NINETEENTH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

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RecciVes

HOUSE OF REPRESENTATIVES

H.B.No. 2179

Introduced by Representative Ralph G. Recto

AN ACT
ENHANCING CREDIT SUPPORT TO MICRO, SMALL AND MEDIUM
ENTERPRISES, AMENDING FOR THE PURPOSE SECTION 15 OF REPUBLIC
ACT NO. 6977, AS AMENDED, OTHERWISE KNOWN AS THE “MAGNA CARTA
FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)”

EXPLANATORY NOTE

Republic Act (R.A.) No. 6977, otherwise known as the “Magna Carta for Small
Enterprises” was enacted on January 24, 1991. Section 13 of the said law mandated
that the portion to be set aside for small enterprises shall at least be, five percent
(5%) by the end of the first year of its the effectivity, ten percent (10%) by the end
of the second year through the end of the fifth year, and five percent (5%) by the
end of sixth year and may come down to zero by the end of the seventh year.

On May 23, 2008, Republic Act No. 9501 otherwise known as the "Magna Carta
for Micro, Small and Medium Enterprises (MSMEs)” was enacted, amending Section
13 of R.A. No. 6977. The abovementioned Section 13 was renumbered as Section
15. It mandated that for the period of ten (10) years from the date of the effectivity
of the amendatory Act, all lending institutions as defined under Bangko Sentral ng
Pilipinas rules, whether public or private, shall set aside at least eight percent (8%)
for micro and small enterprises and at least two percent (2%) for medium enterprises
of their total loan portfolio based on their balance sheet as of the end of the previous
quarter.


Consequently, Section 15 of R.A. 6977, as amended by R.A. 9501, expired in
2018. Despite this, lending institutions continue to report their compliance to the said
provision. In a data released by the Bangko Sentral ng Pilipinas, the total compliance
in the second quarter of 2021 for micro and small enterprises amounted to P176.5
billion or 2.1 percent of lending institutions’ total loan portfolio, for medium
enterprises, P278.3 billion or 3.3 percent.

It is more imperative now that our country is starting to bounce back from the
COVID-19 recession to increase the mandatory allocation of credit resources to micro,
small and medium enterprises (MSMEs). It will benefit the 952,969 MSMEs which are
operating in the country. Of the total 957,620 business enterprises in the country,
99.51% of them are MSMEs.

It is in this light that this bill seeks to reinstate the legal mandate of continually
compelling all lending institutions to allocate a certain portion of their credit resources
for MSMEs. This bill intends that all lending institutions shall set aside at least ten
percent (10%) for micro, small and medium enterprises of their total loan portfolio
based on their balance sheet as of the end of the previous quarter. This bill also limits
compliance to the mandatory allocation of credit to MSMEs only to the actual extension
of loans to eligible MSMEs. In effect, it removes all alternative compliance to this
provision, thereby allowing MSMEs to fully benefit from the available credit resources.
Moreover, the bill seeks to grant tax incentives to lending institutions by exempting
them from the payment of gross receipts tax on interests, commissions, discounts and
all other items treated as gross income from the loans granted to MSMEs.

In view of the foregoing, the approval of this bill is earnestly sought.

Sjiao



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NINETEENTH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

HOUSE OF REPRESENTATIVES

2179

H. B. No.

Introduced by Representative Ralph G. Recto

AN ACT
ENHANCING CREDIT SUPPORT TO MICRO, SMALL AND MEDIUM
ENTERPRISES, AMENDING FOR THE PURPOSE SECTION 15 OF REPUBLIC
ACT NO, 6977, AS AMENDED, OTHERWISE KNOWN AS THE “MAGNA CARTA
FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)”

Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled:
Section 1. Section 15 of Republic Act No. 6977, as amended, is hereby further
amended to read as follows:
"SEC. 15. Mandatory Allocation of Credit Resources to Micro, Small
and Medium Enterprises. — [Fer-the-peried-ef ten{i0}-years from the-date

of the-effeetivity-of this-emendatery-Act,] [a]All lending institutions as
defined under Bangko Sentral ng Pilipinas rules, whether public or private,

shall set aside at least [eight] TEN percent [(8%}] (10%) for micro, [and]
small AND MEDIUM enterprises [and-at-teast_twe—percent-(2%) for
sedium-enterprises] of their total loan portfolio based on their balance
sheet as of the end of the previous quarter, and make it available for MSME

credit as herein contemplated.
"Compliance of this provision shall be[:] THE ACTUAL EXTENSION OF
LOANS TO ELIGIBLE MSMEs.
[’a}-actualextension of loans-te eligible MSMES:-0F



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"The Bangko Sentral ng Pilipinas shall formulate rules for the effective

implementation of this provision[:]. [Arevided—Fhatthe—purchase—of

i it 2] Provided, [further}
That the Bangko Sentral ng Pilipinas shall establish an incentive program to
encourage lending to micro, small and medium industries beyond the
mandatory credit allocation to said enterprises, such as possible reduction
in bank's reserve requirement[:]: PROVIDED, FURTHER, THAT
LENDING INSTITUTIONS SHALL BE EXEMPT FROM THE PAYMENT
OF GROSS RECEIPTS TAX IMPOSED UNDER SECTIONS 121 AND
122 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS
AMENDED, ON INTERESTS, COMMISSIONS, DISCOUNTS AND ALL
OTHER ITEMS TREATED AS GROSS INCOME FROM LOANS
GRANTED TO MSMEs IN COMPLIANCE WITH THE PROVISION OF
THIS SECTION.

"The MSMED Council shall set up the appropriate systems to monitor all
loan applications of MSMSEs in order to account for the absorptive capacity
of the MSME sector.

"The Bangko Sentral ng Pilipinas shall furnish to the MSMED Council on a
quarterly basis comprehensive reports on the banks’ compliance,
noncompliance and penalties of the above provisions on the mandatory
credit allocation for MSMEs.

"Lending institutions which are not qualified to acquire or hold lands of the
public domain in the Philippines shall be permitted to bid and take part in
sales of mortgaged real property in case of judicial or extra-judicial

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foreclosure, as well as avail of receivership, enforcement and other
proceedings, solely upon default of a borrower, and for a period not
exceeding five (5) years from actual possession: Provided, That in no event
shall title to the property be transferred to such lending institution. If the
lending institution is the winning bidder, it may, during said five (5) year
period, transfer its rights to a qualified Philippine national, without prejudice
to a borrower's right under applicable laws."

Sec. 2. Implementing Rules and Regulations. — Within ninety (90) days
from the effectivity of this Act, the Micro, Small and Medium Enterprises
Development (MSMED) Council, the Bangko Sentral ng Pilipinas and the
Department of Finance shall promulgate the necessary rules and regulations for
its effective implementation.

Sec. 3. 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 thereby shall remain in full force and
effect.

Sec. 4. Repealing Clause.- All laws, executive orders, rules and
regulations, or parts thereof, inconsistent herewith are hereby repealed,
amended or modified accordingly.

Sec. 5. Effectivity Clause. - This Act shall take effect within fifteen (15)
days from its publication in at least two (2) national newspaper of general
circulation or in the Official Gazette.

Approved,