As early as three months after the first lockdown in March 2020, the adverse impact of the pandemic on MSMEs was visible. Around 193 business establishments permanently closed with 7.3 million jobs lost resulting in a 17.7 percent unemployment rate, a record high according to the Philippine Statistics Authority. 

However, at the close of 2020, the number of newly registered businesses reached the highest growth rate of 41 percent since 2010 at 900,000.  Business owners remain positive about their growth prospects in 2022, based on an April 2022 Sun Life Philippines survey. This paints an overall promising horizon for MSMEs in the Philippines for this year. 

Beyond 2022, how sustainable is the growth path of MSMEs in the Philippines? Beyond the challenges brought by the pandemic, the enabling environment for MSMEs to sustain is challenged by other global events like the Russia-Ukraine crisis. There is only much that MSMEs can do with these global events beyond their control but there is much that can be done about opportunities within their reach to strengthen the enabling environment and complement MSMEs’ limited or challenged resources.

Before the pandemic, access to finance for MSMEs has already been a great challenge, and is even greater today. They usually borrow from friends and family when starting a business but financing one’s business through relatives cannot be sustainable over time if not managed well. It runs the risk of not instilling the right financial management discipline as a business owner where money owed to a relative may be taken for granted. MSMEs need to be aware that there are various options to explore to make more informed decisions when financing their business. 

In 2018, a landmark law was passed that seeks to broaden options for MSME financing – the Personal Property Security Act (PPSA). This law updated the 1906 Philippine Chattel Mortgage Act that has not kept up with its spirit of mobilizing financing to MSMEs. Under this law, practically any form of asset other than land can be used as collateral for MSMEs to borrow from banks. 

More than 100 years have passed, but banks are still lending mostly based on hard collateral such as land. There is a mismatch between the collateral requirements imposed by banks and what MSMEs have in their books. The PPSA enhanced creditor rights by giving more confidence to banks to lend using other forms of collateral like intellectual property, accounts receivables, and inventories. 

MSMEs should familiarize themselves with the PPSA to explore how it can help them access finance. Financial institutions should also see how they can leverage on this law to expand their lending to MSMEs with more informed decisions. There is a big need to educate MSMEs and financial institutions on the PPSA so MSMEs can fully benefit from this law.

Digitalization during the pandemic allowed MSMEs to adapt, expand, and diversify their product and service distribution to sustain their business operations. From 2019 to 2021, retail online business grew from 70 percent to 80.2 percent as shown by Department of Trade and Industry (DTI) statistics. With internet penetration in the Philippines at approximately 89 million, digitalization is a must for MSMEs to reach out to a bigger market through a number of free e-commerce websites and the DTI’s one-stop-shop (https://www.dti.gov.ph/covid19/tech-tools/). All these tools are within reach at minimal to no cost for MSMEs to access or take advantage of.

Private companies can also be a source of assistance and grants for MSMEs. When the pandemic started two years ago, Facebook offered approximately P55 million in grants to approximately 500 eligible small businesses in the country. Each grantee received approximately P108,000 including P67,500 in cash and P40,500 in optional ad credits. In June 2022, BPI Foundation launched its Small Enterprise Acceleration Lab to support the development of startup enterprises through training, mentoring sessions, and cash grants. 

Other development grants are periodically available from bilateral organizations and NGOs that are aimed to support MSMEs. It is just a matter of allocating time for productive use of internet browsing each day to access this information.

The business environment has been very challenging and yet you still see growth in business opportunities. Resources are constrained but opportunities in terms of knowledge, information, and even access to finance continue to exist for MSMEs in the Philippines, and they just need to be on the lookout for these opportunities.

Gay Santos is the Regional Director for Southeast Asia at Water.org, a global NGO co-founded by Matt Damon and Gary White. She retired from the World Bank Group in 2019 and holds an MBA degree from the Johns Hopkins University in Baltimore, USA.The opinion expressed herein does not necessarily reflect the views of these institutions and Manila Bulletin. #FinexPhils www.finex.org.ph