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‘SEVENTEENTH CONGRESS
REPUBLIC OF THE PHILIPPINES }
First Regular Session

House Bill No,

4498

EXPLANATORY NOTE

The Magna Carta for MSMEs first enacted as Republic Act 6977 in 1991, and amended by
Republic Act 8289 in 1997 and further amended by Republic Act 9501 in 2008, draws the
current national policy to promote, support, strengthen and encourage the growth and
development of MSMES.

The Duterte Administration puts a high priority on the development of micro, small and
medium enterprises (MSMEs) as the country’s economic backbone and an important means
of equitable distribution of the benefits of growth

The MSME Sector accounts for 62.8% of total jobs generated by all types of business
establishment in 2014. Of the total number of MSMEs, 90.3% are micro enterprises, 9.3%
are small enterprises and 0.4% are medium enterprises.

But despite its importance to the economy, lack of access to financing and related forms of
support continue to be a major handicap to the country's MSMEs.

The strengthening of the Magna Carta for MSMEs is a necessary policy response to this
need, Thus, the proposed amendments to the Magna Carta for MSMEs as offered in this bill
addresses the following

+ extension of mandatory lending provisions to MSMEs for another 10 years
without further extension, and providing for the rules of compliance thereof:

+ Capitalization of SB Corporation and strengthening of its guarantee program; and

+ providing for bankruptcy preventive measures in the form of an enterprise

rehabilitation fund for enterprises affected by disasters and other crisis,
With this proposed legislation, it is expected that the benefits of an expanded Magna Carta
for MSME would significantly impact the sector in line with the economic and societal
priorities and strategies of the administration, and commensurate with the importance of the
Philippine MSME sector.

In view of the foregoing, immediate approval of this bill is earnestly requested

hf.

MAXIMO B. RODRIGUEZ, JR.



SEVENTEENTH CONGRESS
REPUBLIC OF THE PHILIPPINES }
First Regular Session

HOUSE OF REPRESENTATIVES

Introduced by Representative Maximo B. Rodriguez, Jr.

“4498

House Bill No.

AN ACT
TO FURTHER PROMOTE ENTREPRENEURSHIP BY STRENGTHENING, EMPOWERING
AND ENHANCING THE FINANCING PROGRAMS FOR MICRO, SMALL AND MEDIUM
ENTERPRISES, AMENDING FOR THE PURPOSE OF REPUBLIC ACT NO. 6977, AS
AMENDED, OTHERWISE KNOWN AS THE MAGNA CARTA FOR SMALL
ENTERPRISES” AND FOR OTHER PURPOSES

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, as amended, is hereby further amended to
read as follows:

“SECTION 1. Title. — This Act shall be known as the Magna Carta for

Micro, Small and Medium Enterprises (MSMEs)"

SEC 2. Section 2 of the same Act is hereby amended to read as follows:

“SEC. 2. Declaration of Policy, — Recognizing that MSMEs 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 MSMEs in all
productive sectors of the economy particularly rural/agri-based
enterprises. To this end, the State shall recognize the specific needs of
the MSMEs and shall undertake to promote entrepreneurship, support
entrepreneurs, encourage the establishment of MSMEs and ensure their
continuing viability and growth and thereby attain countryside
industrialization by:

a, intensifying and expanding programs for training in
entrepreneurship and for skills development for labor;

b. facilitating their access to sources of funds;

¢. assuring to them access to a fair share of government contracts
and related incentives and preferences;

d. complementing and supplementing financing programs for
MSMEs and doing away with stringent and burdensome collateral
requirements that small entrepreneurs invariably find extreme
difficulty complying with;

€. instituting safeguards for the protection and stability of the credit
delivery system:

f, raising goverment efficiency and effectiveness in providing
assistance to MSMEs throughout the country, at the least cost;

. promoting linkages between large and small enterprises, and by
encouraging the establishment of common service facilities

h. making the private sector a partner in the task of building up
MSMEs through the promotion and participation of private


voluntary organizations, viable industry associations, and
cooperatives; and

i. 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 MSMEs.”

SEC 3. Section 3 of the same Act, as amended, is hereby further amended to read as
follows:

“SEC. 3. Micro, Small and Medium Enterprises (MSMEs) as

Beneficiaries. — MSMEs shall be defined as any business activity or

enterprise engaged in industry, agribusiness andor 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, not more than P3,000,000
small 3,000,001 - P 15,000,000
medium. P 15,000,001 - P100,000,000

“The above definitions shall be subject to review and adjustment by the
Micro, Small and Medium Enterprises Development (MSMED) Council
under Section 6 of this Act or upon recommendation of sectoral
organizations concerned, taking into account inflation and other economic
indicators. The Council may use other variables such as number of
employees, equity capital and assets size.

