FOURTEENTH CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
1 
First Regular Session 
) 
7 4L -3 310 :44 
S E N A T E  
Senate Bill No. 703 
INTRODUCED BY SEN. JINGGOY EJERCITO ESTRADA 
EXPLANATORY NOTE 
Economic undertakings are best pursued not only through promotion and 
protection of national and multinational enterprises, albeit these are the lifeblood 
of any country’s economy indubitably, but through adequate support and 
enhancement as well of both small and medium scale enterprises. 
Indeed, small and medium scale enterprises or SMEs have the potential 
for more employment generation and economic growth. They vigorously activate 
and intensify economic initiatives, which as a result provide for a healthy, solid, 
and self-sufficient industrial foundation for the country. 
There is therefore a need to look for creative ways and strategies to truly 
promote, support, strengthen and encourage the growth and development of 
SMEs. Unfortunately, existing laws, particularly R.A. 6977, a.k.a. the “Magna 
Carta for Small Enterprises” are no longer responsive to the ever changing needs 
of said enterprises. 
Hence, there is a need to amend its pertinent provisions, making them 
responsive to the changing times, if only to genuinely promote entrepreneurship, 
support entrepreneurs, encourage the establishments of small and medium 
enterprises and ensure their continuing viability and growth and thereby attain 
concrete countryside industrialization. 
Given its significance, the immediate passage of this proposed measure is 
earnestly sought. 
ESTRADA 
enator 


FOURTEENTH CONGRESS OF THE REPUBLIC 
1 
OF THE PHILIPPINES 
First Regular Session 
Senate Bill No. 703 
INTRODUCED BY SEN. JINGGOY EJERCITO ESTRADA 
AN ACT 
TO FURTHER PROMOTE ENTREPRENEURSHIP AND SUPPORT THE 
DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES, AMENDING FOR 
THE PURPOSE REPUBLIC ACT NO. 6977, AS AMENDED, OTHERWISE 
KNOWN AS THE MAGNA CARTA FOR SMALL ENTERPRISES 
Be it enacted by the Senate and House of Representatives of the Philippines in 
Congress assembled: 
SECTION 1. Section 1 of Republic Act No. 6977 is hereby amended to 
read as follows: 
"Section 1. Title. - This Act shall be known as the Magna Carta for 
Small AND MEDIUM Enterprises." 
SEC 2. Section 2 of Republic Act No. 6977 is hereby amended to read as 
"SECTION 2. Declaration of Policy. Recognizing that small and 
medium scale enterprises (SMEs) have the potential for more employment 
generation and economic growth and therefore can help provide a self- 
sufficient industrial foundation for the country, it is hereby declared the 
policy of the State to promote, support, strengthen and encourage the 
growth and development of [small and medium enterprises] SMEs in all 
productive sectors of 
the economy 
particularly rurallagri-based 
enterprises. To this end, the State shall undertake to [spur the growth and 
development of small and medium enterprises throughout the country] 
PROMOTE ENTREPRENEURSHIP, SUPPORT ENTREPRENEURS, 
ENCOURAGE THE ESTABLISHMENTS OF SMALL AND MEDIUM 
ENTERPRISES AND ENSURE THEIR CONTINUING VIABILITY AND 
GROWTH and thereby attain countryside industrialization by: 
follows: 
a) [by assuring, through the establishment of adequate support structure, and the 
creation and promotion of an environment conducive to the viability of these 
enterprises, establishment of mechanisms, the access and transfer of 
appropriate technology needed by small and medium enterprises;] 
[b)]A) [by] intensifying and expanding programs for training in entrepreneurship 
and for skills development of labor: 


[c] B) [by] facilitating their access to sources of funds; 
[d] C) [by] assuring to them to a fair share of government contracts and related 
incentives and preferences; 
[e] D) [by] complementing and supplementing financing programs for small and 
medium enterprises and doing away with stringent and burdensome collateral 
requirements that small entrepreneurs invariably find extreme difficulty complying 
with; 
[I E) [by] instituting safeguards for the protection and stability of the credit 
delivery system; 
[g] F) [by] raising government efficiency and effectiveness in providing assistance 
to [small and medium enterprises] SMEs throughout the country, at the least 
cost: 
[h] G) [by] promoting linkages [between large and small] AMONG SMALL, 
MEDIUM AND LARGE enterprises, and by encouraging the establishment of 
common service facilities; 
[i] H) [by] making the private sector a partner in the task of building up [small and 
medium enterprises] SMEs through the promotion and participation of private 
voluntary organizations, viable industry associations, and cooperatives; and 
u] I) [by] assuring a balanced and sustainable development through the 
establishment of a feedback and evaluation mechanism that will monitor the 
economic contributions as well as bottlenecks and environmental effects of the 
development of [small and medium enterprises] SMEs. 
SEC 3. Section 3 of Republic Act No. 6977, as amended, is hereby further 
amended to read as follows: 
"SEC. 3. Small and Medium Enterprise as Beneficiaries. - ['Small 
and medium enterprise'] SMEs shall be defined as any business activity or 
enterprise engaged in industry, agribusiness, andlor services, whether 
single proprietorship, cooperative, partnership or corporation whose total 
assets, inclusive of those arising from loans but exclusive of the land on 
which the particular business entity's office, plant and equipment are 
situated, must have value falling under the following categories: 
[micro : less than P 1,500,000] 
small : [P l,SOO,OOl] 15,000,000 and below 
medium: P 15,000,001 - P[SO,OOO,OOO] 100,000,000 
The above definitions shall be subject to review and adjustment [by the 
said Council] motu propio by the SMED COUNCIL CREATED UNDER SECTION 
5 OF THIS LAW or upon recommendation of the sectoral organizations) 
concerned taking into account inflation and other economic indicators. The 
Council may use other variables such as, the number of employees, equity 
capital and asset size. 


