BSP exploring supply chain financing for MSMEs

THE Bangko Sentral ng Pilipinas (BSP) is evaluating a plan to provide financing to micro-, small-, and medium-sized enterprises (MSMEs) that belong to the supply chains of larger firms, easing their collateral requirements by leveraging the superior credit profiles of their major customers.

The supply chain financing (SCF) scheme will include overhauling regulations and establishing an electronic platform that can be tapped by multiple lenders.

“Along with an enabling regulatory environment around electronic invoicing, electronic signatures, and secured transactions, the strategic intervention may include the development and operation of a multi-lender electronic SCF platform which may be run by the BSP or other government agencies as has been successfully done in Mexico, China and Chile,” the central bank said in an e-mail to BusinessWorld.

Through SCF, suppliers may be able to access credit more easily as verified suppliers of large firms.

According to a study performed by the Asia-Pacific Economic Cooperation, small businesses in the Philippines, Vietnam, Chile, Mexico, and Peru need to present collateral worth about 212% to 346% of their proposed loan.

In the Philippines, MSMEs accounted for about 99% of the roughly one million registered businesses in 2018, according to the Department of Trade and Industry.

Credit extended to micro and small enterprises (MSEs) totaled P208.201 billion in the first quarter, or about 2.47% of the banking system’s loans overall. This is lower than the 10% required under Republic Act. No. 6977 or the Magna Carta for MSMEs.

“SCF not only supports the smaller firms but also their large corporate buyers in terms of improved working capital management and reduced supply chain disruptions, as well as the bank itself in terms of better credit risk management and additional revenue streams,” the BSP said.

It added that Republic Act No. 11057 or the Personal Property Security Act passed in 2018 which requires the establishment of a unified legal framework for securing obligations with personal property, will also support the development of the SCF market.

“The BSP therefore finds SCF as a compelling proposition for MSME financing, especially considering the economic onslaught of the pandemic that has significantly affected MSMEs,” it said.

The central bank cited a study by the International Finance Corp. (IFC) which found most banks in the Philippines have yet to gauge and review the SCF legal requirements.

The study identified as possible constraints technology due to “legacy systems and paper-based supply chain transactions; on-boarding and documentation challenges; and limitations of the credit infrastructure that supports industry-wide visibility of loan exposures to SMEs.”

“There are industry players that have invested in supply chain financing capabilities. Nonetheless, the SCF market at this point still has much room to grow” the BSP said.

The central bank is exploring collaborations with experts in the SCF market, including the IFC, which helped China’s central bank, the People’s Bank of China, set up its SCF platform, which has over 200,000 businesses registered and facilitated access to about $1.7 billion in credit over the past seven years. — Luz Wendy T. Noble

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