BSP sets 4% credit allocation for innovation dev’t
The Bangko Sentral ng Pilipinas (BSP) has issued the proposed rules to guide banks in allocating a minimum four percent of their loanable funds for innovation development for the benefit of micro, small and medium enterprises (MSMEs) and startups.
The BSP in the draft circular said the loanable funds for innovation development credit will be computed similar to the calculation of loanable funds for agriculture and agrarian reform credit.
The guidelines for the mandatory credit allocation followed provisions of Section 23 of Republic Act No. 11293 or The Philippine Innovation Act which was enacted in 2019, and its implementing rules and regulations.
The BSP said qualified borrowers for innovation development credit are MSMEs, startups, innovation centers and business incubators, as well as other entities that support development of new technologies and innovative goods or services.
“Banks shall set aside at least four percent (4%) of their total loanable funds for innovation development credit,” said the central bank.
However, newly-established banks will be exempted from the mandatory innovation development credit for a period of three years starting from the date of commencement of operations, said the BSP. These are banks that started operations after August 6, 2019. The circular will also not include banks formed through the acquisition/purchase of the voting stock of an existing domestic bank or the merger or consolidation of banks.
The credit quota will be reviewed jointly by the National Innovation Council and the BSP every three years.
“The Bangko Sentral recognizes that innovation plays an important role in driving inclusive development and in promoting the growth and national competitiveness of micro, small, and medium enterprises,” said the BSP in the draft circular, currently being circulated among banks. “Innovation encourages creative thinking, which in turn, increases productivity and economic output. The banking system
plays a crucial role in providing credit necessary to support the development of new technologies and other innovationrelated activities,” said the BSP.
All banks are required to submit a quarterly report to monitor their compliance. The BSP will slap a penalty of one-half of one percent or 0.5 percent of the amount of noncompliance or under-compliance.
About 90 percent of penalties that BSP will collect will go to its “Innovation Fund” while the other 10 percent are for administrative expenses. The fund, to be administered by the National Innovation Council, will be set up to strengthen entrepreneurship and enterprises engaged in developing innovative solutions, said the BSP.
The proposed circular has a feedback deadline of March 25, when banks’ suggestions and comments should be submitted to the BSP.
The BSP defines innovation as “the creation of new ideas that results in the development of new or improved products, processes, or services which are then spread or transferred across markets.” Innovation development credit includes loans and other financing activities for the development of new technologies, product innovation, process innovation, organizational innovation, and marketing innovation.
The draft circular noted that a direct compliance means loans granted to qualified borrowers after enactment of the law.
The BSP will also allow alternative compliance to the mandatory credit for innovation development such as: loans to, or investments in digital/technology platforms catering to MSMEs for e-commerce; and loans to, or investments in supply chain finance companies catering to the MSME sector.
Other ways for banks to comply include: investments in bonds issued by the Development Bank of the Philippines and Land Bank of the Philippines, the proceeds of which shall be used exclusively for on-lending for innovation development; and investment in other debt securities issued by banks and other high-credit quality financial and non-financial corporations, the proceeds of which shall be used for development of new technologies, product innovation, process innovation, organizational innovation, and marketing innovation.
The BSP said investment in green/social/sustainability bonds will also be allowed as alternative compliance if the proceeds will be used in any of the following priority areas for innovation: food security and sustainable agriculture and natural resources; blue economy; education and the academe including STEM education; health; secure, clean, renewable and reliable energy; climate change and disaster resilience; infrastructure; development of human capital; digital economy; and transportation services; and investment in the equities of startups.
Banks have an existing mandatory credit allocation of eight percent of their loanable funds for micro and small enterprises and two percent for medium enterprises under RA No. 6977 for the development of the small and medium scale business sector.
As of end-2021, based on BSP data, banks’ compliance to RA No. 6977 is only 2.08 percent for micro and small enterprises. This translates to P178.14 billion loans for micro and small enterprises when banks should have loaned P685.60 billion.
However, banks had a 3.33 percent compliance rate for medium enterprises, more than the required two percent, releasing P284.99 billion last year versus minimum required of P171.42 billion.