SEC 4. Section 4 of Republic Act No, 6977, as amended, is hereby further 
"SEC. 4. Eligibility for Government Assistance.-To qualify for 
assistance, counseling, incentives and promotion under this Act, business 
falling under the above definition must be; 
a) duly registered with the appropriate agencies as presently provided by 
law: Provided, That in the case of micro enterprises, registration with 
the office of the municipal or city treasurer shall be deemed sufficient 
compliance with this requirement: 
amended to read as follows: 
b) one hundred, percent (100%) owned [and], capitalized, AND 
OPERATED by Filipino citizens, [ifl WHETHER single proprietorship 
for] , partnership, CORPORATION, OR COOPERATIVE. [If the 
enterprise is a juridical entity, at least sixty percent (60%) of its capital 
or outstanding stocks must be owned by Filipino citizens.] 
c) a business activity within the major sectors of the economy, namely; 
industry, services, including the practice of one's profession, the 
operation of tourism-related establishments, and agri-business, which 
for purposes of this Act refers to any business activity involving the 
manufacturing, processing, andlor production of agricultural produce, 
excluding farm level agriculturalkrop production; and 
d) it must not be a branch, subsidiary or division of a large-scale 
enterprise [nor may its policies be determined by a large scale 
enterprise or any persons who are not owners or employees of the 
enterprise]. 
However, this requirement shall not preclude a [small and medium 
enterprise] SME from accepting subcontracts [from large enterprises or 
firms] AND ENTERING INTO FRANCHISE PARTNERSHIP WITH LARGE 
ENTERPRISES OR FROM joining in cooperative activities with other 
[small and medium enterprises] SMEs. 
e) it must be registered and accredited by the SMED Council in 
accordance with the guidelines duly approved by the SMED Council 
Board of Directors. 
Programs of the [financing corporation] SB CORPORATION as 
provided in subsequent [Sections] PROVISIONS of this Act shall be 
exclusively [targeted] DELIVERED AND DIRECTED to [medium, small, 
and micro-sized enterprises] BONAFIDE SMEs. 
Registered small enterprises shall be entitled to a share of at least 
ten percent (10%) of total procurement value of goods and services 
supplied to the Government, its bureaus, offices and agencies annually: 
Provided, That prices and quality of goods offered by the registered small 
enterprises are competitive. 
THE DEPARTMENT OF BUDGET AND MANAGEMENT SHALL 
MONITOR THE COMPLIANCE OF GOVERNMENT AGENCIES ON THE 
REQUIRED PROCUREMENT FOR SMEs IS AND SUBMIT ITS REPORT 
TO THE SMED COUNCIL ON A SEMESTRAL BASIS. 


SEC. 5. Section 5 of Republic Act No. 6977, as amended, is hereby 
further amended to read as follows: 
"SEC. 5. Guiding Principles. - To set the pace for [small and 
medium enterprise] SME development, the State shall be guided by the 
following principles: 
(a) Minimal set of rules and simplification of procedures and requirements. All 
government agencies, having to do with small enterprises shall pursue 
the principles of minimum regulation to ensure stability of rules and to 
encourage entrepreneurial spirit among the citizenry. The agencies shall 
see to it that procedural rules and requirements, within their respective 
offices and in coordination with other agencies, are minimized in the act of 
registration, availment of financing and accessing other government 
services and assistance. 
(b) Role of the private sector. In order to hasten growth and expansion of 
[small and medium enterprises] SMEs, the private sector throughout the 
country shall be encouraged to assist in the effective implementation of 
this Act by participating in government programs for [small and medium 
enterprises] SMEs strictly in accordance with the law, and consistent with 
the attainment of the purposes hereof. To encourage private sector 
participation, the Council, in consultation with the concerned sector, may 
recommend simplified procedure and localized incentives to [small 
enterprises] SMEs. The Government shall encourage the organization 
and establishment of [small and medium enterprise] SME industry 
associations at the local and regional levels preferably unified under a 
national federation/association. 
(c) Coordination of government efforts. Government efforts shall be 
coordinated to achieve coherence in objectives. All appropriate offices, 
particularly those under the Departments of Trade and Industry, Finance, 
Budget and Management, Agriculture, Agrarian Reform, Environment and 
Natural Resources, Labor and 
Employment, Transportation and 
Communications, Public Works and Highways, Science and Technology, 
INTERIOR AND Local Government and Tourism as well as the National 
Economic and Development Authority, PHILIPPINE INFORMATION 
AGENCY and the Bangko Sentral ng Pilipinas, through their national, 
regional and provincial offices, shall to the best of their efforts and in 
coordination with local government units, provide the necessary support 
and assistance to [small and medium enterprises] SMEs. 
(d) Decentralization. The State shall accelerate the decentralization process 
by establishing regional and provincial offices in order to enhance and 
attain greater efficiency in the provision of services to the countryside and 
the implementation of this Act, in coordination with local government units. 
To this end, the government agencies shall effect a substantial delegation 
of authority to their regional and provincial offices to make decisions, 
particularly in the registration of beneficiaries of this law, qualification for 
availment of benefits, accreditation of private voluntary organizations, 
industry associations and cooperatives, and to resolve complaints for 
violation of applicable laws. 
SEC 6. Section 6 of Republic Act No. 6977, as amended, is hereby further 
amended to read as follows: 


