NINETEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session
)
)
SENATE
s. No. 754
•• "''A 
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f.i 
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of the iM
72 JUL19 A10 51
Rl-CEi’-'-.DSY:
Introduced by Senator Francis G. Escudero
AN ACT
REINSTITUTING MANDATORY CREDIT ALLOCATION FOR MICRO, SMALL 
AND MEDIUM ENTERPRISES, IMPOSING FINES AND PENALTIES FOR 
NONCOMPLIANCE, AND FOR OTHER PURPOSES
EXPLANATORY NOTE
The enactment of Republic Act No. 6977, as amended by Republic Act Nos. 
8289 and 9501 in 1997 and 2008, respectively, otherv^/ise known as the Magna Carta 
for Micro, Small and Medium Enterprises (MSMEs), affirmed the responsibility of the 
State to promote, support, strengthen and encourage the growth and development 
of MSMEs In all productive sectors of the economy. One of the salient features of the 
MSME law is the mandate Imposed on all lending institutions to set aside part of 
their loan portfolio and make it available for small enterprise credit for a period of 
ten (10) years. This mandatory credit allocation benefits MSMEs in two ways: first, 
through the provision of channels to source financing to expand or jumpstart their 
operations; and second, generation of funds through penalties to finance MSME 
interventions.
The pandemic and its impact on business operations and consumer demand 
have adversely impacted the MSME sector, causing temporary and permanent 
closures of MSME establishments and the displacement of thousands of employees. 
While the economy is on its way to recovery, MSMEs remain particularly vulnerable 
to pre-pandemic concerns such as the limited access of MSMEs to financing and 
markets. As noted in the 2017-2022 MSME Development Plan, lending institutions 
tend to prefer non-MSME borrowers because of higher gains, lower credit risk,


higher repayment rate and collateral availability. Data from the Bangko Sentral ng 
Pilipinas (BSP) show that in the last quarter of 2021, banks only extended 2.08% 
and 3.3% of their total loan portfolio to micro and small, and medium enterprises, 
respectively.
This restricted access to financing, among other challenges, needs to be 
addressed to ensure swift recovery not only of MSMEs but the entire economy. This 
bill seeks to reinstitute this mandatory credit allocation to provide a time-bound 
intervention to ease the MSMEs' financial burden and hasten its recovery from a 
global pandemic. Additionally, the proposed measure mandates the Department of 
Trade and Industry, in coordination with the Department of Finance and the BSP, to 
formulate and implement other interventions to Improve MSMEs' access to formal 
sources of financing. With this twin provisions. It is hoped that providing better 
access to a wider range of financial services would help MSMEs realize their full 
potential In generating employment and boosting economic growth.
In view of the foregoing, the passage of the measure is earnestly sought.
Respectfully submitted.
FRANCIS G. ESCUDERO


NINETEENTH CONGRESS OF THE 
)
REPUBLIC OF THE PHILIPPINES 
)
First Regular Session 
)
SENATE
of t!:-' :f i ■ .‘V
72 JUL19 A10:51
S. No. 754
Introduced by Senator Francis G. Escudero
AN ACT
REINSTITUTING MANDATORY CREDIT ALLOCATION FOR MICRO, SMALL 
AND MEDIUM ENTERPRISES, IMPOSING FINES AND PENALTIES FOR 
NONCOMPLIANCE, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines 
in Congress assembled:
1 
Sec. 1. Reinstitution of Mandatory Credit Allocation for Micro,, Small and
2 
Medium Enterprises. - For the period of ten (10) years from the effectivity of this
3 
Act, all lending institutions as defined under Bangko Sentral ng Pilipinas (BSP) rules,
4 
whether public or private, shall set aside at least eight percent (8%) for micro and
5 
small enterprises and at least two percent (2%) for medium enterprises of their total
6 
loan portfolio based on their balance sheet as of the end of the previous quarter,
7 
and make it available for Micro, Small and Medium Enterprises (MSME) credit as
8 
contemplated In this Act: Provided, That the Secretary of Finance may extend the
9 
effectivity period of the mandatory MSME credit allocation as may be warranted by
10 
prevailing financial and economic conditions as reflected in the number and growth
11 
rate of MSME-classified establishments, MSME share in the Total Employment, MSME
12 
share in the Gross Domestic Product, and other socioeconomic and financial
13 
indicators to be identified by the Department of Trade and Industry (DTI) and MSME
14 
Development Council.
15 
Lending institutions may comply with the mandatory MSME credit allocation
16 
through any of the following:


