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THIRTEENTH CONGRESS OF THE REPU 
First Regular Session 
"04 JUDil 313 P3 27 
OF THE PHILIPPINES 
s. No 
Introduced by Senator S. R. Osmeiia 111 
EXPLANATORY NOTE 
It has been thirteen years since the Magna Carta for Small Enterprises,was 
enacted and four years when amendments were passed into law, and yet, the 
problems of small and medium enterprises (SMEs) have not been fully addressed. 
Limited capital and access to financing, slow adoption of new technology, increased 
competition from imported products, inadequate market information, high cost of doing 
business and lack of infrastructure still hound our entrepreneurs. 
Notably, SMEs are the country's new source of competitive advantage as it 
spur entrepreneurial activity and contribute to capital investment and productivity 
growth. SMEs require swift and efficient delivery of services to stay competitive in a 
fast changing world. This is particularly true when rapid advances in information and 
communication technologies have created a new wave of industrial revolutions which 
practically rendered geographical considerations a thing in the past, forcing SMEs to 
adapt quickly lest they be eased out of the competition. 
While Congress, by virtue of R.A. No. 6977 as amended by R.A. No. 8289, 
created the Small Business Guarantee and Finance Corporation (SBGFC) to source 
and adopt development initiatives for globally competitive SMEs in terms of finance, 
technology, production management and business linkage, various SME problems 
remain unattended. This may be attributed to the mandate of SBGFC to support 
SMEs through the provision and promotion of various alternative modes of financing 
which limits the said agency to concentrate its programs on providing access to credit. 
Financing of SMEs is a vital issue that must be addressed but there are other 
equally significant concerns that must be responded to by the government. It is 
imperative that SMEs are provided with the necessary support in such other areas as 
training, infrastructure and information services. 
R.A. No, 6977, as amended, is a step in the right direction in that it recognizes 
the important role SMEs play in the Philippine economy and the need to encourage 
their growth. What is now required is the establishment of an organization with the 
flexibility to implement much needed reforms. An organization that clearly has the 
mandate, personnel and financial resources to promote structural modernization and 
upgrading of SMEs, enhance their capacity to develop technology, assist SMEs in 
marketing, and help them train human resources. 
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The Philippine Small Business Corporation (PSBC) is envisioned to take on this 
role, By expanding the mandate of the present SBGFC, the proposed PSBC is 
expected to oversee the implementation of SME programs jointly developed by 
government and the private sector. 
SMEs create employment opportunities for the informal sector, generating 
livelihood activities, increasing incomes and consequently, decreasing poverty. SMEs 
also bring about rural industrialization through the development and decentralization of 
industries. Our SMEs need all the assistance they can get in order to achieve global 
competitiveness. Let us bank on the entrepreneurial spirit of Filipinos and help them 
propel the country’s development. 
In view of the foregoing, approval of this bill is earnestly requested. 
SERGIO OSMENA 111 
Senator 


THIRTEENTH CONGRESS F THE REPUBLI 
) 
First Regular Session 
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OF THE PHILIPPINE 
) 
"04 J;jd 30 p3 :zg 
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By ; 
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Introduced by Senator 
smeAa 111 
AN ACT 
FURTHER PROMOTING THE DEVELOPMENT OF SMALL AND MEDIUM 
ENTERPRISES AMENDING FOR THIS PURPOSE REPUBLIC ACT 6977, AS 
AMENDED, OTHERWISE KNOWN AS THE MAGNA CARTA FOR SMALL 
ENTERPRISES 
Be it enacted by the Senate and the House of Representatives of the Republic of the 
Philippines in Congress ass em bled: 
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SECTION 1. Section 10 of Republic Act No. 6977, as amended, is hereby 
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amended to read as follows: 
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"Sec. 10. 
Rationalization of Existing Small and Medium Enterprise 
Programs and Agencies. - 
The Council shall conduct continuing review 
of government programs for small and medium enterprises and submit to 
Congress and the President a report thereon together with its policy 
recommendations. 