"SEC. 6. Creation of a Small and Medium Enterprise Development 
(SMED) Council. - To effectively spur the growth and development of 
[small and medium enterprises] SMEs throughout the country, and to carry 
out the policy declared on this Act, a Small and Medium Enterprise 
Development (SMED) Council is hereby created. The Council shall be 
attached to the Department of Trade and Industry and shall be constituted 
within sixty (60) days after the approval of this Act. 
The Council shall be the primary agency responsible for the 
promotion, growth and development bf [small and medium enterprises] 
SMEs [in the country by way of facilitating and closely coordinating 
national efforts to promote the viability and growth of small and medium 
enterprises,] including assisting relevant agencies in tapping of local and 
foreign funds for small and medium enterprise development, as well as 
promoting the use of existing programs, [as well as] AND seeking ways to 
maximize the use of our labor resources. 
SEC 7. Section 7 of Republic Act No. 6977, as amended, is hereby further 
amended to read as follows: 
"SEC. 7. Composition. - The Council shall be headed by the 
Secretary of Trade and Industry as Chairman, and may elect from among 
themselves a Vice Chairman to preside over the meetings in the absence 
of the Chairman. The members shall be the following: 
1) Director General of the National Economic and Development Authority; 
2) Secretary of Agriculture; 
3) Secretary of Labor and Employment; 
4) Secretary of Environment and Natural Resources; 
5) SECRETARY OF INTERIOR AND LOCAL GOVERNMENT: 
6) Secretary of Science and Technology; 
7) Secretary of Tourism 
8) The Chairman of the Monetary Board; 
9) Chairman of Small Business [Guarantee and Finance] Corporation; 
1O)Chairman of the small and medium enterprises promotion body which 
the President shall undertake to establish under this Act; and 
11)Three (3) representatives from the private sector at large, all Filipino 
citizens, to represent Luzon, Visayas and Mindanao, and one 
representative from the small and medium enterprise sector to be 
appointed by the President; [and] 
12)A representative from the private banking sector to serve alternately 
among the Chamber of Thrift Banks, Rural Bankers' Association of the 
Philippines (REAP) and the Bankers' Association of the Philippines 
(BAP); AND 


13)CHAIRPERSONS OF THE COMMITTEE ON ECONOMIC AFFAIRS OF 
THE 
SENATE 
AND 
THE 
SPECIAL 
COMMITTEE 
ON 
ENTREPRENEURSHIP DEVELOPMENT OR ANY APPROPRIATE 
COMMITTEE CONCERNED OF THE HOUSE OF REPRESENTATIVES. 
ALL MEMBERS OF THE COUNCIL SO APPOINTED, EXCEPT FOR THE 
YEAKS. THE PERSON SO APPOINTED TO REPLACE A MEMBER 
WHO HAS RESIGNED, DIED, OR BEEN REMOVED FOR CAUSE 
SHALL SERVE ONLY FOR THE UNEXPIRED PORTION OF THE TERM. 
EXCEPT FOR THE DTI SECRETARY, cabinet-rank ex officio 
members of the Council shall designate an undersecretary or assistant 
secretary, and the chairman of the Monetary Board or his representative 
as their permanent representative in case they fail to attend meetings of 
the Council. 
EX-OFFICIO MEMBERS, SHALL SERVE FOR A TERM OF THREE (3) 
The private sector members of the Council shall [initially] receive 
per diem [of One Thousand Pesos (Pl,OOO.OO)] per meeting, [for a 
maximum of twenty-four (24) meetings per year, which per diem may be 
adjusted by the Council: Provided, That any such adjustment shall take 
effect upon approval of the President.] THE AMOUNT OF WHICH SHALL 
BE DETERMINED BY THE SMED COUNCIL 
[The Department of Trade and Industry shall allocate Five Million 
Pesos (PS,OOO,OOO) out of its savings for the initial operating expenses of 
the Council, after which the Council‘s budget shall be included in the 
annual appropriation of the Department of Trade and Industry.] 
THE 
COUNCIL 
SHALL 
HAVE A 
SEPARATE ANNUAL 
APPROPRIATION WHICH SHALL BE PROVIDED IN THE GENERAL 
APPROPRIATIONS ACT 
STARTING 
IN 
THE 
FISCAL 
YEAR 
IMMEDIATELY FOLLOWING THE APPROVAL OF THIS ACT. 
The Council may [, from time to time,] call upon the participation of 
any NATIONAL OR LOCAL government agency or [association] PRIVATE 
SECTOR ORGANIZATION when such agency OR PRIVATE SECTOR 
ORGANIZATIONS is DIRECTLY OR INDIRECTLY concerned with and/or 
affecting the growth and development of [small and medium enterprises] 
MSMEs in any particular area or manner. 
The Council may create an Executive Committee of five (5) 
members elected by the Council from among themselves or their 
designated permanent representatives, with at least two (2) members 
representing the private sector, and with authority to act for and on behalf 
of the Council during intervals of council meetings, and within the specific 
authority granted by the Council. 
SEC 8. Section 8 of Republic Act No. 6977 is hereby amended to read as 
follows: 
“SEC. 8. Powers and Functions. - The [Small and Medium 
Enterprise Development (SMED)] SMED Council shall have the following 
powers, duties and functions: 


