MSME is the key
Published Aug 1, 2022 12:05 am
FROM THE MARGINS
Hungry stomachs do not wait. Thus, it is not surprising that economic-related issues topped the latest Pulse Asia survey on the most urgent concerns that people want the new administration to prioritize. Though not definitive, this nationwide survey provides the government a useful guidepost in identifying issues that matter to the ordinary Filipino. Thus, it is good that President Ferdinand Marcos, Jr., in his inaugural State of the Nation Address (SONA), seems responsive to these concerns when he immediately set out his administration’s economic goals: to end his term with a single-digit (nine percent) poverty rate, and reduce the country’s debt-to-GDP ratio below 60 percent.
The SONA echoes the targets of President Marcos’ economic managers, to reduce poverty and achieve upper middle-income status through sound fiscal management and tax reforms. Promising to promote productivity-enhancing investments, President Marcos outlined his administration’s short-and medium-term fiscal strategy for economic recovery in the SONA. He also identified priority legislative measures, my favorite of which is the Government Financial Institutions (GFIs) Unified Initiatives to Distressed Enterprises for Economic Recovery, or GUIDE bill. It mandates GFIs to provide financial assistance to address the liquidity or solvency problems of micro-small-and medium enterprises (MSMEs) and strategically important industries.
MSMEs are important because they are the backbone of our economy. They employ more than five million workers, or approximately 63 percent of the country’s workforce. Job creation through MSMEs benefit the poor and vulnerable, directly reducing poverty, and increasing income. They positively impact on household investments in education and health over time. The contribution of MSMEs to broader social economic objectives makes them a key priority area for achieving our Sustainable Development Goals (SDGs).MSMEs help in poverty reduction and stimulate economic development in the rural areas.
Unfortunately, there is still insufficient MSME financing in the country. This is recognized by the Bangko Sentral ng Pilipinas in its 2019 Financial Inclusion Survey, which showed that financial exclusion is prevalent in the agriculture, MSME and start up sectors.
To help MSMEs flourish, the government needs to do the following:
First, provide an enabling environment. Government needs to remove barriers to entry by simplifying MSME registration. Reviewing the compliance requirements of the Food and Drug Administration (FDA) would be a good start, as many MSMEs are into food processing. We need to reduce the transaction costs for MSMEs, as burdensome regulatory requirements only hinder the growth of informal enterprises into formal businesses.
Second, improve access to finance. With limited assets to use as collateral, MSMEs are perceived as high-risk borrowers and cannot access capital from banks. The microfinance industry is trying to fill the huge credit gap, but MSMEs need help from GFIs. Aside from increased financing as called for by President Marcos in his SONA, access to government guarantee funds can be improved through the removal of too many requirements in accreditation and claims payment. Clients and financial institutions are willing to pay the guarantee fee, but the government should consider introducing the concept of sliding guarantee fees by lowering fees as a form of incentive.
Third, set up basic infrastructure. Access to a stable electricity supply, road networks, ports and airports, water supply, as well as ICT, and in particular, broadband internet, is important. These infrastructures would foster private sector development and reduce the challenges that MSMEs already face in growing their businesses. The pandemic has already jumpstarted MSMEs’ foray into the e-commerce platform. It is good that the SONA details plans on how the government hopes to foster more growth and innovation in this sector.
Fourth, offer affordable insurance products. MSMEs need access to insurance to help them cope with losses and risks. Non-life insurance, like health, agricultural insurance, disaster insurance, property and business interruption insurance are important for MSMEs. Currently, non-life insurance is levied almost 27 percent premium tax while life insurance is charged only two percent. Lowering the premium tax would ensure that more MSMEs will have access to affordable non-life insurance.
Lastly, simplify taxation for MSMEs. The BIR should consider establishing a special help-desk for MSME registration and tax return filing. Finding ways to assist the sector – by providing training or giving tax audit exemptions — makes sense, since formal registration is beneficial for both small businesses and the government. I sincerely hope that President Marcos’ plan to simplify tax compliance procedures, as stated in the SONA, will come to fruition.
The key to our inclusive economic recovery is MSME. Small enterprises provide a big opportunity for our poor kababayans to make a difference in the world of business and beyond. Not everyone can be rich, but every Juan and Juana must be given the opportunity to make a living. As what gifted Ghanaian writer, Ernest Agyemang Yeboah once said:
“A diligent hawker today, can be a great tycoon tomorrow.”
(Dr. Jaime Aristotle B. Alip is a poverty eradication advocate, He is the founder of the Center for Agriculture and Rural Development Mutually-Reinforcing Institutions (CARD MRI), a group of 23 organizations that provide social development services to eight million economically-disadvantaged Filipinos and insure more than 27 million nationwide.)
