (Sec. 15) Mandatory Allocation of Credit Resources to
Micro Small and Meduim Enterprises. - For the period of
ANOTHER ten (10) years from the date of the effectivity of this
amendatory Act, all lending institutions as defined under Bangko
Sentral ng Pilipinas rules, whether public or private, shall set aside
at least eight percent (8%) for micro and small enterprises and at
least two percent (2%) for medium enterprises of their total loan
portfolio based on their balance sheet as of the end of the
previous quarter, and make it available for MSME credit as herein
contemplated.
Mandatory Allocation of Credit
Resources
The Bangko Sentral ng Pilipinas, IN CONSULTATION WITH THE
MSMED COUNCIL AND THE SECRETARY OF TRADE AND
INDUSTRY (DTI), shall formulate rules for the effective implementation
of credit resources.
PROVIDED, FINALLY, THAT THE PENALTY FOR NON-

COMPLIANCE OR UNDER COMPLIANCE OF THE PRESCRIBED
PERCENTAGE OF CREDIT ALLOCATION PROVIDED UNDER THIS
SECTION SHALL NOT BE LOWER THAN FIVE HUNDRED
THOUSAND PESOS (P500,000.00).
The following rules shall govern the mandatory allocation of credit
resources to Micro, Small and Medium Enterprises (MSMEs).
b. MSMEs shall refer to any business activity

a. Lending institutions shall refer to all
within the major sectors of the economy,
banks, namely Universal banks (UBs);
namely: industry, trade, services, including the
(2) Commercial banks (KBs); (3) Thrift
practice of one’s profession, the operation of
banks (TBs), Coop Banks, including tourism-related establishments, and agri-
government-owned banks. business
Period covered; prescribed portions of loan portfolio to
be allocated.
Banks shall for a period of ten (10) years from 17 June 2008 to 16 June
2018, allocate at least eight percent (8%) for micro and small enterprises
(MSEs) and at least two percent (2%) for medium enterprises (MEs) of
their total loan portfolio based on their balance sheet as of the end of
previous quarter, and make it available for MSME credit.
Eligible credit exposures:
Banks are required to extend loans to eligible MEs. However, if

these loans to MEs are funded through borrowing from another
bank or by selling the debt at a discount to another bank
(rediscounting), they do not count towards fulfilling the bank's
obligation to lend a certain portion of their funds to MEs as required
by law.
Sanctions:
a. For non-compliance/under compliance with the prescribed portions of loan
portfolio to be allocated to MSEs and MEs:
b.(1) For zero compliance for both MSEs and MEs – P500,000
c.(2) For under compliance:
(a)For MSEs – percentage of undercompliance multiplied by P400,000
(b)For MEs – percentage of undercompliance multiplied by P100,000 to be
computed as of end of each quarter.
Disposition of penalties collected
Ninety percent (90%) of penalties collected on Sanctions
above shall be remitted by the Bangko Sentral to the MSME
Development Council Fund, while the remaining ten percent
(10%) shall be retained by the Bangko Sentral to cover its
administrative expenses.
Why do MSMEs struggle
to obtain financing from
banks?
In the Philippine setting, MSMEs (Micro, Small, and
Medium Enterprises) face several challenges in
obtaining financing from banks, largely due to the
following reasons:
High Risk Lack of Credit Preference for Limited Financial

Perception History Larger Loans Literacy
Banks often perceive lending to Many MSMEs, especially new Banks often prefer to issue Some MSME owners may lack
MSMEs as risky due to their lack and micro enterprises, do not larger loans to bigger the financial literacy and
of collateral, inconsistent have a well-established credit businesses because they are management skills needed to
revenue streams, and relatively history. more profitable and perceived successfully apply for and
high failure rates compared to as less risky. manage bank loans.
larger enterprises.

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AN ACT STRENGTHENING ACCESS TO CREDIT OF

MICRO, SMALL, AND MEDIUM ENTERPRISES, AMENDING

PROVIDED, FINALLY, THAT THE PENALTY FOR NON-

b. MSMEs shall refer to any business activity

Banks are required to extend loans to eligible MEs. However, if

High Risk Lack of Credit Preference for Limited Financial

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