a) to help establish the needed environment and opportunities conducive to 
the growth and development of the [small and medium enterprises] SME 
sector; 
b) to recommend to the President and the Congress all policy matters 
affecting [small and medium enterprises] SMEs; 
c) to formulate a comprehensive [small and medium enterprises] SME 
development plan to be integrated into the National Economic and 
Development Authority (NEDA) Development Plans; 
d) to coordinate and integrate various government and private sector 
e) to review existing policies of government agencies that would affect the 
growth and development of [small and medium enterprises] SMEs and 
recommend changes to the President and [/or to the] Congress 
THROUGH THE COMMITTEE ON ECONOMIC AFFAIRS OF THE 
SENATE AND THE SPECIAL COMMITTEE ON ENTREPRENEURSHIP 
DEVELOPMENT, OR ANY AF'PROPFUATE COMMITTEE, OF THE 
HOUSE OF REPRESENTATIVES, whenever deemed necessary. This 
shall include efforts to simplify rules and regulations, as well as procedural 
and documentary requirements in the registration, financing, and other 
activities relevant to [small and medium enterprises] SMEs; 
activities relating to [small and medium enterprises] SMEs; 
9 to monitor and determine the progress of various agencies geared 
towards the development of the sector. This shall include overseeing, in 
coordination with local government units and the Department of THE 
INTERIOR AND 
Local Government as well 
as 
private sector 
groups/associations, the developments among [small and medium 
enterprises] SMEs [particularly the cottage and micro-sized firms], 
g) to promulgate implementing guidelines, programs, and operating 
principles as may be deemed proper and necessary in the light of 
government policies and objectives of this Act; 
h) to provide the appropriate policy and coordinative framework in assisting 
relevant government agencies, in coordination with the NEDA and the 
Coordinating Council of the Philippine Assistance Program, as may be 
necessary, in the tapping of local and foreign funds for [small and medium 
enterprises] SME development; 
i) to promote the productivity and viability of [small and medium enterprises] 
SMEs by way of directing andlor assisting relevant government agencies 
and institutions at the national, regional and provincial levels towards the: 
1) Provision of business training courses, technical training for 
technicians and skilled laborers and continuing skills upgrading 
programs; 
2) Provision of 
labor-management guidance, 
assistance 
and 
improvement of the working conditions of employees in [small and 
medium enterprises] SMEs; 
3) Provision of 
guidance 
and 
assistance 
regarding 
product 
quality/product development and product diversification; 


4) Provision of guidance and assistance for the adoption of improved 
production techniques and commercialization of appropriate 
technologies for the product development and for increased 
utilization of indigenous raw materials; 
5) Provision of assistance in marketing and distribution of products of 
[small and medium enterprises] SMEs through local supply-demand 
information, industry and provincial profiles, overseas marketing 
promotion, domestic market linkaging and the establishment of 
common service facilities such as common and/or cooperative 
bonded warehouse, grains storage, agro-processing and drying 
facilities, ice plants refrigerated storage, cooperative trucking 
facilities, etc; 
6) Intensification of assistance and guidance to enable greater access 
to credit through a simplified multi-agency financing program; to 
encourage development of other models of financing such as 
leasing and venture capital activities; to provide effective credit 
guarantee systems, and encourage the formation of CREDIT 
GUARANTEE ASSOCIATIONS, INCLUDING SETTING UP OF 
credit records and information systems, and to decentralize loan 
approval mechanisms; 
7) Provision of concessional interest rates, lower financing fees, which 
may include incentives for prompt credit payments, arrangements 
tying amortizations to business cash flows, effective substitution of 
government guarantee cover on loans for the borrower's lack of 
collateral; 
8) Provision of bankcruptcy preventive measures through the setting 
up of a mutual relief system for distressed enterprises, and the 
establishment of measures such as insurance against extraordinary 
disasters; 
9) Intensification of 
information dissemination 
campaigns and 
10)Easier access to and availment of tax credits and other tax and 
duty incentives as provided by the Omnibus Investment Code and 
other laws; 
11)Provision of support for product experimentation and research and 
development activities as well as access to information on 
commercialized technologies; and 
entrepreneurship education activities; 
12)Provision of more infrastructure facilities and public utilities to 
support operations of [small and medium enterprises] SMEs; 
j) to submit to the President and the Congress, THROUGH THE SENATE 
COMMITTEE 
ON 
ECONOMIC 
AFFAIRS 
AND 
THE 
SPECIAL 
COMMITTEE ON ENTREPRENEURSHIP DEVELOPMENT, OR ANY 
APPROPRIATE 
COMMITTEE 
OF 
THE 
HOUSE 
OF 
REPRESENTATIVES, a yearly report on the status of [small and medium 
enterprises] SMEs in the country, including the progress and impact of all 
relevant government policies, programs and legislation as well as private 
sector activities: 


