E *  
1‘ 
FOURTEENTH CONGRESS OF THE REPUBLIC 
First Regular Session 
OF THE PHILIPPINES 
S E N  
S.D. 
Introduced by Senator Villar 
Explanatory Note 
The small- and medium-scale enterprises (SMEs) are the lynchpin of the 
Philippine economy. They are considered the backbone of the nation’s development. 
Representing almost 70 % of employment and 99 % of all registered companies, SMEs 
account for 32 % value added to the economy. 
In the 1987 Philippine Constitution, the following State policies encourages the 
flourishing of SMEs: 
Article If, Section 20 stating, “[tlhe State recognizes the indispendable 
role of the private sector, encourages private enterprise and provides 
incentives to needed investments”; 
Article 11, Section 19 enshrining the tenet, “[tlhe State shall develop a 
self-reliant and independent national economy effectively controlled by 
Filipinos.” 
In 1991, recognizing the valuable contribution of SMEs, Republic Act 6977 was 
enacted. The statute aside from creating the Small- and Medium-Scale Enterprises 
Development Council rationalizes government assistance and provide a general 
framework for the creation and esablishment of small business. 
The SMEs contribution in society and the advancement of people are mirrored in 
our daily lives. They provide the goods and services which the citizens need. They 
provide us with the basic necessities. It is the entrepreneur that makes these goods and 
services not only available but conveniently accessible. 
The SMEs and entrepreneurs set up business in small towns and cities help 
develop these areas and assist the rural people to stay in their locales. The SMEs help a 
countiy prosper not only because they inanufacture and produce commodities but 
because they provide opportunities to people. 
But barriers exist. There are still areas that need to be improve to strengthen 
further the small- and medium-scale enterprises. 
The lack of adequate government 
support, the redefinition of SMEs, the introduction of remedial policies addressing 
administrative and technical support to them, the expansion of access of SMEs vis-&vis 
capital, and other concerns should be adopted to complement their efforts. 
This legislation is submitted to bridge the gap in the present policy. 
And hence, early recognition of this bill is sought very strongly. 


FOURTEENTH CONGRESS OF THE 
) 
First Regular Session 
REPUBLIC OF THE PHILIPPINES 
1 
S E N A T E  
- 
Introduced by Senator Manny Villar 
AN ACT 
TO FURTHER PROMOTE ENTREPRENEURSHIP AND 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 OfRepresentatives 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 follows: 
“SEC. 2. Declaration ofpolicy. - 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 count~y, 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 ruralhgri-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 
AND ENSURE THEIR CONTINUING VIABILITY AND GROWTH 
and thereby attain countryside industrialization by: 
a) 
[By assuring, through the establishments of adequate support structure, 
and the creation and promotion of an environment conductive to the 
viability of these enterprises, establishment of mechanisms, the access 
and transfer of appropriate technology needed by small and medium 
enterprises; ] 
[(b)] [By] intensifying and expanding programs for training in 
entrepreneurship and for skills development for 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; 
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; 
By instituting safeguards for the protection and stability of the credit delivery 
system; 
By raising government efficiency and effectiveness in providing assistance to 
Small and Medium Enterprises throughout the country, at the least cost; 
By promoting linkages among Small, Medium and hrge enterprises, and by 
encouraging thc cstablishmcnt of common service facilities; 
By making the private sector a partner in the task of building up Small and 
Medium Enterprises through tho promotion and participation of private 
voluntary organizations, viablc industry associations, and coopcrativcs; and 
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 S d l  and Medium Enterprises (SMEs) 
SEC. 3. Section 3 of Republic Act no. 6977, as amended, is hereby further 
"SEC.3. Small and Medium Enterprise as Beneficiaries. - 
Small and Medium cntcrprisc (SMEs) shall bc defined as any business activity or 
enterprise engaged in industry, agribusiness, and/or 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 cntity's office, plant and cquipmcnt arc situated, must have 
value falling undcr thc following categories: 
amended to read as follows: 
Micro: 
less than P 1,500,000 
Small: 
P 1,500,001-15,000,000 
Medium: 
P 15,000,001 - P (60,000,000) 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 organization(s) concerned taking into account 
inflation and othcr cconomic indicators. The Council may usc other variablcs such as, 
the numbcr of cmployccs, cquity capital and asset size. 