1 
(a) Actual extension of loans to eligible MSMEs;
2 
(b) Actual subscription of preferred shares of stock of the Small Business
3 
Corporation (SBCorp);
4 
(c) Wholesale lending to Participating Financial Institutions for on-lending to
5 
MSMEs;
6 
(d) Purchase/discount of MSME receivables;
7 
(e) Extension of loans to export, import, ?nd domestic traders; or
8 
(f) Subscription/purchase of liability instruments as may be offered by the
9 
SBCorp.
10 
The BSP, in coordination with the Department of Finance (DOF) and the DTI
11 
shall formulate rules for the effective implementation of this provision: Provided,
12 
That the purchase of government notes, securities and other negotiable instruments
13 
shall not be deemed compliance with the foregoing provisions: Provided, further,
14 
That the BSP shall establish an incentive program to encourage lending beyond the
15 
mandatory MSME credit allocation, such as possible reduction in bank's reserve
16 
requirement.
17 
The MSME Development Council shall establish mechanism to monitor all
18 
MSME loan applications in order to account for the absorptive capacity of the MSME
19 
sector.
20 
The BSP shall furnish to the MSME Development Council on a quarterly basis
21 
comprehensive report on the banks' compliance, noncompliance and penalties of the
22 
above provisions on the mandatory credit allocation for MSMEs.
23 
Lending institutions which are not qualified to acquire or hold lands of the
24 
public domain in the Philippines shall be permitted to bid and take part in sales of
25 
mortgaged real property in case of judicial or extra-judicial foreclosure, as well as
26 
avail of receivership, enforcement and other proceedings, solely upon default of a
27 
borrower, and for a period not exceeding five (5) years from actual possession:
28 
Provided, That in no event shall ownership and title to the property be transferred to
29 
such lending institutions. If the said lending Institution is the winning bidder, It may.


1 
during said five (5) year period, transfer its rights to a qualified Philippine national,
2 
without prejudice to a borrower's rights under applicable laws.
3 
Sec. 2. Penalties for Non-compliance. - The BSP shall impose administrative
4 
sanctions and other penalties on erring lending institutions for non-compliance with
5 
the provisions of this Act. In addition, the president, members of boards of directors,
6 
and other officers of the erring lending institutions shall be Individually liable for
7 
Imprisonment of ranging from six (6) months to one (1) year, a fine ranging from
8 
Five hundred thousand (P500,000.00) to Two million pesos (P2,000,000.00) each, or
9 
both, at the discretion of the court.
10 
Ninety percent (90%) of the penalties for noncompliance shall be remitted to
11 
the MSME Development Council Fund and shall be used for the extension of low-
12 
interest, no-collateral loans for MSMEs, while the remaining ten percent (10%) shall
13 
be retained by the BSP to cover for administrative expenses.
14 
Sec. 3. Other Interventions to Improve MSMEs' Access to Financing. - The
15 
DTI, in coordination with the DOF and the BSP, shall formulate and implement other
16 
interventions to Improve MSMEs' access to formal sources of financing. These
17 
interventions may Include, but not be limited to, the establishment of a bonds and
18 
equities market for MSMEs, development of credit enhancement mechanisms, and
19 
making use of domestic savings and foreign exchange reserves.
20 
Sec. 4. Implementing Rules and Regulations (IRR). - Within thirty (30) days
21 
from the effectivity of this Act, the BSP, the DOF and the DTI shall promulgate the
22 
rules and regulations to effectively implement the provisions of this Act.
23 
Sec. 5. Separability Clause. - If any provision or part hereof Is declared
24 
unconstitutional, the remainder of this Act or any provision not affected thereby shall
25 
remain in full force and effect.
26 
Sec. 6. Repealing Clause. - All laws, acts, decrees, executive orders,
27 
issuances, and rules and regulations or parts thereof which are contrary to and
28 
inconsistent with this Act are hereby repealed, amended or modified accordingly.


Sec. 7. Effectivity. - This Act shall take effect fifteen (15) days following its 
publication In the Official Gazette or In at least two (2) newspapers of general 
circulation, and shall remain in full force and effect for ten (10) years unless 
otherwise extended as provided under Section 1 of this Act.
Approved,