k) to assist in the establishment of modern industrial estates outside urban 
centers; and 
I) TO EXERCISE ALL POWERS AND FUNCTIONS NECESSARY FOR 
THE ATTAINMENT OF THE OBJECTIVES AND PURPOSES OF THIS 
ACT. 
SEC 9. Section 9 of Republic Act No. 6977, as amended, is hereby further 
amended to read as follows: 
"Sec. 9. Designation of the Bureau of Small and Medium [Business] 
ENTERPRISE Development OF THE DEPARTMENT OF TRADE AND 
INDUSTRY as Council Secretariat. - The Bureau of Small and Medium 
[Business] ENTERPRISE Development is hereby designated to act as the 
Council Secretariat and shall have the following duties and functions; 
1) TO FORMULATE, IMPLEMENT, COORDINATE AND MONITOR ALL 
BASED SERVICES, TO SUPPORT AND PROMOTE MSMEs, AND [to] 
prepare, in coordination with NATIONAL AGENCIES, local government 
[officials] UNITS AND PRIVATE SECTOR ORGANIZATIONS, [and 
recommend] annual as well as medium-term small and medium enterprise 
development plans for approval of the Council; 
NON-FINANCING GOVERNMENT PROGRAMS, INCLUDING FEE- 
2) to coordinate the preparation of position papers and background materials 
for discussion or approval during Council meetings; 
3) to assist the Council in coordinating and monitoring [small and medium 
enterprises] SMEs policies and programs and activities of all government 
agencies with respect to small and medium enterprises; 
4) to prepare [, collate] and integrate all inputs to the Council's yearly report 
on the status of [small and medium enterprises] SMEs in the country; 
5) to submit periodic reports to the Council on the progress and 
accomplishment of its work programs; and to perform ad hoc functions as 
authorized by the Council. 
SEC 10. Section 10 of Republic Act No. 6977, as amended, is hereby 
further amended to read as follows: 
"SEC. 10. Rationalization of Existing Small and Medium Enterprise 
Programs and Agencies. - The SMED Council shall conduct continuing 
review of government programs for [small and medium enterprises] SMEs 
and submit to [Congress and] the President AND CONGRESS, 
THROUGH THE COMMITTEE ON ECONOMIC AFFAIRS OF THE 
SENATE AND THE SPECIAL COMMITTEE ON ENTREPRENEURSHIP 
DEVELOPMENT, OR ANY APPROPRIATE COMMITTEE OF THE 
HOUSE OF REPRESENTATIVES, a report thereon together with its policy 
recommendations. 
The President is hereby also empowered to establish a small and 
medium enterprise promotion body which shall be the principal 
government agency that will formulate, implement, coordinate and monitor 
all non-financing government programs, including fee-based services, to 


support and promote micro, small and medium enterprises. It shall be 
attached to the Department of Trade and Industry and shall be under the 
policy, program and administrative supervision of the SMED Council. [The 
said office shall receive no less than fifty percent (50%) of the assets, and 
budgetary allocations of the agencies for promotion, development and 
financing of small and medium enterprises that may be henceforth 
dissolved and/or abolished and absorbed, incorporated and integrated into 
the SMED Council.] 
SEC. 11. Section 71 of Republic Act No. 6977, as amended, is hereby 
further amended to read as follows: 
"SEC. 11. Creation of Small Business Guarantee and Finance 
Corporation - There is hereby created a body corporate to be known as 
Small Business Guarantee and Finance Corporation hereinafter referred 
to as the [SBGFC] SMALL BUSINESS CORP., which shall [source and 
adopt development initiatives for globally competitive small and medium 
enterprises in terms of finance, technology, production, management and 
business linkages, and provide, promote, develop and widen in both 
scope and service reach various alternative modes of financing for small 
and medium enterprises, including but not limited to, direct and indirect 
project lending venture capital, financial leasing, secondary mortgage 
andlor 
rediscounting 
of 
loan 
papers 
to 
small 
businesses, 
secondarylregional stock markets: Provided, That crop production 
financing shall not be serviced by the Corporation.] HAVE THE 
FOLLOWING PURPOSES: 
A) SOURCE AND ADOPT DEVELOPMENT INITIATIVES FOR GLOBALLY 
COMPETITIVE SMEs IN FINANCE AND BUSINESS TECHNOLOGIES; 
B) TO 
EXTEND ALL FORMS OF 
FINANCIAL AND TECHNICAL 
ASSISTANCE TO QUALIFIED AND REGISTERED SMEs. 
C) GUARANTEE LOANS OBTAINED BY QUALIFIED MSMEs UNDER 
SUCH TERMS AND CONDITIONS ADOPTED BY THE SMALL 
BUSINESS CORP. BOARD OF DIRECTORS. 
SEC 12. There shall be incorporated after Section 11 of Republic Act No. 
6977, as amended, new sections to read as follows: 
"SEC. 12. CORPORATE POWERS. SMALL BUSINESS CORP. 
SHALL BE ADMINISTRATIVELY ATTACHED TO THE DEPARTMENT 
OF TRADE AND fNDUSTRY AND SHALL BE UNDER THE POLICY AND 
PROGRAM SUPERVISION OF THE SMED COUNCIL. IT SHALL HAVE 
ITS PRINCIPAL OFFICES IN METRO MANILA AND WHENEVER 
NECESSARY. ESTABLISH BRANCH OFFICES IN THE PROVINCES. 
SMALL BUSINESS CORP. SHALL EXERCISE ALL THE 
GENERAL POWERS EXPRESSLY CONFERRED BY LAW UPON 
CORPORATIONS UNDER THE CORPORATION CODE. 
FOR THIS PURPOSE, SMALL BUSINESS CORP. MAY ALSO: 
A) HOLD, PURCHASE, LEASE OR OTHERWISE ACQUIRE AND OWN 
REAL AND PERSONAL PROPERTY, INTRODUCE NECESSARY 