SEC. 4. Section 4 of Republic Act No. 6977, 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, 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: 
One hundred percent (100%) owned and capitalized, AND OPERATED 
by Filipino citizens, WETHER single proprietorship, 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. 
b) 
4 
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, 
and/or production of 
agricultural produce, excluding farm level 
agricultural/crop production; 
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. 
d) 
However, this requirement shall not preclude a small and medium 
enterprise SME from accepting subcontracts from large enterprises or firms 
AND ENTERING INTO FRANCHISE PARTNERSI-IIP 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 PROVISIONS of this Act shall be exclusively 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 enterprise are competitive. 
THE DEPARTMENT OF BUDGET AND MANAGEMENT SHALL MONITOR 
THE COMPLIANCE OF G O V E ~ N T  
AGENCIES ON THE REQUIRED 
PROCUREMENT FOR SMEs AND SUBMIT ITS REPORT TO THE SMED COUNCIL 
ON A SEMESTRAL BASIS OR AS NEEDED. 
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 simpliiication of procedures and requirements. 
All government agencies, having to do with small enterprise 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 Refom, 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 SentraI 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 of 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, 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 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: 
a) Director General of the National Economic and Development 
Authority; 
b) Secretary of Agriculture; 
c) Secretary of Labor and Employment; 
d) Secretary of Environment and Natural Resources; 
e) SECRETARY OF INTERIOR AND LOCAL GOVERNMENT; 
f )  Secretary of Science and Technology; 
g) Secretary of Tourism; 
h) The Chairman of the Monetary Board; 
i) Chairman of Small Business Guarantee and Finance Corporation; 
j) 
Chairman of the small and medium enterprises promotion body to be 
established under this Act; and 
k) Three (3) representatives from the private sector at large, all Filipino 
citizens, to represent Luzon, Visayas and Mindanao, and two 
representatives from the small and medium enterprise sectors to be 
appointed by the President; 
A representative from the private banking sector to serve alternately 
among the chamber of Thrift Banks, Rural Bankers Association of the 
1) 


Philippines (RBAP) and the Bankers’ Association of the Philippines 
(BAP); AND 
m) CHAIRPERSONS OF THE COMMITTEE ON ECONOMIC AFFAIRS 
OF THE SENATE AND HOUSE OF REPRESENTATIVES OR ANY 
APPROPRIATE COMMITTEES AS MAY BE IDENTIFIED AS 
EQUIVALENT THEREOF. 
ALL MEMBERS OF THE COUNCIL SO APPOINTED, EXCEPT FOR 
(3) YEARS. THE PERSON SO APPOINTED TO REPLACE A MEMBER 
WHO HAS RESIGNED, DIED, OR BEEN REMOVF,D FOR CAUSE 
SHALL SERVE ONLY FOR THE EXPIRED PORTION OF THE TERM. 
THE EX-OFFICIO MEMBERS, SHALL SERVF, FOR A TERM OF THREE 
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. 
The private sector members of the Council shall initially receive a per diem of 
One Thousand pesos (1,000) 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 SHALT, BE DETERMINED BY TNE SMED COUNCIL. 
The Department of Trade and Industry shall allocate five million pesos 
(5,000,000) 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 call (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 of 
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) Council shall have the following powers, duties and functions: 


r) 
To help establish the needed environment and opportunities conducive 
to the growth and development of the small and medium enterprises 
SME sector; 
To recommend to the president and the Congress all policy matters 
affecting small and medium enterprises SME sector; 
To formulate a comprehensive small and medium enterprises SME 
development plan to be integrated into the National Economic and 
Development Authority (NEDA) Development Plans; 
To coordinate and integrate various government and private sector 
activities relating to small and medium enterprises SMEs; 
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 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 
sms; 
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; 
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 of the Philippine Assistance Program, as 
may be necessary, in the tapping of local and foreign funds for small and 
medium enterprises SME development; 
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 
production 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 c o m n  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 loasing 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 interests 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 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) 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 
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 
C0MMI"EEE ON ECONOMIC AFFAIRS AND THE SPECIAL 
COMMITTEE ON ENTREPRFiNEURSHIP 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 
1) 
To exercise all power 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 non- 
financing government programs, including fee-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; 
To coordinate the preparation of position papers and background 
materials for discussion or approval during Council meeting; 
To assist the Council in coordinating and monitoring [small and 
medium enterprises] SNEs policies and programs and activities of 
all government agencies with respect to small medium enterprises; 
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; 
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. 