[ The President is hereby also empowered to establish a small and 
medium enterprise promotion body which shall be the principal 
government agency that will formulate, implement, coordinate and 
monitor all non-fi nancing government p rog rams, i nclud ing fee- based 
services, to support and promote micro, small and medium enterprises. It 
shall be attached to the Department of Trade and Industry and shall be 
under the policy, program and administrative supervision of the SMED 
Council. The said office shall receive no less than fifty percent (50%) of 
the assets, and budgetary allocations of the agencies for promotion, 


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financing for small and medium enterprises, including but not limited to, 
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IMPLEMENTING COMPREHENSIVE POLICIES AND PROGRAMS TO 
ASSIST SMALL AND MEDIUM ENTERPRISES IN THE AREAS OF 
FINANCE, INFORMATION SERVICES, TECHNOLOGY TRAINING AND 
MARKETING. 
[ “The Corporation shall guarantee loans obtained by qualified 
small and medium enterprises, local and/or regional associations’ small 
enterprises and industries, private voluntary organizations and/or 
cooperatives, under such terms and conditions adopted by its Board. It 
may guarantee loans up to one hundred percent (100%). It may also 
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provide second level guarantee (Le., reinsurance) on the credit and/or 
investment guarantees made by credit guarantee associations and other 
institutions in support of small entrepreneurs. 
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"The Corporation shall become liable under its guarantees upon 
proof that the loan has become past due under such terms and 
guidelines adopted by its Board and printed on the contract of guarantee. 
"The Small Business Guarantee and Finance Corporation shall: 
"a) 
be attached to the Department of Trade and Industry and shall be 
under the policy, program and administrative supervision of the SMED 
Council; 
"b) 
have its principal place of business in Metro Manila and endeavor 
to have one or more branch offices in every province of the country; 
"c) 
exercise all the general powers conferred by law upon 
corporations under the Corporation Code as are incidental or conducive 
to the attainment of the objectives of this Act; 
"d) 
have a board of directors upon which the powers of the 
Corporation shall be vested, to be composed of nine (9) members 
including: 
"1) 
three (3) members from the private sector appointed by the 
President upon recommendation of the SMED Council and from among 
whom the Chairman of the Board shall be appointed by the President to 
serve on a full-time basis; 
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"2) 
the Secretary of Trade and Industry or his Undersecretary; and 
"3) 
a representative from each of the five (5) government financial 
institutions mandated in this Act to provide the initial capital of the 
Corporation, who shall be designated, under guidelines agreed upon by 
the Board Chairmen of said institutions; 
"e) 
notwithstanding the provisions of Republic Act No. 6758, and 
Compensation Circular No. I O ,  series of 1989 issued by the Department 
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of Budget and Management, the Board of Directors of SBGFC shall have 
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the authority to extend to the employees and personnel thereof the 
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allowance and fringe benefits similar to those extended to and currently 
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enjoyed by the employees and personnel of other government financial 
in st it u t i o n s . 1” 
SEC. 3. Two new sections are hereby added after Section 11 of the same 
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Act, as amended, to read as follows: 
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“SEC. 11-A. POWERS AND FUNCTIONS. - THE CORPORATION 
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(A) 
