Effective Access to Financing

1. Effective Access to Financing Sergio R. Ortiz-Luis, Jr. President, Philippine Exporters Confederation, Inc. (PHILEXPORT) National Competitiveness Summit 06 October 2006

2. VISION STATEMENT To develop a financial system that is accessible, facilitative and cost-effective for MSMEsin the same way as large borrowers … through active partnership and continuous commitment between the government and private sectors

3. The importance of Effective Access to Financing • In the World Bank Doing Business 2007 report, RP ranked 101st out of 175 economies in “Getting Credit”. This is because to a great extent, we are weakest in credit information. • MSMEs comprise over 90% of Philippine firms and exporters, and provide over 80% of employment, yet do not have easy access to financing • Only a quantum increase of funds (tripling the loans) made available for MSMEs will broaden the base for sustainable competitiveness and economic development

4. SITUATIONER • The 1997 Asian Crisis affected RP least, but we are still struggling, while others have recovered by, among others, addressing their banking sector problems, and the credit needs of business, especially their MSMEs • RP’s banking system’s liquidity is increasing but business lending has not increased significantly • SMEs still have difficulty in accessing credit

5. DIAGNOSIS OF THE CHALLENGE • SMEs have encountered increasing difficulty in complying with stringent bank requirements, particularly regarding track records, financial statements and collateral. • The need to conform with new international standards and prudential measures – e.g., IAS, Basel II –exacerbate SME’s woes.

6. DIAGNOSIS OF THE CHALLENGE 3. The banking sector is out of synch with the spirit of SME and agri-agra lending laws, specifically on the implementation of the alternative compliance options. • Data show that there are about 60,485 small enterprises across the Philippines. They require an average of P3 million for expansion or working capital, and will provide a credit market of PhP180 billion which is mostly unserved.

7. SUMMARY OF RECOMMENDATIONS • Encourage banks to lend to SMEs and exporters – e.g., by • assigning lower risk weights for lending to SME exporters • developing credit information systems that include SMEs • revitalizing GFI wholesale lending programs for SMEs at rates and terms attractive to PFIs • waiving the requirement of BIR-stamped ITRs for MSME borrowers. • Lower rediscount rates for SME exporters and persuade banks to lower pass-on lending rates correspondingly.

8. SUMMARY OF RECOMMENDATIONS • 3. Intensify capacity building for SME borrowing / financial management and bank SME lending capacity of the banks. • 4. Provide alternative support programs for SME exporters – e.g., an Export Development Fund for R&D and market promotions. • 5. But in order to initiate a quantum leap in SME lending: • We must implement the SME and agri-agra • lending regulations in a manner that keeps • to the spirit of the law, and to provide guidelines • and safeguards so that alternative compliance • is not overly relied upon

9. Thank You