Section 10 of republic Act no. 6977, as amended, is hereby further 
2) 
3) 
4) 
5) 
6) 
SEC. 10. 
amended to read as follows: 


THE POLICY AND PROGRAM SUPERVISION OF THE SMED 
COUNCIL. ET SHALL HAVE ITS PRINCIPAL OFFICES IN METRO 
MANILA AND WHENEVER NECESSARY, ESTABLISH BRANCH 
OFFICES IN THE PROVINCES. 
THE SMALL BUSINESS CORPORATION SHALL EXERCISE ALL THE 
GENERAL POWERS EXPRESSLY CONFERRED BY LAW UPON 
CORPORATION UNDER THE CORPORATION CODE. FOR THIS 
PURPOSE, SMALL BUSINESS CORP. MAY ALSO: 
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, 
NOTWITJ3STANDING 
ANY 
LAW 
TO 
THE 
CONTRARY; 
APPLY 
FOR, 
RECEIVE 
AND 
ACCEPT 
GRANTS AND 
DONATIONS FROM SOURCES WITHIN AND OUTSIDE THE 
COUNTRY; 
HOLD, OWN, PURaASE, ACQUIRE, SELL, MORTGAGE, 
DISPOSE OR OTHERWISE INVEST OR REINVEST IN STOCKS, 
BONDS, TREASURY BILE, DEBENTURES, SECURITIES AND 
SIMILAR FORMS OF INDEBTEDNESS OF THE GOVERNMENT, 
ITS 
AGENCIES 
AND 
INSTRUMENTALITIES 
OR 
ANY 
GOVERNMENT 
FINANCIAL 
INSTITUTION, 
NOTWITHSTANDING ANY LAW TO THE CONTRARY. 
"SEC. 13. COMPOSITION, POWERS AND AUTHORITY. - THE SMALL 
BUSINESZi CORPORATIONS 
CORPORATE POWEE SHALL BE 
VESTED ON A BOARD DIRECTORS COMPOSED OF ELEVEN (11) 
MEMBERS WHICH SHALL INCLUDE THE FOLLOWING: 
THE SECRETARY OFTRADE AND INDUSTRY 
THE SECRETARY OF FINANCE 
A 
PRIVATE 
SECTOR 
REPRESENTATIVE 
TO 
VE 
APPOINTED BY THE PRESIDENT OF THE PHILIPPINES 
UPON TI-IE RECOMMENDATION OF THE SMED 
COUNCIL; 
SEVEN (7) REPRESENTATIVES OF SMALL BUSINESS 
CORE'. HOLDERS OF COMMON SMED COUNCIL; 
THE PRESIDENT OF SMALL BUSINESS CORP. AS EX- 
OFFCIO MEMBER AND TO SERVE AS VICE CHAIRMAN 
OF THE BOARD. 
THE PRESIDENT OF THE PHILIPPINES SHALL APPONIT 
THE CHAIRMAN OF THE BOARDS FROM AMONG ITS 
MEMBERS. 
THE BOARDS OF DIRECTORS SHALL HAVE, AMONG 
OTHERS 
THE 
FOLLOWING 
SPECIFIC 
POWER 
AND 
AUTHORITIES 


TO 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 SMALL BUSINESS CORP. 
ESTABLISH SUCH BRANCHES, AGENCIES AND 
SUBSIDIARIES AS MAY BE DEEMED NECESSARY 
AND CONVENIENT; 
COMFROMISE OR RELEASE, IN WHOLE OR IN 
PART, ANY CLAIM OR LIABILTY WHATSOEVER 
FOR OR AGAINST SMALL BUSINESS CORP. 