SOURCE AND ADOPT DEVELOPMENT INITIATIVES FOR 
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GLOBALLY 
COMPETITIVE 
SMALL 
AND 
MEDIUM 
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ENTERPRISES 
IN TERMS OF FINANCE, TECHNOLOGYl 
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PRODUCTION, MANAGEMENT AND BUSINESS LINKAGES, 
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AND PROVIDE, PROMOTE, DEVELOP AND WIDEN IN BOTH 
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SCOPE AND SERVICE REACH VARIOUS ALTERNATIVE 
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MODES 
OF 
FINANCING 
FOR 
SMALL 
AND 
MEDIUM 
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ENTERPRISES, INCLUDING BUT NOT LIMITED TO, DIRECT 
SHALL HAVE THE FOLLOWING POWERS AND FUNCTIONS: 
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AND INDIRECT PROJECT LENDING, VENTURE CAPITAL, 
FINANCIAL LEASING, SECONDARY MORTGAGE, AND/OR 
REDISCOUNTING OF LOAN PAPERS TO SMALL BUSINESS, 
SECONDARY REGIONAL STOCK MARKETS: PROVIDED, THAT 
CROP PRODUCTION FINANCING SHALL NOT BE SERVICED 
BY THE CORPORATION; 
GUARANTEE LOANS OBTAINED BY QUALIFIED SMALL AND 
MEDIUM 
ENTERPRISES, 
LOCAL 
AND/OR 
REGIONAL 
ASSOCIATION’S SMALL ENTERPRISES AND INDUSTRIES, 
PRIVATE 
VOLUNTARY 
ORGANIZATIONS 
AND/OR 
COOPERATIVES, UNDER SUCH TERMS AND CONDITIONS 
ADOPTED BY ITS BOARD. IT MAY GUARANTEE LOANS UP 
(B) 
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TO ONE HUNDRED (100%). IT MAY ALSO PROVIDE SECOND 
LEVEL GUARANTEE (i.e. REINSURANCE) ON THE CREDIT 
AND/OR INVESTMENT GUARANTEES MADE BY CREDIT 
GUARANTEE ASSOCIATIONS AND OTHER INSTITUTIONS IN 
SUPPORT OF SMALL ENTREPRENEURS; 
PROVIDE CONSULTANCY AND ADVISORY SERVICES IN THE 
AREA OF FINANCING AND IMPROVE SME’S MANAGEMENT 
STRUCTURE AND TO ASSIST SMEs IN ADAPTING TO THE 
CHANGING ENVIRONMENT; 
(C) 
(D) 
OFFER 
TRAINING 
PROGRAMS 
TO 
SMEs 
AND 
TO 
GOVERNMENT AND OTHER ORGANIZATIONS IN CHARGE OF 
PROVIDING GUIDANCE TO SMEs; 
PROVIDE SMEs WITH UP-TO-DATEl TIMELY AND RELEVANT 
MARKET INFORMATION; 
(E) 
(F) 
ASSIST IN THE DEVELOPMENT OF MACHINERY AND 
EQUIPMENT THAT IS ESSENTIAL TO SMEs IN THEIR 
EFFORTS TO OVERCOME LABOR SHORTAGE, RATIONALIZE 
AND AUTOMATE PRODUCTION PROCESS OR TO PROTECT 
THE ENVIRONMENT; 
(G) 
DEVELOP 
SME’s 
ABILITY 
TO 
UTILIZE 
INFORMATION 
TECHNOLOGY; 
(H) 
FACILITATE 
INTERNATIONALIZATION 
OF 
SMEs 
BY 
PROVIDING ASSISTANCE AND ADVICE IN ACTIVITIES SUCH 
AS, BUT NOT LIMITED TO, THE ESTABLISHMENT OF A 
CORPORATION, SELECTION OF OVERSEAS PARTNERS, 
JOINT VENTURE AND OTHER SIMILAR BUSINESS TIE-UPS; 
( I )  
SET-UP 
MUTUAL 
RELIEF 
SYSTEM 
FUNDS 
THROUGH 
SUBSCRIBER CONTRIBUTIONS TO SUPPORT INDIVIDUAL 
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BUSINESS AND CORPORATE OFFICES WHO RETIRE, GO 
OUT OF BUSINESS OR TO PREVENT BANKCRUPTCIES; 
(J) 
COMPILE AND INTEGRATE STATISTICAL DATABANK ON 
PHILIPPINE SMEs; 
(K) 
SET-UP AND ORGANIZA FIELD OFFICES (SME CENTERS) TO 
PROVIDE SMEs IN THE REGIONS EASIER ACCESS TO 
SERVICES 
SUCH 
AS, 
BUT 
NOT 
LIMITED 
TO, 
THE 
FOLLOWING: 
i. ACCEPT AND ACT ON ALL REGISTRATION APPLICATIONS 
OF SMEs; 
ii. PROVIDE 
ENTREPRENEUR 
AND 
AS PI RI NG 
ENTREPRENEURS 
WITH 
ALL 
THE 
NECESSARY 
GOVERNMENT SUPPORT FOR REGISTRATION UP TO THE 
LAST 
REQUIREMENT NEEDED 
IN SETTING 
UP A 
BUSINESS, THEREBY FACILITATING THE PROCESSING 
OF ALL DOCUMENTARY REQUIREMENTS FOR THE 
ESTABLISHMENT OF BUSINESS ENTERPRISES IN THE 
COUNTRY; 
iii. PROVIDE ALL INFORMATION AND REFERRAL SERVICES 
IT SHALL DEEM NECESSARY OR ESSENTIAL TO THE 
DEVELOPMENT AND PROMOTION OF SMEs; 
iv. ESTABLISH A DATABANK WHICH SHALL BE THE SOURCE 
OF ALL INFORMATION NECESSARY FOR PROJECT 
MON ITORl NG, 
RESEARCH 
AND 
IN FO RMATlO N 
D IS S E M I N AT1 0 N ; 
v. PROVIDE LOCAL AND INTERNATIONAL NETWORK AND 
LINKAGES FOR SMEs DEVELOPMENT; 


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vi. SUPPLY INFORMATION AND SERVICES IN TRAINING 
FINANCING, MARKETING AND TECHNOLOGY TRANSFER 
TO SMEs; 
vii. CONDUCT 
OTHER 
PROGRAM 
OR 
PROJECTS 
FOR 
ENTREPRENEURIAL 
DEVELOPMENT 
IN 
THEIR 
RESPECTIVE AREAS.” 
