IFC Backs New Property Law Widening Access to Finance for MSMEs in Philippines

Sep 2018
Philippines, September, 26 2018 - MSMEs contribute at least 30 percent to the country’s GDP growth and are a key source of job creation. But only less than 1 percent of the country’s GDP goes to MSME financing.

IFC, a member of the World Bank Group, has successfully supported the Department of Finance and Land Registration Authority and other public and private sector partners in creating the Personal Property Security Act which will allow micro, small and medium enterprises and farmers to use their movable assets to access loans, supporting growth and financial inclusion and strengthening the country's financial system.

The act, signed into law by Philippine President Rodrigo Duterte on August 17, creates a legal framework that will allow small businesses to use movable assets, or assets other than land, as collateral to secure credit. Movable assets include account receivables, warehouse receipts, equipment, planted crops, inventory, and intellectual property.

The move is expected to fill an important financing gap for Philippine MSMEs and farmers, who often need credit to grow their business but are unable to obtain loans from local banks that prefer land and other hard assets as collateral.

MSMEs contribute at least 30 percent to the country's GDP growth and are a key source of job creation. But only less than 1 percent of the country's GDP goes to MSME financing. The World Bank Findex data also ranks the Philippines as one of the countries with the highest ratio of business owners borrowing capital from relatives and friends.

"This new law will widen the access of MSMEs and the agriculture sector to financing, in sync with the Duterte administration's goal of financial inclusion for all Filipinos," says Finance Secretary Carlos Dominguez III. "It will relax the long-standing credit squeeze that has limited the opportunities of farmers, fisherfolk and small entrepreneurs for them to reach their growth potential and become highly competitive in the global market."

In signing this law, President Duterte has created a financial environment for the MSME and agriculture sector to secure loans from banks using their moveable assets as collateral," Dominguez added. "This will lead to greater economic activity, especially in the countryside and aid government efforts to transform the Philippines into an upper middle-income economy by 2022.

Yuan Xu, IFC Country Manager for the Philippines said, "The passing of the Personal Property Security Act can be a game-changer in access to finance, especially for millions of small businesses and farmers in the Philippines that hold inventory and receivables as their primary assets. The agriculture and MSME sectors have the potential to reach down to the smallest rural communities and create jobs that lift people out of poverty. This law will contribute to an improving business environment for micro, small and medium businesses and create a more competitive and sustainable economy."

A key feature of the law is the establishment of a centralized registry of movable assets held as collateral, and clear and transparent priority rules in case of foreclosure and disposition of assets. It also provides for faster, less expensive process for registering assets, and processing and enforcing payment of loans. The result is expected to develop the confidence of banks to lend to smaller businesses and agricultural enterprises,

IFC worked with the Department of Finance, Land Registration Authority, Bangko Sentral ng Pilipinas, Department of Trade and Industry, Securities and Exchange Commission, various MSMEs, banking associations and other key stakeholders on the law, aligning it with international best practices and contextualizing it with what would work best for the Philippines.

The strong collaboration between public and private sector resulted to a reasonably fast passage of the law. The bill was lodged in Congress in May 2017 and signed into law in August 2018. IFC will continue to support government partners to continue the strong public-private collaboration on this reform to operationalize the law and educate the public about its benefits.

IFC's program on secured transaction reform is being supported by the Governments of Japan, Canada, and the Secretariat for Economic Affairs (SECO) of the Government of Switzerland.

Source : DevDiscourse

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