Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

THIRTEENTH (13"” CONGRESS
First Regular Session

HOUSE BILL NO. 180

Introduced by The Honorable WILHELMINO M. SY-ALVARADO

EXPLANATORY NOTE

Small and medium enterprises (SMEs) constitute ninety-nine percent (99%)
of all the country’s business establishments. In terms of employment, SMEs account
for almost seventy percent (70%) of all jobs generated. They contribute thirty-two
percent (32 %) of value added to the economy, and make up sixty percent (60%) of
Filipino exporters.

Thus, as industrial breeding grounds, sources of constant renewal of industry
and commerce, and wellsprings of competition and dynamism, SMEs enjoy the
attention and patronage of the Philippine Congress

Republic Act No. 6977, otherwise known as the Magna Carta for Small
Enterprises and enacted in January 1991, formally acknowledged the strategic
importance of SMEs in the local economy as its competitive advantage in the global
‘market. It outlined the general principles, policies and strategies for the development
of the SME sector.

Under the same law, the Small and Medium Enterprise Development (SMED)
Couneil was created to serve as the primary agency that shall oversee the overall
coordination and implementation of national efforts to promote the viability and
growth of SMEs. Another salient provision of RA 6977 mandated the banking system
to set aside a portion of its funds for lending to SMEs. This requirement was tiered
and had a time bound of seven (7) years from the effectivity of the law.

To complement the delivery of credit to SMEs by the banking sector, the
Magna Carta for Small Enterprises established 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 linkages; and provide, promote, develop in scope and service various
alternative modes of financing for SMEs.

Several years after the enactment of the same Magna Carta, Congress saw the
need to strengthen the law by modifying some of its fundamental provisions.


Among others, Republic Act No. 8289, which was passed into law in 1997 and
which amended RA 6977, expanded the membership of the SMED Council to include
additional representatives from the government and private sector. It also extended the
period of mandatory lending to SMEs by another ten (10) years. Lending institutions
were further required to set aside at least six percent (6 %) and at least two percent
(2 %) for small and medium enterprises, respectively, of their total loan portfolio.

RA 8289 also called for a rationalization of the SME financing system. This
was eventually accomplished in 2001 with the merger of the Guarantee Fund for
Small and Medium Enterprises (GFSME), a fund created in 1984 to provide credit
guarantees for SMEs, with the SBGFC.

In seeking to further amend the Magna Carta for Small Enterprises, the Bill
seeks to enhance and make the law work effectively for the benefit of SMEs given
present-day realities and conditions.

‘The domestic and world environments for SMEs have altered significantly
since 1991, and in the past five (5) years alone, dramatic changes have largely
influenced the direction of trade and commerce both here and abroad, and in between.
For one, the twenty-first (21% ) century has seen economic globalization become a
reality for all businesses, from multinational corporations to micro enterprises. Goods
and services produced by Philippine SMEs now face stiff competition from cheaper
imports and substitutes. In a borderless economy, the survival of SMEs hinges largely
on their ability to innovate and remain productive. Correspondingly, state plans,
programs, as well as laws, must adapt with the changing business environment.

Further, the Asian financial crisis in 1997, the September 11, 2001 terrorist
attacks on the World Trade Center, the conflict in Iraq, their aftermath and other
turbulences that have ravaged both local and global economies, have contributed to
the sharp decline in the competitiveness and viability of SMEs.

The challenge, therefore, is to come up with concrete measures in order to stop
the sputtering growth of SMEs while empowering them again as they compete in a
liberalized and globalized business environment.

Moreover, the Bill seeks to make extensive use of the lessons drawn from the
decade-long implementation of RA 6977, as amended. For one, experience and
anecdotes have shown that banks are not exactly keen on knocking on the doors of
small business and wooing them with their loan offers. Too often, lending to SMEs is
associated with high transaction costs and thin profit margins.

Nevertheless, both SBGFC and GFSME have demonstrated that, following
certain models of financing which complement the banking sector's financing
services, SME development financing need not be prohibitively costly for
government, and is sustainable in the long run.

Yet, funds available to SME development financing are still far from
adequate. The P= 2 Billion available to SMEs through the SBGFC is but a drop in the
bucket compared to the needs of the sector.


From the annals of the SMED Council, the need for an adequately empowered

national policy, program planning and coordination body with effective and
appropriate linkages with the various sectors of local economies has long been
recognized.

As a primary and recurring feature, the Bill seeks to accord explicit

recognition to micro enterprises which has been traditionally lumped as part of the
small enterprise sector. The role of micro enterprises in the Philippine economy can
no longer be overlooked, as they comprise ninety-one percent (91 %)of the SME
sector alone.

Likewise, the Bill seeks to introduce the following amendments to RA 6977,

as amended, viz:

1

Broaden the membership of the SMED Council to include additional members
from the Executive (i. the Secretary of the Interior and Local Government)
and from the Legislature (i.e. the Chairpersons of the Senate Committee on
Economic Affairs and the House of Representatives Committee on Trade and
Industry and Special Committee on Entrepreneurship Development);

Eventually rename the SMED Council as the ‘Micro, Small and Medium
Enterprise Development (MSMED) Council’;

Modify the charter of the SBGFC, hereinafter referred to as the ‘Small
Business Corporation’, particularly those relating to its functions; corporate
powers; board composition, powers, and authority; capitalization and funding;
sovereign guarantee; organizational structure; and other powers as a
government financial institution;

Increase the mandatory allocation of credit resources by lending institutions to
at least eight percent (8 %) for micro and small enterprises, up from six
percent (6 %) under RA 8289, while retaining the minimum two percent (2 %)
allotted for medium enterprises;

Prescribe the compliance to this mandatory credit allocation provision either
through a.) actual extension of loans to qualified and registered micro, small
and medium enterprises (MSMSEs); or b.) actual subscription of preferred
shares of the Small Business Corporation;