INCLUDING 
INTEREST, 
PENALTIES, 
FEES 
AND/OR OTHER CHARGES IN ACCORDANCE 
TO ITS am BY-LAWS AND BANGKO SENTRAL 
NG mLIpTNAs RULES; 
FIX THE FEATURES OF NON-VOTING PREFERRED 
SHARES WHICH SHALL BE PRINTED ON THE 
STOCK CERTIFICATES EVIDENCING THE SAME; 
EXERCISE ALL OTHER SUCH POWERS AS MAY BE 
NECESSARY OR INCIDENTAL TO CARRY OUT 
SMALL BUSINES 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 BUSINES COW. shall 
have an authorized capital stock of pive] TEN billion pesos (P [5] 
10,~0~,~~0,000.~0). 
The initial capital of One billion pesos (P 
1,000,000,000.00) shall be established from a pool of funds to be 
contributed in the form of equity investment 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 (l'200,000,000.00) 
each to be placed in 
preferred stocks of the SMALL BUSINESS CORP. [SBGFC.] 
THE TEN BILLION PESOS AUTHORIZED CAPITAL STOCK OF SMALL 
BUSINESS COW. SHALL BE DIVIDED INTO sO,OOO,00 COMMON 
SHARES AND 20,000,000 PREFERRED SHARES WITH A PAR VALUE 
OF ONE HUNDRED PESOS (I'lOO.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 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 TI3.E CAPITALIZATION OF THE 
CORPORATION. PROVIDED 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 subscription 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 
SHARED. 
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 EFFECTIFIVITY 
OFTHIS AMENDMENT. THEREAFTER, IT MAY ONLY DECLARE AS 
DIVIDEND NOT MORE THAT 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. 16. ORGANIZATIONAL STRUCTURE. - THE BOARDS OF DIRECTORS 
SHALL HAVE THE AUTHORITY TO PROVIDE FOR AN ORGANIZATIONAL 
STRUCTURE! AND STAFFING PATTERN FOR OFFICERS AND EMPLOYEE OF 
SMALL BUSINESS COW. AND UPON RECOMMENDATION OF ITS 
PRESIDENT, APPOINT AND FIX THEIR REWERATION, EMOLUMENTS 
AND FRINGE BENBITS AND RETJREMENT BENEFITS. 
ALL POSITIONS IN A SMALL BUSINESS CORP, SHALL BE GOVERNED BY A 
COMPENSATION AND POSITION CLASIFICATION 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 TI-IE BOARD NOT 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 MEDIUM ENTERPRISE WEEK. - 
IN ORDER TO INSTITUTE CONTINUING AWARENESS OF THE PRIMACY 
OF SMALL BUSINW IN NATION BUILDING AND IN PEOPLE 
EMPOWERMENT, AND TO CELEBRATE AND ESPOUSE THE FIRM 
COMMITMENT OF TEE 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. 
"SEC. 
19. PRESIDENTIAL AWARDS FOR OUTSTANDING MSME's- 
PRESIDENTIAL AWARDS FOR OUTSTANDING MSME's CONSISTING OF 
REWARDS IN CASH OR IN KIND SHALL BE GRANTED TO 100% FILIPINO 
OWNED COMPANIES DURING THE SME DEVELOPMENT WEEK. 
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. - For a period of ten (IO) years from the date of the effictivity 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 ((6) 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 it 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 ENTERPRISIS; OR 
B) 
ACTUAL SUBSCIUPTION OF PREFERRED SHARES OF STOCK OF SB 
CORPORATION. 
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 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 COMPREHENSIVE reports on their 
compliance with the above provisions on the mandatory credit allocations for 
small and medium enterprises and expeditiously act on the Council's reports of 
non-compliance therewith, ON THE BANKS' 
COMPLIANCE, NON- 
COMPLIANCE AND PENALTIES OF THE ABOVE PROVISIONS ON THE 
MANDATORY CREDIT ALLOCATION FOR SME's. 
"SEC. 21. Penalfy Clause. - The Bangko Sentral ng Pilipinas shall impose 
administrative sanctions and other penalties on the lending institutions for 
non-compliance with the provision on Mandatory Allocation of Credit 
Resources of not less than Five hundred thousand pesos oJ500,000) WHICH 
MAY BE IMPOSED BY THE MONETARY BOARD BUT IN NO CASE EXCEED 
THIRTY THOUSAND PE5OS (PI-IP30,OOO.OO ) 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 this Act are hereby declared to 
be separable. If any provision of this Act shall be held unconstitutional, the reminder 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,