“The Council shall ensure that notwithstanding the plans and programs
set for MSMEs as a whole, there shall be set and implemented other
plans and programs varied and distinct from each other, according to the
specific needs of each sector, encouraging MSMEs to graduate from one
category to the next or even higher category.”

SEC 4. Section 4 of the same Act, as amended, is hereby further amended to read as
follows:
“SEC. 4. Eligibility for Government Assistance. — To qualify for
assistance, counseling, incentives and promotion under this Act,
businesses 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
as defined herein, registration with the office of the municipal or
city treasurer shall be deemed sufficient compliance with this
requirement;

b. one hundred percent (100%) owned, capitalized by Filipino
citizens, whether single proprietorship or partnership. 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, trade, 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, and/or
production of agricultural produce; and

d. it must not be a branch, subsidiary or division of a large scale
enterprise.


“However, this requirement shall not preclude MSMEs from accepting
subcontracts and entering into franchise partnership with large
enterprises or from joining in cooperative activities with other MSMEs.

“Programs of the Small Business Corporation (SB Corporation) as
provided in subsequent provisions of this Act shall be exclusively
delivered and directed to bonafide MSMEs.

“Any MSME, its directors, officers or agents, found to have committed
fraud or misrepresentation for the purpose of availing the benefits under
this Act shall be immediately disqualified as a beneficiary, without
prejudice to any administrative, criminal or civil liability under existing
laws

“Eligible MSMEs 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

“The Department of Budget and Management shall FORMULATE RULES
FOR THE EFFECTIVE IMPLEMENTATION OF THIS PROVISION AND
monitor the compliance of government agencies on the required
procurement for MSMEs and submit its report to the MSMED Council on
@ semestral basis and to the Congress of the Philippines, through its
appropriate committees on a yearly basis.”

SEC 5. Section 5 of the same Act, as amended, is hereby further amended to read as
follows
“SEC. 5. Guiding Principles. — To set the pace for MSME development,
the State shall be guided by the following principles: i
“XXX.

“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, Environ-ment
and Natural Resources, Labor and Employment, Trans-portation 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 pro-
Vincial offices shall, to the best of their efforts and in coordi-nation with
local government units, provide the necessary support and assistance to
MSMEs

"XXX."

SEC 6. A new section, numbered Section 6 is hereby Inserted after Section 5 of the same
Act, to read as follows:
“SEC. 6. Micro, Small and Medium Enterprises Development Plan
(MSMEDP). — The President shall approve a six-year micro, small and
medium enterprises development plan prepared by the Department of
Trade and Industry (DT!) which shall form part of the [Medium Term]
Philippine Development Plan ([MTJPDP) , It shall be formulated in
consultation with the private sector, validated and updated semestrally.
Such plan shall include a component on a micro credit financing scheme.”


SEC 7. Section 6 of the same Act is hereby renumbered as Section 7 and further amended

to read as follows:
“SEC. 7, Micro, Small and Medium Enterprise Development (MSMED)
Council. — The existing Small and Medium Enterprise Development
Council, which was created by Republic Act No. 6977, as amended by
Republic Act No. 8289 AND BY REPUBLIC ACT NO. 9501, AND
FURTHER AMENDED BY REPUBLIC ACT NO. 10644, shall be
strengthened to effectively spur the growth and development of MSMEs
throughout the country, and to carry out the policy declared in this Act and
shall now be known as the Micro, Small and Medium Enterprise
Development (MSMED) Council, 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.”

xxx"

SEC 8. Section 7 of the same Act, as amended, is hereby renumbered as Section 7-A and
further amended to read as follows:
“SEC. 7- A. 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 Council meetings in the
absence of the Chairman. The members shall be the following
a. THE SECRETARY OF TRADE AND INDUSTRY
b. THE SECRETARY OF AGRICULTURE;
c. THE SECRETARY OF INTERIOR AND LOCAL GOVERNMENT;
d. THREE (3) REPRESENTATIVES FROM THE MSME SECTOR
TO REPRESENT LUZON, VISAYAS AND MINDANAO, WITH AT
LEAST ONE (1) REPRESENTATIVE FROM THE
MICROENTERPRISE SECTOR;
e. “ONE (1) REPRESENTATIVE FROM THE WOMEN SECTOR,
DESIGNATED BY THE PHILIPPINE COMMISSION ON WOMEN:
f, ONE REPRESENTATIVE FROM THE YOUTH SECTOR
DESIGNATED BY THE NATIONAL YOUTH COMMISSION ; AND
g. THE CHAIRMAN OF SMALL BUSINESS CORPORATION

