An Act Strengthening Access to Credit of Micro, Small and Medium Enterprises, Amending For the Purpose the R.A 6977 otherwise known as "Magna Carta for Micro, Small and Medium Enterprises" and for other purposes

1. 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

2. EXPLANATORY NOTE
Despite the significant
contribution of MSMEs
in the Philippine
economy, however,
MSMEs continue to
have difficulty in
accessing credit from
lending institutions.
According to a 2017
study published by the
International Finance
Commission, the
Philippine MSME sector
lacks US $221.79 billion
in supply of credit or
financing.
The study also noted
that the size of the
Philippine’s MSME
finance gap accounts
for 76% of its gross
domestic product.

3. EXPLANATORY NOTE
In 2018, World Bank
noted that 81.2% of
Philippine MSMEs
rely mostly on
internal savings or
earnings to finance
their investments.
This deficit is largely
due to the inability of
the country’s
financial institutions
to allocate a
sustainable portion
of their loan portfolio
to MSMEs.
According to the
Bangko Sentral ng
Pilipinas, as of March
2019, banks allocate a
meager 2.72% of their
loan portfolio to micro
and small enterprises
and 4.19% to medium
enterprises.

4. SECTION 1. Section 15 of Republic Act No. 6977, as amended, otherwise
known as the Magna Carta for Micro, Small and Medium Enterprises (MSMEs)

5. 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.

6. 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).

7. a. Lending institutions shall refer to all
banks, namely Universal banks (UBs);
(2) Commercial banks (KBs); (3) Thrift
banks (TBs), Coop Banks, including
government-owned banks.
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
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

8. 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.
Period covered; prescribed portions of loan portfolio to
be allocated.

9. 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.
Eligible credit exposures:

10. 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 under- compliance multiplied by P100,000 to be
computed as of end of each quarter.
Sanctions:

11. 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.
Disposition of penalties collected

12. Why do MSMEs struggle
to obtain financing from
banks?

13. High Risk
Perception
Banks often perceive lending to
MSMEs as risky due to their lack
of collateral, inconsistent
revenue streams, and relatively
high failure rates compared to
larger enterprises.
In the Philippine setting, MSMEs (Micro, Small, and
Medium Enterprises) face several challenges in
obtaining financing from banks, largely due to the
following reasons:
Lack of Credit
History
Many MSMEs, especially new
and micro enterprises, do not
have a well-established credit
history.
Preference for
Larger Loans
Banks often prefer to issue
larger loans to bigger
businesses because they are
more profitable and perceived
as less risky.
Limited Financial
Literacy
Some MSME owners may lack
the financial literacy and
management skills needed to
successfully apply for and
manage bank loans.