ONCE more I’m writing about our micro, small and medium enterprises (MSMEs) because I’m fully convinced that this big army of Filipino entrepreneurs could be our newest batch of economic heroes. They could save us from the impact of “painful recession.”

This was the term used by President George W. Bush in warning about the repercussions of the financial crisis in the US economy. We all know that what happens to the US affects the whole world. It is still the biggest market for exports from almost all other countries in the world, including the Philippines. For example, the US market currently accounts for 17 percent of total Philippine exports, just three percentage points less than its share about five years ago.

As I had pointed out, with the collapse of global financial giants like Lehman Brothers and Bear Stearns, and the resulting turbulence in other financial markets, the Philippines should turn to the MSMEs, which represent more than 90 percent of all registered business enterprises and the biggest group of employers in the country.

I also cited the need to increase access to credit, which is one reason why our MSME sector is not developing as fast as it should.  One of the findings of the World Bank’s International Finance Corp. (IFC) precisely indicated that funding obtained by the MSMEs in the Philippines from formal financial institutions represented between 11 percent and 21 percent of their total funding requirements.

On the other hand, banks and other financial institutions in Thailand provide 34 percent of the financial requirements of that country’s small entrepreneurs, about twice the amount obtained by their Filipino counterparts. It should not surprise us that shelves in local supermarkets and groceries are filled with fresh and preserved sampalok, patis and other items we used to believe were indigenous, backyard Filipino products.

Yet, the Philippine banking system has remained very liquid amid the global credit crunch. The Bangko Sentral ng Pilipinas (BSP) claims that the reforms being implemented following the 1997 Asian financial crisis have strengthened the domestic banks so that they are able to weather the effects of the current US financial crisis.

The BSP has advised the local banks to go back to their traditional businesses—lending and fee-based services—to drive growth after the decline in their securities-trading activities last year.

And the banks appeared to have followed the BSP’s advice. The outstanding loans of universal and commercial banks expanded by 18.5 percent in July compared with 18.1 percent in June.

Lending to production sectors, which has been accelerating since May, grew by 16.4 percent in July. All sectors posted growth in loans, except for fisheries, mining and quarrying and financial intermediation, which suffered contractions.

The expansion in bank lending was led by the agriculture sector, where lending grew by 25.8 percent. It was followed by electricity, gas and water, which recorded a 58.9-percent loan growth.

The wholesale- and retail-trade lending grew by 21.7 percent; transport, communication and storage 70.1 percent; and real estate, renting and business services 14.4 percent.

Lending for household consumption grew by a slower 18 percent in July from the previous month’s 22 percent as auto loans registered a decline, in contrast to the previous month’s double-digit growth following the continued rise in fuel prices.

I agree with Bangko Sentral Governor Amando Tetangco Jr. when he said that bank lending is an important economic indicator because it reflects confidence in the economy, and this, in turn, is a key ingredient for the effective functioning of the markets.

However, I was a bit disappointed that the report on lending did not mention loans to the MSMEs. Perhaps their loans were buried in one of the numerous categories used by the Bangko Sentral in its report.

Based on the results of the IFC study, however, I believe there is a tendency to neglect the MSMEs in favor of big borrowers, especially the blue-chip companies.

It is understandable for banks to give priority to prominent companies that are known to be profitable, with good management, lots of assets and lots of earning potential. From the administrative side, a P100-million loan to a good corporation is much easier and cost-effective than a million-peso loan to 10 small entrepreneurs.

On the other hand, the energy and food crises, the high inflation and the slowdown in the global economy are already hurting the local “big boys,” both in the financial and the industrial sectors.

Under this situation, five defaulting small entrepreneurs out of the 10 who borrowed a total of P1 million would result in a very small loss for the bank than one big corporation that fails to pay its P100-million loan.

In terms of earning potential, I believe that MSMEs have more than the big corporations. This is primarily because they enjoy niche markets in the domestic economy—from neighborhood stores to market vendors; from landscaping contractors to home builders. The records also speak in favor of the small entrepreneurs. They are less delinquent than some big corporate borrowers.

I’m advocating for the MSMEs not because of compassion, although I feel personally close to them, but because I am confident that they are the solution to the problems caused by the global slowdown.

And I’m not exaggerating when I say that the small entrepreneurs could be our economic savior. We should not neglect them. 

You may send your comments/feedback to mbvillar_comments@yahoo.com.

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