ADVISORY UNIT.- THERE SHALL BE AN ADVISORY UNIT TO

ohe COUNCIL, WHICH SHALL CONSIST OF THE FOLLOWING:

(A) THE SECRETARY OF SCIENCE AND TECHNOLOGY,

(B) THE GOVERNOR OF THE BANGKO SENTRAL NG
PILIPINAS:

(C) THE PRESIDENT OF THE LAND BANK OF THE
PHILIPPINES;

(D) THE PRESIDENT OF THE DEVELOPMENT BANK OF
THE PHILIPPINES;

(E) THE DIRECTOR GENERAL OF THE NATIONAL
ECONOMIC AND DEVELOPMENT AUTHORITY

(F) ONE (1) REPRESENTATIVE FROM THE LABOR
SECTOR TO BE NOMINATED BY ACCREDITED LABOR
GROUPS;

(G) A REPRESENTATIVE FROM THE PRIVATE BANKING
SECTOR TO SERVE ALTERNATIVELY BETWEEN THE
CHAMBER OF THRIFT BANKS AND THE RURAL
BANKER'S ASSOCIATION OF THE PHILIPPINES
(RBAP);

(H) A REPRESENTATIVE OF THE MICROFINANCE NON-
GOVERNMENT ORGANIZATIONS (NGOS)


() A REPRESENTATIVE OF THE UNIVERSITY OF THE
PHILIPPINES- INSTITUTE FOR SMALL SCALE
INDUSTRIES (UP-ISSI); AND.

(J) THE PRESIDENT OF THE CREDIT INFORMATION
CORPORATION

THE MSMED COUNCIL MAY CONSULT THE ADVISORY UNIT IN ITS
REGULAR MEETINGS AND OTHER ACTIVITIES OF THE COUNCIL,
HOWVER, NO VOTING RIGHTS SHALL BE GRANTED TO THE
MEMBERS OF THE ADVISORY UNIT.

“All members of the Council so appointed, except for the ex officio
members, shall serve for a term of three (3) years. 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

“The private sector members of the Council shall receive per diem of Two
thousand pesos (P2,000) per meeting, for a maximum of twenty -four (24)
meetings per year, which per diem may be adjusted by the MSMED
Council as appropriate.

The Council may call upon the participation of any national or local
government agency, association of local government officials or private
sector organization in its deliberations especially when such agency or
private sector organization is directly or indirectly concerned with and/or
affecting the growth and development of 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 9, Section 8 of the same Act, as amended, is hereby renumbered as Section 7-B and
further amended to read as follows’

“SEC. 7-B, Powers and Functions. — The MSMED 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 MSME sector;

b, To recommend to the President and the Congress all policy
matters affecting MSMEs:

¢. To coordinate and integrate various government and private
sector activities relating to MSME development;

d. To review existing policies of government agencies that would
affect the growth and development of MSMEs and recommend
changes to the President and Congress through the Committee on
Economic Affairs of the Senate and the Committee on Small
Business and Entrepreneurship Development of the House of
Representatives, whenever deemed necessary. This shall include
efforts to simplify rules and regulations, as well as review of the
applicability and relevance of procedural and documentary
requirements in the registration, financing, and other activities


relevant to MSMEs the result shall be included in the annual
report to be submitted to Congress;

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 Interior and Local Government as well as private
sector groups/associations, the development among MSMEs:

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;

To provide the appropriate policy and coordinative framework in
assisting relevant government agencies, in coordination with the
NEDA and the Coordinating Council for the Philippine Assistance
Program, as may be necessary, in the tapping of local and foreign
funds for MSME development;

To promote the productivity and viability of MSMEs by way of
directing and/or 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 MSMEs;

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;

6 Provision of assistance in marketing and
distribution of products of MSMEs 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
modes 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


8 Provision of bankruptcy 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 entrepreneurship education activities;
10. Availment of and easier access to tax credits and

other tax and duty incentives as provided by the Omnibus
investment Code and other laws;

"1 Provision of support for product experimentation
and research and development activities as well as access
to information on commercialized technologies; and