Hungry stomachs do not wait. Thus, it is not surprising that economic-related issues topped the latest Pulse Asia survey on the most urgent concerns that people want the new administration to prioritize. Though not definitive, this nationwide survey provides the government a useful guidepost in identifying issues that matter to the ordinary Filipino. Thus, it is good that President Ferdinand Marcos, Jr., in his inaugural State of the Nation Address (SONA), seems responsive to these concerns when he immediately set out his administration’s economic goals: to end his term with a single-digit (nine percent) poverty rate, and reduce the country’s debt-to-GDP ratio below 60 percent.
The SONA echoes the targets of President Marcos’ economic managers, to reduce poverty and achieve upper middle-income status through sound fiscal management and tax reforms. Promising to promote productivity-enhancing investments, President Marcos outlined his administration’s short-and medium-term fiscal strategy for economic recovery in the SONA. He also identified priority legislative measures, my favorite of which is the Government Financial Institutions (GFIs) Unified Initiatives to Distressed Enterprises for Economic Recovery, or GUIDE bill. It mandates GFIs to provide financial assistance to address the liquidity or solvency problems of micro-small-and medium enterprises (MSMEs) and strategically important industries.
MSMEs are important because they are the backbone of our economy. They employ more than five million workers, or approximately 63 percent of the country’s workforce. Job creation through MSMEs benefit the poor and vulnerable, directly reducing poverty, and increasing income. They positively impact on household investments in education and health over time. The contribution of MSMEs to broader social economic objectives makes them a key priority area for achieving our Sustainable Development Goals (SDGs).MSMEs help in poverty reduction and stimulate economic development in the rural areas.
Unfortunately, there is still insufficient MSME financing in the country. This is recognized by the Bangko Sentral ng Pilipinas in its 2019 Financial Inclusion Survey, which showed that financial exclusion is prevalent in the agriculture, MSME and start up sectors.
To help MSMEs flourish, the government needs to do the following:
First, provide an enabling environment. Government needs to remove barriers to entry by simplifying MSME registration. Reviewing the compliance requirements of the Food and Drug Administration (FDA) would be a good start, as many MSMEs are into food processing. We need to reduce the transaction costs for MSMEs, as burdensome regulatory requirements only hinder the growth of informal enterprises into formal businesses.
Second, improve access to finance. With limited assets to use as collateral, MSMEs are perceived as high-risk borrowers and cannot access capital from banks. The microfinance industry is trying to fill the huge credit gap, but MSMEs need help from GFIs. Aside from increased financing as called for by President Marcos in his SONA, access to government guarantee funds can be improved through the removal of too many requirements in accreditation and claims payment. Clients and financial institutions are willing to pay the guarantee fee, but the government should consider introducing the concept of sliding guarantee fees by lowering fees as a form of incentive.
Third, set up basic infrastructure. Access to a stable electricity supply, road networks, ports and airports, water supply, as well as ICT, and in particular, broadband internet, is important. These infrastructures would foster private sector development and reduce the challenges that MSMEs already face in growing their businesses. The pandemic has already jumpstarted MSMEs’ foray into the e-commerce platform. It is good that the SONA details plans on how the government hopes to foster more growth and innovation in this sector.
Fourth, offer affordable insurance products. MSMEs need access to insurance to help them cope with losses and risks. Non-life insurance, like health, agricultural insurance, disaster insurance, property and business interruption insurance are important for MSMEs. Currently, non-life insurance is levied almost 27 percent premium tax while life insurance is charged only two percent. Lowering the premium tax would ensure that more MSMEs will have access to affordable non-life insurance.
Lastly, simplify taxation for MSMEs. The BIR should consider establishing a special help-desk for MSME registration and tax return filing. Finding ways to assist the sector – by providing training or giving tax audit exemptions — makes sense, since formal registration is beneficial for both small businesses and the government. I sincerely hope that President Marcos’ plan to simplify tax compliance procedures, as stated in the SONA, will come to fruition.
The key to our inclusive economic recovery is MSME. Small enterprises provide a big opportunity for our poor kababayans to make a difference in the world of business and beyond. Not everyone can be rich, but every Juan and Juana must be given the opportunity to make a living. As what gifted Ghanaian writer, Ernest Agyemang Yeboah once said:
“A diligent hawker today, can be a great tycoon tomorrow.”
(Dr. Jaime Aristotle B. Alip is a poverty eradication advocate, He is the founder of the Center for Agriculture and Rural Development Mutually-Reinforcing Institutions (CARD MRI), a group of 23 organizations that provide social development services to eight million economically-disadvantaged Filipinos and insure more than 27 million nationwide.)