IMPROVEMENTS 
THEREON 
AND 
TO 
SELL, 
MORTAGAGE, 
ENCUMBER OR OTHERWISE DISPOSE OF THE SAME AS MAY BE 
NECESSARY 
IN 
THE 
NORMAL 
COURSE 
OF 
BUSINESS, 
NOTWITHSTANDING ANY LAW TO THE CONTRARY: 
B) APPLY FOR, RECEIVE AND ACCEPT GRANTS AND DONATIONS 
FROM SOURCES WITHIN AND OUTSIDE THE COUNTRY; 
C) HOLD, OWN, PURCHASE, ACQUIRE, SELL, MORTGAGE, DISPOSE 
TREASURY BILLS, DEBENTURES, SECURITIES AND SIMILAR FORMS 
OF INDEBTEDNESS OF THE GOVERNMENT, ITS AGENCIES AND 
INSTRUMENTALITIES 
OR 
ANY 
GOVERNMENT 
FINANCIAL 
INSTITUTIONS, NOTWITHSTANDING ANY LAW TO THE CONTRARY. 
OR OTHERWISE INVEST OR RE-WEST IN STOCKS, BONDS, 
"SEC. 13. COMPOSITION, POWERS AND AUTHORITY. - THE 
SMALL BUSINESS CORP. CORPORATE POWERS SHALL BE VESTED 
ON A BOARD DIRECTORS COMPOSED OF ELEVEN (11) MEMBERS 
WHICH SHALL INCLUDE THE FOLLOWING: 
A) THE SECRETARY OF TRADE AND INDUSTRY 
B) THE SECRETARY OF FINANCE 
C) A PRIVATE SECTOR REPRESENTATIVE TO BE APPOINTED BY THE 
PRESIDENT OF THE PHILIPPINES UPON THE RECOMMENDATION 
OF THE SMED COUNCIL; 
D) SEVEN (7) REPRESENTATIVES OF SMALL BUSINESS CORP. 
HOLDERS OF COMMON STOCKS; AND 
E) THE PRESIDENT OF SMALL BUSINESS CORP. AS EX OFFICIO 
MEMBER AND TO SERVE AS VICE CHAIRMAN OF THE BOARD. 
THE PRESIDENT OF THE PHILIPPINES SHALL APPOINT THE 
CHAIRMAN OF THE BOARD FROM AMONG ITS MEMBERS. 
THE BOARD OF DIRECTORS SHALL HAVE, AMONG OTHERS THE 
FOLLOWING SPECIFIC POWERS AND AUTHORITIES: 
A) TO 
FORMULATE 
POLICIES 
NECESSARY 
TO 
CARRY 
OUT 
EFFECTIVELY THE PROVISIONS OF THIS CHARTER AND TO 
REGULATIONS FOR THE EFFECTIVE OPERATIONS OF SMALL 
BUSINESS CORP.; 
PRESCRIBE, AMEND AND 
REPEAL BY-LAWS, RULES AND 
B) ESTABLISH SUCH BRANCHES, AGENCIES AND SUBSIDIARIES AS 
MAY BE DEEMED NECESSARY AND CONVENIENT; 
C) COMPROMISE OR RELEASE, IN WHOLE OR IN PART, ANY CLAIM OR 
LIABILITY WHATSOEVER FOR OR AGAINST SMALL BUSINESS 
CORP. INCLUDING INTEREST, PENALTIES, FEES AND/OR OTHER 
SENTRAL NG PILIPINAS RULES; 
CHARGES IN ACCORDANCE TO ITS OWN BY-LAWS AND BANGKO 