12, Through appropriate government agencies

a, Provide more infrastructure facilities and public
utilities to support operations of MSMEs:

b. Establish, operate, and administer a small
business incubation program in coordination
with academic institutions, Department of
Science and Technology and other appropriate
government entities that will
provide space for start-up and expanding firms,
shared use of equipment and work areas, daily
management support services essential to high-
quality commercial operations, _ technical
assistance and other services to develop
innovative and deserving MSMEs;

¢. Conduct a nationwide information campaign
with the Philippine Information Agency that shall
inform the public of all programs and services,
government and non-government, available to
MSMEs;

d. Provide local and international network and
linkages for MSME development

e. Compile and integrate statistical databank on
Philippine MSMEs,

f, Setup new MSME centers and revitalize
already established MSME centers to provide
MSMEs in the regions easier access to services
such as, but not limited to, the following

i. Accept and act on all registration
applications of MSMEs;

ii, Streamline registration process
and facilitate speedy registration
for the establishment of business
enterprises in the country;

ili, Provide all information and
referral services it shall deem
necessary or essential to the
development and promotion of
MSMEs;

iv, Conduct other programs or
projects for entrepreneurial
development in their respective
areas, and


v. Provide courses and
development programs, training,
advice, consultation on business
conceptualization and feasibility,
financing, management, capacity
building, human resources,
marketing, and such other
services to support the needs of
MSMEs.

g. To submit to the President and the Congress
through the Oversight Committee as defined under
this Act, a yearly report on the status of MSMEs in
the country, including the progress and impact of all
relevant government policies, programs and
legislation as well as private sector activities;

h. To coordinate, monitor and assess the
implementation of the MSMEDP, and when
necessary, institute appropriate _ adjustments
thereon in the light of changing conditions in both
domestic and international environment; and

i, Generally, to exercise all powers and functions
necessary for the objectives and purposes of this
Act.”

SEC 10. Section 9 of the same Act, as amended, is hereby renumbered as Section 8 and
amended to read as follows

“SEC. 8. Designation of the Bureau of Micro, Small and Medium

Enterprise Development as Council Secretariat. — The Bureau of Small

and Medium Business Development (BSMBD) hereinafter referred to as

the Bureau of Micro, Small and Medium Enterprise Development

(BMSMED) is hereby designated to act as the Council Secretariat and

shall have the following duties and functions:

sae

SEC 11. A new section is hereby inserted after Section 9 of the same Act, as amended, and
numbered as Section 9 to read as follows:
‘SEC. 9. Appropriations. — To finance its activities and operational
expenses, the Council shall have a separate annual appropriation
approved by the Department of Trade and Industry (DTI) which shall be
provided in the General Appropriations Act starting in the fiscal year
immediately following the approval of this Act. The Council may also
accept contributions from the private sector,”

SEC 12. Section 10 of the same Act, as amended, is hereby further amended to read as
follows

“SEC. 10. Rationalization of Existing MSME Programs and Agencies. -

The MSMED Council shall conduct continuing review of government

programs for MSMEs and submit to Congress and the President a report

thereon together with its policy recommendations.”

SEC 13. Section 11 of the same Act, 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
the Small Business Guarantee and Finance Corporation, hereinafter


referred to as the Small Business Corporation (SB Corporation), which
shall be charged with the primary responsibility of implementing
comprehensive policies and programs to assist MSMEs in all areas,
including but not limited to finance and information services, training and
marketing,”

SEC 14. A new sub-section is inserted after Section 11 of the same Act, as amended, to
read as follows:
“SEC. 11-A. Composition of the Board of Directors and its Powers, — The
SB Corporation corporate powers shall be vested on a Board of 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
upon the recommendation of the MSMED Council;

d. Seven (7) representatives of the SB Corporation common stock
shareholders who shall be elected based on proportional
distribution, in accordance with Section 24 of the Corporation
Code; and

e. The president of the SB Corporation as ex-officio member and to
serve as vice chairman of the Board.

“The President shall appoint the chairman of the Board from among its
members.

“All members of the Board so appointed, except for the ex-officio
members, shall serve for a term of three (3) years without reappointment
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.

“The Board of Directors shall have, among others, the following specific
powers and authorities:

a. Formulate policies necessary to carry out effectively the provisions
of this charter and to prescribe, amend and repeal by-laws, rules
and regulations for the effective operations of the small business
corporation:

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 the SB Corporation, including interest,
penalties, fees andior other charges in accordance to its own
bylaws and Bangko Sentral ng Pilipinas rules:

d. Fix the features of non-voting preferred shares which shall be
printed on the stock certificates evidencing the same;

e. Exercise all such other powers as may be necessary or incidental
to carry out the SB Corporation's purposes; and

f. The Board OF DIRECTORS OF SB CORPORATION shall have
the authority to provide for the organizational structure and staffing
pattem AND COMPENSATION OF EMPLOYEES AND
PERSONNEL OF SB CORPORATION.

