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Keynote CMA: on BSP's 3-pronged approach to MSME financing

Date: 11.26.2019

Place: BSP Assembly Hall

Occasion: Citi Micro Entrepreneurship Awards

Speaker: BSP Governor Benjamin E. Diokno, Ph.D.

To the Citi Philippines CEO, Mr. Aftab Ahmed; members of the National Selection Committee: Mr. Joey Concepcion, Ms. Marixi Rufino-Prieto, Ms. Imelda Nicolas, Mr. Fernando Zobel de Ayala, and Dr. Michael Tan; my esteemed colleagues from the Bangko Sentral ng Pilipinas; bankers and champions of microfinance; guests; friends from the media and our CMA awardees, good afternoon.

It is my pleasure to welcome you to the 17th Citi Microentrepreneur of the Year Awards Ceremony. This marks the culmination of a 6-month search for outstanding Filipino microentrepreneurs from a pool of 141 nominees for 2019. 

It’s been seventeen years since the CMA was launched but year after year the nominations we receive from the microfinance institutions continue to pour in. There has never been a dearth of microentrepreneurs worthy of recognition.

We are honored to give recognition to the men and women whose transformed lives and journey as entrepreneurs demonstrate the power of microfinance as a poverty alleviation tool. 

Most of these microentrepreneurs started with close to nothing, and yet were able to build and grow a business that support their family and even their communities.

Theirs is a story of empowerment. And this is what microfinance is truly about.

The word “Hero” is also what comes to mind when I think about our microentrepreneurs. Starting and running a business is neither for the idle nor for the faint of heart.

In their interviews for the CMA, the awardees usually attribute hard work and patience as key to success. And it is true. But having seen the challenges that they need to face day after day and knowing the risk of failure in business, I say being a microentrepreneur is an act of courage.
These heroes, despite knowing from the start that the journey will be rough and difficult, choose to plod on. This determination and drive come from a desire not only to support their families but also the communities who have come to rely on their businesses for their livelihoods.

Our dear awardees, I hope your stories become an inspiration for the many of our countrymen striving to do good and do right by their families.

For us in the BSP, your stories remind us of the importance and urgency of our work in financial inclusion.
The goal of financial inclusion is to ensure all Filipinos are able to use financial services that are appropriate to their needs and capacity.

Financial services, including microfinance, allow individuals and businesses -regardless of the size of income - to effectively manage their finances and achieve their financial goals.

The micro, small and medium enterprises or the MSMEs warrant a special focus for our financial inclusion work. MSMEs are the backbone of our economy, with significant contributions to employment, innovation and development.
We cannot talk about inclusive growth without a strong MSME sector. When we lift our MSMEs, we uplift the country. 
Nevertheless, MSMEs seldom have access to much needed financing. There are many reasons for this.

For instance, banks and other lenders have limited understanding of and visibility into the MSME as a market. They tend to perceive MSME financing as high risk and low margin, which leads to lack of availability and variety of MSME financing products.

On the other hand, the MSMEs, microentrepreneurs in particular, are reluctant to approach formal lending institutions due to lack of acceptable collateral and credit history. They may also get intimidated by the documentary requirements and may have limited financial literacy. As a result, the banking sector’s MSME exposure is only at 6.2% of the total loan portfolio and 9.2% of the total business loans. We recognize these issues and have undertaken a 3-pronged approach to improve MSME access to finance:

The first is putting in place the needed financial and digital infrastructure to mitigate the risk and lower cost of MSME financing. Such infrastructure includes a robust credit information system, digital ID platform, movable collateral registry, warehouse receipt system, and credit surety fund. Toward this end, BSP has advocated for the passage of critical legislations for market-enabling infrastructure.  This includes the Philippine Identification Systems Act (RA 11055) or PhilSys as the country’s digital ID platform will facilitate onboarding and digital finance innovations.
The Personal Property Security Act (RA 11057) aims to promote the use of inventories, crops and other non-real property assets of MSMEs as acceptable collateral to secure a loan. Complementing this law is the proposed bill to strengthen the warehouse receipt system which aims support farmers and agri-entrepreneurs in securing bank loans and managing commodity price fluctuations.

The BSP is also developing, with the assistance of the Japanese Government, a Credit Risk Database (CRD) as a comprehensive MSME statistical reference tool to facilitate collateral-free and lower-cost credit for well-managed enterprises.

The second part of our approach is promoting innovative approaches in MSME financing.

BSP has put enabling regulations for banks and other lenders to roll out innovative solutions and strategic use of cutting-edge technologies to serve the MSME market. Our efforts to promote digital payments are meant to facilitate delivery of financial services, including credit, that are designed around the needs and preference of small-value transactors.

For instance, through a more extensive use of digital payment system, a wet market vendor can now apply and get pre-approved for a microloan through a digital platform, and receive proceeds in his digital wallet within minutes.

He can then choose to pay that loan after a week or make daily payments just by using his phone.

The convenience, affordability and flexibility of this digital product will hopefully make the informal lenders charging exorbitant fees less attractive.

In addition to this, one of the innovations that we are promoting is agriculture value chain financing or the AVCF. Strong value chains enable farmers and agri microentrepreneurs to adopt modern agritech and access high value markets – thereby increasing productivity and income potential. AVCF is an innovative approach as it uses the strength of the entire value chain in determining the creditworthiness of the agri-entrepreneurs who otherwise would not be able to access credit if banks only relied on their individual credit profile.
Toward this end, the BSP is working with the Asian Development Bank on a pilot AVCF project with the goal of strengthening the interest and capacity of banks to undertake value chain financing. The project also aims to forge stronger collaboration by banks and government agencies that have capacity building programs for farmers and agrienterprises.

The third and last part of our approach to promote MSME financing is bridging the information gap. BSP’s key initiative under this theme is a comprehensive MSME study that will generate new and more granular data on MSMEs that can lend to a more nuanced understanding of the characteristics, segmentation and needs of the sector.  This can support evidenced-based policymaking and equip banks and other lenders with valuable market insights for customer-centric product development. 

The BSP is also facilitating strategic partnerships in the industry.  For instance, the Negosyo Center of the Department of Trade and Industry (DTI) partnered with Microfinance Council of the Philippines, Inc. (MCPI), and Alliance of Philippine Partners for Enterprise Development, Inc. (APPEND) to facilitate information sharing. This will enable Negosyo Centers to refer clients to various financing options and help MFIs design products and services appropriate to clients’ needs.
I hope that by sharing these initiatives I was able to give you a glimpse of the possibilities for our MSMEs. While we have achieved significant gains, we still have much work ahead.

Rest assured that the BSP and its partners in financial inclusion are committed now more than ever to support our valiant microentrepreneurs reach their full potential. We cannot afford to slow down, especially with the MSMEs impact in our financial inclusion agenda and my personal mission of bringing central banking closer to the people.

I hope the award you receive today inspire you continue the work that you are doing. But I also hope you realize that with or without the award, you are a winner.

Allow me to also acknowledge the partner microfinance institutions of our winners. Your work with our microentrepreneurs is an important part of nation building.

To the members of the National Selection Committee, thank you for being steadfast supporters of the CMA and microfinance. 

To my BSP colleagues, and allies in microfinance, thank you showing your support with your presence today. Let us continue to do the work and remember why it matters. 
And to the awardees, my warmest congratulations once again!