D) FIX THE FEATURES OF NON-VOTING PREFERRED SHARES WHJCH 
SHALL BE PRINTED ON THE STOCK CERTIFICATES EVIDENCING 
THE SAME; 
E) EXERCISE ALL OTHER SUCH POWERS AS MAY BE NECESSARY OR 
INCIDENTAL TO CARRY our SMALL BUSINESS CORP. PURPOSES. 
SEC 13. Section 12 of Republic Act No. 6977, as amended, is hereby 
amended to read as follows: 
"SEC. 20. Capitalization and Funding of Small Business 
Corporation. - The [Small Business Guarantee and Finance] SMALL 
BUSINESS CORP. shall have an authorized capital stock of [Five] TEN 
billion pesos (P 10,000,000,000.00). The initial capital of One Billion 
Pesos (Pl,OOO,OOO,OOO.OO) shall be established from a pool of funds to be 
contributed in the form of equity investments in common stock by the Land 
Bank of the Philippines (LBP), the Philippine National Bank (PNB), the 
Development Bank of the Philippines (DBP) in the amount of Two hundred 
million pesos (P200,000,000.00) each. The Social Security System (SSS) 
and the Government Service Insurance System (GSIS) shall also set 
aside Two hundred million pesos (P200,000,000.00) each to be placed in 
preferred stocks of the SMALL BUSINESS CORP. [SBGFC] THE TEN 
BILLION PESOS AUTHORIZED CAPITAL 
STOCK 
OF 
SMALL 
BUSINESS CORP. SHALL BE DIVIDED INTO 80,000,000 COMMON 
SHARES AND 20,000,000 PREFERRED SHARES WITH A PAR VALUE 
OF ONE HUNDRED PESOS (P100.00) PER SHARE: PROVIDED, THAT 
THE COMMON SHARES WHICH HAVE BEEN ISSUED, INCL UDlNG 
THOSE ISSUED AGAINST THE ASSETS OF THE KKK GUARANTY 
FUND CONSOLIDATED UNDER THE SMALL BUSINESS CORP., BY 
VIRTUE OF EXECUTIVE ORDER NOS. 233, SERIES OF 2000, AND 19, 
SERIES OF 2001, AND INCLUDING THOSE ALREADY SUBSCRIBED, 
SHALL 
FORM 
PART 
OF 
THE 
CAPITALIZATION 
OF 
THE 
CORPORATION. PROVlDED FURTHER, THAT PREFERRED SHARES 
ALREADY ISSUED UNDER REPUBLIC ACT NO. 6977, AS AMENDED, 
SHALL BE CONVERTED INTO COMMON SHARES. Additional EQUITY 
funding shall come from trust placements of excess and unused funds of 
existing 
government agencies, bilateral and 
multilateral official 
development assistance funds, subscriptions from government owned or 
controlled corporations, and investments of private financial institutions 
and corporations, PROVIDED, THAT ANY INVESTMENT FROM THE 
PRIVATE SECTOR SHALL ONLY BE IN THE FORM OF PREFERRED 
SHARES. 
TO ALLOW FOR CAPITAL BUILD-UP, SMALL BUSINESS CORP. 
SHALL BE GIVEN A FIVE (5) YEAR GRACE PERIOD ON DIVIDEND 
COMMITMENTS BEGINNING ON THE DATE OF EFFECTIVITY OF 
THIS AMENDMENT. THEREAFTER, IT MAY ONLY DECLARE AS 
DIVIDEND NOT MORE THAN 30% OF ITS NET INCOME AND THE 
REST WITHHELD AS RETAINED EARNINGS. 
SEC. 14. There shall be incorporated new sections to read as follows: 
"SEC. 15. SOVEREIGN GUARANTEE FOR SMALL BUSINESS 
BY SMALL BUSINESS CORP. UNDER THE PROVISIONS OF THIS ACT 
CORP.. - THE PAYMENT OF GUARANTEE OBLIGATIONS INCURRED 


IS FULLY GUARANTEED BY THE GOVERNMENT OF THE REPUBLIC 
OF THE PHILIPPINES. 
"SEC. 16. ORGANIZATIONAL STRUCTURE. - THE BOARD OF 
DIRECTORS SHALL HAVE THE AUTHORITY TO PROVIDE FOR AN 
ORGANIZATIONAL STRUCTURE AND STAFFING PATTERN FOR 
OFFICERS AND EMPLOYEES OF SMALL BUSINESS CORP. AND 
UPON RECOMMENDATION OF ITS PRESIDENT, APPOINT AND FIX 
THEIR REMUNERATION7 EMOLUMENTS AND FRINGE BENEFITS 
AND RETIREMENT BENEFITS. 
ALL POSITIONS IN SMALL BUSINESS CORP. SHALL BE 
GOVERNED BY A COMPENSATION AND POSITION, CLASSIFICATION 
SYSTEM AND QUALIFICATION STANDARDS APPROVED BY THE 
BOARD OF DIRECTORS BASED ON A COMPREHENSIVE JOB 
ANALYSIS AND AUDIT OF ACTUAL DUTIES AND RESPONSIBILITIES. 
THE COMPENSATION PLAN, WHICH SHALL INCLUDE A PROVIDENT 
FUND, 
SHALL 
BE 
COMPARABLE 
WITH 
THE 
PREVAILING 
COMPENSATION PLANS OF OTHER GOVERNMENT FINANCIAL 
INSTITUTIONS AND SHALL BE SUBJECT TO PERIODIC REVIEW BY 
THE BOARD NO MORE THAN ONCE EVERY FOUR (4) YEARS 
WITHOUT PREJUDICE TO YEARLY MERIT REVIEWS OR INCREASES 
BASED ON PRODUCTIVITY AND PROFITABILITY. SMALL BUSINESS 
CORP. SHALL BE EXEMPT FROM EXISTING LAWS, RULES AND 
REGULATIONS ON COMPENSATION, POSITION CLASSIFICATION 
AND QUALIFICATION STANDARDS, 
"SEC. 17. LEGAL COUNSEL. NOTWITHSTANDING ANY LAW OR 
STATUTE TO THE CONTRARY, SMALL BUSINESS COW. SHALL 
HAVE ITS OWN LEGAL DEPARTMENT AND HIRE EXTERNAL 
COUNSELS FOR ALL ITS CASES PENDING BEFORE ANY COURT, 
TRIBUNAL, ADMINISTRATIVE BODY, OR ANY QUASI-JUDICIAL BODY, 
"SEC. 18. SMALL AND MEDlUlVl ENTERPRISE WEEK, - IN 
ORDER TO INSTITUTE CONTINUING AWARENESS OF THE PRIMACY 
EMPOWERMENT, AND TO CELEBRATE AND ESPOUSE THE FIRM 
COMMITMENT OF THE STATE IN THE PROMOTION, GROWTH AND 
DEVELOPMENT OF SMALL BUSINESS, THE SECOND WEEK OF 
MARCH OF EVERY YEAR SHALL BE DECLARED AS THE "SMALL AND 
MEDIUM ENTERPRISE DEVELOPMENT WEEK' THE SMED COUNCIL, 
THE DEPARTMENT OF TRADE AND INDUSTRY, AND THE SMALL 
BUSINESS COW. SHALL BE JOINTLY RESPONSIBLE IN ORGANIZING 
ACTIVITIES FOR THE EVENT. 
OF SMALL BUSINESS IN NATION-BUILDING AND IN PEOPLE 
"SEC. 19. PRESIDENTIAL AWARDS FOR OUTSTANDING 
CONSISTING OF REWARDS IN CASH OR IN KIND SHALL BE 
SME DEVELOPMENT WEEK. 
MSMES. - PRESIDENTIAL AWARDS FOR OUTSTANDING MSMES, 
GRANTED TO 100% FILIPINO-OWNED COMPANIES DURING THE 
SEC 15. Sections 13 and 14 of Republic Act No, 6977, as amended, are 
hereby renumbered as Sections 21 and 22, respectively, and amended further to 
read as follows: 