SEC 15. A new sub-section is hereby inserted after Section 11-A of the same Act, as
amended, to read as follows:


“SEC. 11-8. Corporate Structure and Powers. — The SB Corporation
shall

a. be administratively attached to the Department of Trade and
Industry and shall be under the policy and program supervision of
the MSMED Couneil;

b. have its principal offices in Metro Manila and whenever necessary,
establish branch office in the province; and

©. exercise all the general powers expressly conferred by law upon
corporations under the Corporation Code, including those powers
that are incidental or necessary to the attainment of the objective
of this Act

“For this purpose, the SB Corporation shall have the following functions
and duties

a, Source and adopt development initiatives for globally competitive
MSMES in finance and business technologies;

b. To extend all forms of financial assistance to eligible MSMEs.

¢, Guarantee loans obtained by qualified MSMEs under such terms
and conditions adopted by the SB Corporation Board of Directors,
AS WELL AS ESTABLISH A GUARANTEE SYSTEM FOR
DISTRESSED ENTERPRISES AS INSURANCE AGAINST
EXTRAORDINARY DISASTERS;

d. Hold, purchase, lease or otherwise acquire and own real and
personal property, introduce necessary Improvements thereon
and to sell, mortgage, encumber or otherwise dispose of the same
as may be necessary in the normal course of business;

e. Formulate means and methods of accepting alternative collaterals
and implementing alternative loan evaluation models;

f. Apply for, receive and accept grants and donations from sources
within and outside the country;

g. Hold, own, purchase, acquire, sell, mortgage, dispose or
otherwise invest or re-invest in stocks, bonds, treasury bills,
debentures, securities and similar forms of indebtedness of
the government, its agency and instrumentaliies or any
government financial institution,” and

h. SUBMIT AN ACCOUNTABLE REPORT REGULARLY TO THE
MSMED COUNCIL ON THE FINANCIAL CONDITION AND
PERFORMANCE OF THE CORPORATION

SEC 16. A new section is hereby inserted after section 11-B of the same Act as amended,
and renumbered as Section 11-C and read as follows:
SEC 11-C ~ THE BOARD OF THE CORPORATION THROUGH ITS
CHAIRMAN SHALL BE FULLY RESPONSIBLE AND ACCOUNTABLE
FOR THE PERFORMANCE OF THE
CORPORATE'S MANDATE. TO ENSURE THIS, THE BOARD SHALL
BE CONSTITUTED AS A MANAGING BOARD THAT WILL
CONCEPTUALIZE THE STRATEGIC PLANS AND POLICIES OF THE
CORPORATION AS LEAD BY ITS CHAIRMAN.

SB CORPORATION SHALL ADOPT A BALANCED SCORECARD
APPROACH, SUBJECT TO THE REVIEW AND APPROVAL OF THE
GOVERNANCE COMMISSION FOR GOCCs, IN ITS STRATEGIC
MANAGEMENT TO ENABLE THEM TO MANAGE THEIR FINANCIAL
PERFORMANCE WHILE PURSUING THEIR PUBLIC POLICY
OBJECTIVES OF SUPPORTING MICRO, SMALL AND MEDIUM
ENTERPRISES DEVELOPMENT.


SEC 17. Section 12 of the same Act, as amended, is hereby further amended to read as
follows:

"SEC, 12. Capitalization and Funding of the SB Corporation. — The SB
Corporation shall have an authorized capital stock of Ten billion pesos
(P10,000,000,000.00). The initial capital of One billion pesos
(P1,000,000,000.00) 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 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 for the SB Corporation
Authorized capital stock of the Small Business Corporation 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, including those issued
against the assets of the KKK Guaranty Fund consolidated under the
‘small business corporation by virtue of Executive Order No. 233, Series
of 2000 and Executive Order No. 19, Series of 2001 and including those
already subscribed, shall form part of the capitalization of the corporation:
Provided, further, That holders of preferred shares issued under Republic
Act No. 6977, as amended, shall have the option to convert the same into
common shares. Additional equity funding shall come from trust
placements of excess and unused funds of existing government
agencies, bilateral and multilateral official assistance funds of existing
subscriptions from government owned or controlled corporations, THE
NATIONAL GOVERNMENT THROUGH THE DEPARTMENT OF
BUDGET AND MANAGEMENT (DBM), and investments of private
financial institutions and corporations: Provided, finally, That any
investment from the private sector shall only be in the form of preferred
shares.