“SEC. 11 - B. 
CORPORATE STRUCTURE AND POWERS. THE 
PHILIPPINE SMALL BUSINESS CORPORATION (PSBC) SHALL: 
BE ATTACHED TO THE DEPARTMENT OF TRADE AND 
INDUSTRYAND SHALL BE UNDER THE POLICY, PROGRAM 
AND 
ADMINISTRATIVE 
SUPERVISION 
OF 
THE 
SMED 
COUNCIL; 
HAVE ITS PRINCIPAL PLACE OF BUSINESS IN METRO 
MANILA AND ENDEAVOR TO HAVE ONE OR MORE BRANCH 
OFFICES IN EVERY PROVINCE OF THE COUYTRY, 
EXERCISE ALL THE GENERAL POWERS CONFERRED BY 
LAW UPON CORPORATIONS UNDER THE CORPORATION 
CODE AS ARE INCIDENTAL OR CONDUCIVE TO THE 
ATTAINMENT OF THE OBJECTIVES OF THIS ACT, 
HAVE A BOARD OF DIRECTORS UPON WHICH THE POWERS 
OF THE CORPORATION SHALL BE VESTED, TO 
BE 
COMPOSED OF ELEVEN (I 1) MEMBERS INCLUDING, 
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FIVE (5) MEMBERS FROM THE PRIVATE SECTOR 
APPOINTED 
BY 
THE 
PRESIDENT 
UPON 
RECOMMENDATION OF THE SMED COUNCIL AND 
FROM AMONG WHOM THE CHAIRMAN OF THE BOARD 
SHALL BE APPOINTED BY THE PRESIDENT TO SERVE 
ON A FULL TIME BASIS; 
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ii) 
THE SECRETARY OF TRADE AND INDUSTRY OR HIS 
UNDERSECRETARY; AND 
iii) 
A 
REPRESENTATIVE 
EACH 
OF 
THE 
FIVE 
(5) 
GOVERNMENT FINANCIAL INSTITUTIONS MANDATED 
IN THIS ACT TO PROVIDE INITIAL CAPITAL OF THE 
CORPORATION, WHO SHALL BE DESIGNATED, UNDER 
GUIDELINES 
AGREED 
UPON 
BY 
THE 
BOARD 
CHAIRMEN OF SAID INSTITUTIONS. 
(E) NOTWITHSTANDING THE PROVISIONS OF REPUBLIC ACT NO. 
6758, AND COMPENSATION CIRCULAR NO. I O ,  SERIES OF 1989 
ISSUED BY THE DEPARTMENT OF BUDGET AND MANAGEMENT, 
THE BOARD OF DIRECTORS OF PSBC SHALL HAVE THE 
AUTHORITY TO EXTEND TO THE EMPLOYEES AND PERSONNEL 
THEREOF THE ALLOWANCE AND FRINGE BENEFITS SIMILAR TO 
THOSE EXTENDED TO AND CURRENTLY ENJOYED BY THE 
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EMPLOYEES 
AND 
PERSONNEL 
OF 
OTHER 
GOVERNMENT 
FINANCIAL INSTITUTIONS. 
SEC. 4. 
Transitory Provision. 
All real and personal assets and 
properties, including liabilities, which upon the effectivity of this Act are vested 
in, pertaining to and owned by the Small Business Guarantee and Finance 
Corporation (SBGFC) are hereby transferred to the Philippine Small Business 
Corporation (PSBC). All contracts, records, and documents pertaining to the 
operations of SBGFC are likewise transferred to the corporation. 
SEC. 5. Separability Clause. If, for any reason, any section or provision 
of this Act is declared to be unlawful or unconstitutional, the other provisions of 
this Act shall remain valid. 
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circulation whichever comes earlier. 
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Approved, 
SEC. 6. Effectivity. This Act shall take effect fifteen (15) days after its 
publication in the Official Gazette or in at least two (2) newspapers of general 
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