"SEC. 20. Mandatory Allocation of Credit Resources to Small AND 
MEDIUM Enterprises. - Fora period of ten (IO) years from the date of the 
effectivity of this Act, all lending institutions as defined under Bangko 
Sentral ng Pilipinas rules, whether public or private, shall set aside at least 
[six] EIGHT percent ([e] 8%) for small enterprises and at least two percent 
(2%) for [small and] medium enterprises, [respectively] of their total loan 
portfolio based on their balance sheet as of the end of the previous 
quarter, and make it available for [small and medium enterprises] SMEs 
credit as herein contemplated. 
COMPLIANCE OF THIS PROVISION SHALL BE: 
A) ACTUAL EXTENSION OF LOANS TO QUALIFIED AND REGISTERED 
ACCREDITED SMALL AND MEDIUM ENTERPRISES: OR 
B) ACTUAL SUBSCRIPTION OF PREFERRED SHARES OF STOCK OF 
SB CORPORATION 
The Bangko Sentral ng Pilipinas [, in consultation with the Council,] MAY 
PRESCRIBE ALTERNATIVE FORMS OF COMPLIANCE SUBJECT TO THE 
APPROVAL OF THE SMED COUNCIL. FURTHER, THE BANGKO 
SENTRAL NG PILIPINAS shall formulate rules for the effective 
implementation of this provision: Provided, That the purchase of government 
notes, securities and other negotiable instruments, with the exception of such 
instruments as may be offered by the SMALL BUSINESS CORP. [SBGFC] 
which do not pay market rates, shall not be deemed compliance with the 
foregoing provisions: Provided, further, That the Banko Sentral ng Pilipinas 
shall establish an incentive program to encourage lending to small and 
medium industries beyond the mandatory credit allocation to said enterprises, 
such as possible reduction in bank's reserve requirement. 
The SMED Council shall set up the appropriate systems to monitor all 
loan applications of [small and medium enterprises] SMEs in order to account 
for the absorptive capacity of the small and medium enterprise sector. 
The Bangko Sentral Ng Pilipinas shall [require lending institutions 
covered by this Act to] furnish to the [Small and Medium Development 
Council] SMED Council on a quarterly basis [regular] COMPREHENSWE 
reports [on their compliance with the above provisions on the mandatory 
credit allocation for small and medium enterprises and expeditiously act on 
the Council's reports of noncompliance therewith.] ON THE BANKS 
COMPLIANCE, NONCOMPLIANCE AND PENALTIES OF THE ABOVE 
PROVISIONS ON THE MANDATORY CREDIT ALLOCATION FOR SMEs. 
"SEC. 21. Penalty Clause. - The Bangko Sentral ng Pilipinas shall 
impose administrative sanctions and other penalties on the lending 
institutions for non-compliance with [provisions of the provision on Mandatory 
Allocation of Credit Resources [of not less than Five Hundred Thousand 
pesos (P500,OOO.OO) WHICH MAY BE IMPOSED BY THE MONETARY 
BOARD BUT IN NO CASE EXCEED THIRTY THOUSAND PESOS 
(PHP30.000.00) PER DAY FOR EACH VIOLATION. 


SEC 16. Sections 15, 16 and 17 of Republic Act No. 6977, as amended, 
are hereby renumbered as Sections 23, 24 and 25, respectively. 
SEC 17. Separability Clause. - The provisions of the Act are hereby 
declared to be separable. If any provision of 
this Act shall be held 
unconstitutional, the remainder of the Act not otherwise affected shall remain in 
full force and effect. 
SEC 18. Repealing Clause. - All laws, executive orders, rules and 
regulations, or parts thereof, inconsistent herewith are hereby repealed or 
modified accordingly. 
SEC 19. Effectivity Clause. - This Act shall take effect within fifteen (15) 
days from its publication in at least two (2) national newspapers of general 
circulation. 
Approved,