THE NATIONAL GOVERNMENT THROUGH THE DBM SHALL
PROVIDE ADDITIONAL PAID-IN-CAPITAL TO SB CORPORATION IN
THE AMOUNT OF AT LEAST THREE BILLION PESOS
(P3,000,000,000.00) WITHIN ONE YEAR AFTER THE ENACTMENT OF
THIS ACT AND ADDITIONAL EQUITIES OF ONE BILLION PESOS
(P1,000,000,000.00) A YEAR THEREAFTER FOR THE NEXT THREE
(3) YEARS.

THE NATIONAL GOVERNMENT SHALL PROVIDE AN ANNUAL
APPROPRIATION OF TWO BILLION PESOS (P2,000,000,000.00) TO
SET UP A GUARANTEE FUND AS A MECHANISM FOR BANKRUPTCY
PREVENTIVE MEASURES AND MUTUAL RELIEF SYSTEM FOR
DITRESSED ENTERPRISES, — AS INSURANCE —_ AGAINST
EXTRAORDINARY DISASTERS PURSUANT TO PARAGRAPH (8),
SUBJECT TO SB CORPORATION'S FORMULATION OF THE
IMPLEMENTING RULES THEREOF FOR THE UTILIZATION OF THE
GUARANTEE FUND AND APPROVAL THEREOF OF THE MSMED
COUNCIL,

THE BOARD OF DIRECTORS OF THE SB CORPORATION, WITH
THE ENDORESEMENT OF THE SECRETARY OF TRADE AND
INDUSTRY, MAY RECOMMEND AN INCREASE ON THE AUTHORIZED


CAPITAL STOCK AND/OR ADDITIONAL FUNDING WHICH MAY BE
INCLUDED IN THE GENERAL APPROPRIATIONS ACT.

FINALLY, THE NATIONAL GOVERNMENT THROUGH DBM, SHALL
PROVIDE FOR THE FULL CAPITALIZATION OF THE SB
CORPORATION OF TEN BILLION PESOS (P10,000,000,000,.00)
WITHIN THE NEXT FIVE (5) YEARS AS PART OF THE NATIONAL
STRATEGY FOR INCLUSIVE FINANCING, AND TO RECOMMEND
LEGISLATION THAT WILL FURTHER ENHANCE THE
CAPITALIZATION OF SB CORPORATION

“To allow for capital build-up, SB Corporation 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 thirty percent (30%) of its net income and the rest withheld as
retained earnings.”

SEC 18. A new Section 13 is hereby inserted to read as follows:
“SEC. 13. Venture Capital and Micro Finance Trust Fund. —

The SB Corporation may set aside an amount of money to encourage the
setting up of a venture capital and micro finance trust fund for the purpose
of promoting business opportunities available to MSME sector. The
Venture Capital Fund shall be used mainly for venture capital finance
especially in technology-oriented industries. The micro finance trust fund
shall be used to provide collateral-free fixed and working capital loans to
micro and small enterprises run by those emerging out of poverty. A
SEED AMOUNT OF FIVE HUNDRED MILLION (P500,000,000.00)
SHALL BE APPROPRIATED IN THE NATIONAL BUDGET UNDER THE
GENERAL APPROPRIATIONS ACT FOR THIS PURPOSE.”

IN ADDITION. THE NATIONAL GOVERNMENT AND THE
DEPARTMENT OF BUDGET AND MANAGEMENT (DBM) SHALL
ALLOCATE AT LEAST TWENTY PERCENT (20%) OF THE
CONDITIONAL CASH TRANSFER (CCT) BUDGET FOR THE YEAR TO
BE USED AS THE LIVELIHOOD COMPONENT OF THE FUND TO
HELP MSMEs IMPROVE THEIR BUSINESS AS WELL AS CURRENT
CCT BENEFICIARIES;

PROVIDED THAT THE LIVELIHOOD COMPONENT OF THE CCT CAN
GENERATE JOBS AND SUSTAINABLE INCOME FOR HEALTH,
EDUCATION AND OTHER NEEDS OF BOTH THE MSMEs AND CCT
BENEFICIARIES;

