BSP, CDA to improve funding access by MSMEs with surety

Published April 6, 2021, 7:00 AM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) and the Cooperative Development Authority (CDA) are working more closely to improve funding access of micro, small and medium enterprises (MSME) via the Credit Surety Fund (CSF).

BSP Governor Benjamin E. Diokno in a statement Monday said the BSP will further develop the CSF as “vital credit infrastructure for sustainable MSME financing”. He added that the BSP’s partnership with CDA will ensure more collaboration for their “shared goal of empowering cooperatives and MSMEs through the CSF.”

BSP Governor Benjamin E. Diokno (Credit: BSP photo)

CDA Chairman Orlando Ravanera, for his part, said the recently signed memorandum of agreement (MOA) between the BSP and CDA is aimed at maximizing their shared responsibility under the CSF law.

“(The) MOA clearly spells out the respective roles and responsibilities of the parties for a proper and effective implementation of the law and the IRR,” said Ravanera.

The CSF Cooperative Act of 2015 or Republic Act No. 10744 has designated CDA as lead implementing government agency for the registration, regulation, monitoring and supervision of CSF cooperatives. The BSP is in charge of CSF cooperatives promotion, creation and organizational development as well as to facilitate acquisition by CSF cooperatives of technical assistance and to assist the CDA in setting the criteria and qualifications for CSF cooperatives.

The MOA signed last month formalizes the cooperative partnership under the CSF law.

The CSF was established out of a need to channel funding to MSMEs since banks generally require collaterals which is a loan requirement that MSMEs have difficulty complying. Also, banks consider MSMEs as high-cost, high-risk but low margins.

The BSP describes CSF as a credit enhancement mechanism to improve access to bank financing of MSMEs and their cooperatives despite lack of collateral and credit history.

The CSF which is managed and administered by a CSF cooperative, souce funds from the contributions of well-capitalized cooperatives and local government units, and government financial institutions such as the Development Bank of the Philippines, Land Bank of the Philippines and the Philippine Guarantee Corp.

Basically the CSF “serves as a security in lieu of hard collateral for loans extended to qualified cooperative and MSME borrowers.” The credit tool provides a maximum 80 percent surety cover for loans granted by banks to MSMEs.

To participate in the CSF program, a cooperative or NGO must have an adjusted asset of at least P1 million, are earning and in existence for a year.

The BSP in a report said that with COVID-19 pandemic, the MSME sector – accounting for 99.5 percent of business enterprises and 62.4 percent of total employment — is one of sectors that took a big hit because of the cessation of business activity. A central bank survey said that about 60 percent of MSMEs have stopped operations as soon as the country was placed in lockdown last year.

There are 55 CSFs and 14 are registered as cooperatives with the CDA while others are in the process of registration, said the BSP. Before the pandemic, funding for CSFs have reached almost P6 billion which has been released to MSMEs. The CSF was first launched in 2008.