HOWEVER, THE SAID LIVELIHOOD COMPONENT SHALL BE
CONSIDERED AS AN “EMERGENCY LOAN" AND SHALL BE USED.
FOR ADDITIONAL MSME CAPITALIZATION, TRAINING AND
CAPACITY BUILDING, RESEARCH AND DEVELOPMENT,
TECHNOLOGY, MACHINERY AND EQUIPMENT UPGRADING, AND
MARKETING AND PROMOTION;

FURTHER, THE SAID LIVELIHOOD COMPONENT OF THE CCT SHALL.
BE IMPLEMENTED FROM A MODEL THAT GOES BEYOND
TRADITIONAL BANK LENDING (‘OUT-OF-THE-BOX) TO PROVIDE
APPROPRIATE FINANCING OPPORTUNITIES FOR


MSMES THAT SUIT THEIR NEEDS AND STAGES OF BUSINESS
GROWTH. THE PROGRAM SHALL ALSO BE OPEN TO CCT-FAMILY
BENEFICIARIES WHO WANT TO BECOME ENTREPRENEURS AND
OPERATE THEIR OWN BUSINESSES;

FOR THIS PURPOSE, SB CORPORATION SHALL IMPLEMENT THE
LIVELIHOOD COMPONENT OF THE CCT AND SHALL:
A) DESIGN A PROGRAM WITH LOWER INTEREST RATES,
DIRECT PAYMENT SCHEME, AND WHERE TRACK RECORD,
COLLATERAL AND DOCUMENTARY REQUIREMENTS ARE
WAIVED OR LIMITED TO A MINIMUM;
B) ESTABLISH A SYSTEM FOR CREDIT WORTHINESS
WHERE DEFAULTING MSMEs MAYBE BLACKLISTED;
Cc) CONTINUOUSLY IMPROVE THEIR PRODUCTS AND
SERVICES TO ADDRESS VARIOUS MSME NEEDS; AND
D) DESIGN A PROGRAM FOR CCT-FAMILY
BENEFICIARIES WHO WANT TO OPEN THEIR OWN
BUSINESS WITH MINIMUM REQUIREMENTS.

SEC 19. Section 13 of the same Act, as amended, is hereby renumbered as Section 14, and

further amended to read as follows:
“SEC. 14. Mandatory Allocation of Credit Resources to Micro, Small and
Medium Enterprises. —All lending institutions as defined under Bangko
Sentral ng Pilipinas rules, whether public or private, shall set aside at
least TEN PERCENT (10%) for micro and small AND MEDIUM
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, PROVIDED THAT NO MORE THAN TWO
PERCENT (2%) OF THE TEN PERCENT (10%) SHALL BE MADE
AVAILABLE TO MEDIUM ENTERPRISES, PROVIDED THAT THE
FOREGOING PROVISIONS ON THE MANDATORY ALLOCATION OF
CREDIT SHALL BE FOR A PERIOD OF TEN (10) YEARS FROM THE
PASSAGE OF THIS ACT.

“Compliance of this provision shall be

a, actual extension of loans to eligible MSMEs; or

b, actual subscription of preferred shares of stock of the SB
Corporation; or

c. wholesale lending to Participating Financial Institutions (PFIS)
for on-lending to MSMEs;

d, purchase/discount of MSMEs receivables;

@. loans granted to export, import, and domestic traders subject
to compliance with Section 3 of this Act; or

f. subscribe/purchase of liability instruments as may be offered
by the SB Corporation.

“The Bangko Sentral ng Pilipinas , IN CONSULTATION WITH THE SB
CORPORATION AND SUBJECT TO THE APPROVAL OF THE
SECRETARY OF TRADE AND INDUSTRY, shall formulate rules for the
effective implementation of this provision: Provided, That the purchase of
government notes, securities and other negotiable instruments shall not
be deemed compliance with the foregoing provisions: Provided, further,
That the Bangko Sentral ng Pilipinas, IN CONSULTATION WITH ALL
STAKEHOLDERS shall establish A MEANINGFUL incentive SYSTEM to
encourage COMPLIANCE WITH THESE PROVISIONS such as possible


reduction in bank's reserve requirement, PROVIDED FINALLY THAT
THE BSP SHALL ALIGN ITS REGULATIONS ON THE PENALTIES FOR
BANKS AND OTHER ENTITIES, FOR NON COMPLIANCE ON THE
PROVISION FOR MANDATORY LENDING, SUCH THAT THE MINIMUM
PENALTY FOR NON COMPLIANCE IS SET AT FIVE HUNDRED
THOUSAND PESOS (500,000.00) AND MAXIMUM PENALTY OF FIVE
MILLION PESOS (P5,000,000,00) IN PROPORTION TO THE BANK OR
OTHER ENTITY'S AMOUNT OF NON COMPLIANCE, AND SMALLER
PENALTY SET AT ONE HUNDRED THOUSAND PESOS (P100,000.00)
FOR SMALLER BANKS NON- COMPLIANCE, PROVIDED THAT SUCH
AN AMOUNT IS TO BE ADJUSTED IN CASE OF INFLATION.”

“The MSMED Council shall set up the appropriate systems to
monitor all loan applications of MSMEs 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. AND SHALL SUBMIT AN
ANNUAL REPORT ON THE STATUS OF THE PENALTIES FOR NON
COMPLIANCE WITH THE MANDATORY LENDING PROVISION OF
THIS ACT.

“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 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 rights under applicable laws.”

SEC 20. New sections to be numbered as Sections 15, 16 and 17 are hereby inserted after

Section 14 of the same Act, as amended, to read as follows
“SEC. 15. Micro, Small, and Medium Enterprise Week. — In order to
institute continuing awareness of the primacy of small business in nation-
building and in people 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 July of every year shall be
declared as the “Micro, Small, and Medium Enterprise Development
Week’. The MSMED Council, the Department of Trade and Industry, and
the SB Corporation shall be jointly responsible in organizing activities for
the event.”

“SEC. 16. Presidential Awards for Outstanding MSME. — Presidential
awards for outstanding MSMEs and good MSME practices, consisting of
rewards in cash or in kind shall be granted to one hundred percent
(100%) filipinc-owned companies and development partners during the
MSME development week.”

“SEC. 17. Congressional Oversight Committee. — To monitor and
oversee the implementation of this Act, there shall be a Congressional
Oversight Committee on Micro, Small and Medium Enterprise
Development (COC-MSMED) composed of the chairpersons of the
Senate Committee on Economic Affairs and the House Committee on


Small Business and Entrepreneurship Development as chairperson and
co- chairperson, respectively; five (5) members of each of the Senate and
House of Representatives to include the chairpersons of the Senate
committees on Trade and Commerce; and Banks, Financial Institutions
and Currencies; and the chairpersons of the House committees on Trade
and Industry, Banks and Financial Intermediaries, and Appropriations
Provided, That two (2) of the five Senators and two (2) of the five House
Members shall be nominated by the respective minority leaders of the
Senate and the House of Representatives.

“The COC-MSMED shall set the guidelines and overall framework for the
monitoring of the implementation of this Act and shall adopt its internal
rules of procedure. The Secretariat of the COC-MSMED shall be drawn
from the existing personnel of the Senate and House of Representatives
committees comprising the COCMSMED.”

SEC 21. Section 14 of the same Act, as amended, on Penal Clause is hereby renumbered
as Section 18, and further amended, to read as follows
“Yo”
“Penalties on noncompliance shall be directed to the development of the
MSME sector. Ninety percent (90%) of the penalties collected should go
to the MSMED Council Fund, while the remaining ten percent (10%)
should be given to the BSP to cover for administrative expenses.”

“THE MSMED COUNCIL AND THE BSP SHALL SUBMIT AN ANNUAL
REPORT ON THE STATUS OF THE PENALTIES REMITTED AND HOW
THE SAME WERE USED OR ARE BEING USED IN RELATION TO THE
IMPLEMENTATION OF SERVICES TO MSMES IN AREAS OF
CAPACITY BUILDING, TECHNOLOGY INFORMATION, COLLECTION
AND DISSEMINATION, AND OTHER INTERVENTIONS FOR MSME
DEVELOPMENT, GROWTH AND SUSTAINABILITY.”

SEC 22. A new section is hereby inserted after Section 18 of the same Act, as amended, to

read as follows:
“SEC. 19. Implementing Rules and Regulations. — The Department of
Trade and Industry, through the Bureau of Micro, Small and Medium
Business Development and in consultation with other concemed
government agencies, nongovernment organizations and private sector
involved in the promotion of MSMEs, shall formulate the Implementing
Rules and Regulations (IRR) necessary to Implement the provisions of
this Act within ninety (90) days from the approval of this Act. The IRR
issued pursuant to this Section shall take effect thirty (30) days after
publication in a national newspaper of general circulation,”

SEC 23. 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 24. Repealing Clause. — All laws, executive orders, rules and regulations, or parts
thereof, inconsistent herewith are hereby repealed or modified accordingly.

SEC 25. 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,