Redefine MSMEs based on asset size, to wit:

Micro : not more than P 3,000,000
Smalt : P 3,000,001 - P 15,000,000
Medium : P 15,000,001 - P100,000,000

in line with the new definition of micro enterprises under Republic Act No.
9178, also known as the Barangay Micro Business Enterprises (BMBEs) Act
of 2002, and to make the definition of small and medium enterprises more
realistic;


7. Grant Presidential Awards for Outstanding MSMEs;

8. Declare the second week of July of every year as the ‘Micro, Small and
Medium Enterprise Development Week’;

9. Increase administrative sanctions and other penalties on lending institutions
for non-compliance with the mandatory credit allocation provision; and

10. Eventually revise the short title of the Act to ‘Magna Carta for Micro, Small
and Medium Enterprises’

Moreover, the Bill is envisioned to complement the National SME
Development Plan, a key objective of which is to graduate micro enterprises into
small and medium businesses, targeted at 38,000 enterprises, in three (3) years.
Another goal is to increase the productivity in terms of gross value added of
Philippine SMEs from thirty-two percent (32%) to the ASEAN average level of
forty percent (40%).

A key component of the same Development Plan is the SME Unified Lending
Opportunities for National Growth or SULONG Program, which seeks to
mobilize P= 25 to P= 30 Billion yearly in loans and guarantees to promising
MSMEs. As the lead agency of the same Program, the Small Business
Corporation’s ability to provide financing hinges largely on the proposed
amendments to its Charter as espoused under this Bill.

Henceforth, the passage of this Bill is earnestly requested.



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

THIRTEENTH (13") CONGRESS
First Regular Session

HOUSE BILLNo. _180

Introduced by The Honorable WILHELMINO M. SY-ALVARADO

AN ACT
TO FURTHER PROMOTE ENTREPRENEURSHIP AND SUPPORT THE
DEVELOPMENT OF MICRO, SMALL AND MEDIUM ENTERPRISES,
AMENDING FOR THE PURPOSE REPUBLIC ACT NO. 6977, AS AMENDED,
OTHERWISE KNOWN AS THE MAGNA CARTA FOR SMALL ENTERPRISES.

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,"

SEC. 2. Section 2 of the same Act, as amended, is hereby further amended to read

as follows:

"SEC. 2. Declaration of Policy. - Recognizing that MICRO, small
and medium scale enterprises (MSMEs) {have the potential for] CAN
GENERATE more employment [generation] and SPUR economic growth

and CAN 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 [small and
medium enterprises] MSMEs in all productive sectors of the economy
particularly rural/agri-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 ESTABLISHMENT OF
MICRO, SMALL AND MEDIUM ENTERPRISES AND ENSURE
THEIR CONTINUING VIABILITY AND GROWTH and thereby attain
countryside industrialization by:

a) [by assuring, through the establishment of adequate support
structure, and the creation and promotion of an environment conducive to the
viability of these enterprises, establishment of mechanisms, the access and
transfer of appropriate technology needed by smal] 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;

[4] C) [by assuring to them to a fair share of government
contracts and related incentives and preferences;

[e] D) [by] complementing and supplementing financing
programs for {small and medium enterprises] MSMEs and doing away with
stringent and burdensome collateral requirements that small entrepreneurs

invariably find extreme difficulty complying with;



(f] _ E) [by] instituting safeguards for the protection and stability of
the credit delivery system;

[Ig] F) [by raising government efficiency and effectiveness in
providing assistance to [small and medium enterprises] MSMEs throughout
the country, at the least cost;

{h] G) [by] promoting linkages [between large and small]
AMONG MICRO, SMALL, MEDIUM AND LARGE enterprises, and by
encouraging the establishment of common service facilities;

[i] H) [by] making the private sector a partner in the task of
building up [small and medium enterprises] MSMEs through the promotion
and participation of private voluntary organizations, viable industry
associations, and cooperatives; and

Li] D [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 [small and medium enterprises] 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 as Beneficiaries. ~
[‘Small and medium enterprise] MSMEs shall be 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 entity's office, plant and equipment are situated,

must have value falling under the following categories:

micro : [less than P 1,500,000] NOT MORE THAN P 3,000,000
small :  [P 1,500,001] P 3,000,001 - P 15,000,000
medium : P 15,000,001 : [P 60,000,000] P 100,000,000

The above definitions shall be subject to review and adjustment [by the said
Couneil] motu propio by the SMED COUNCIL CREATED UNDER SECTION 6
OF THIS LAW or upon recommendation of the sectoral organization(s) concerned
taking into account inflation and other economic indicators. The Council may use
[as] OTHER variables [the] SUCH AS number of employees, equity capital and

asset size.”

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, 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;


b) one hundred percent (100%) owned and], capitalized, AND
OPERATED by Filipino citizens, {if] WHETHER single proprietorship [or],
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.)

©) _ 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/erop production; and

4) 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].

However, this requirement shall not preclude a [small and medium
enterprise] MSME from accepting subcontracts [from large enterprises or
firms] AND ENTERING INTO FRANCHISE PARTNERSHIP WITH
LARGE ENTERPRISES OR FROM joining in cooperative activities with
other small and medium enterprises ] MSMEs.

Programs of the [financing corporation} SMALL BUSINESS
CORPORATION as provided in subsequent [SECTIONS] PROVISIONS of
this Act shall be exclusively [targeted] DELIVERED AND DIRECTED to

{medium, small, and micro-sized enterprises] BONAFIDE MSMEs.


Registered MICRO AND 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
enterprises are competitive.

THE DEPARTMENT OF BUDGET AND MANAGEMENT
SHALL MONITOR THE COMPLIANCE OF GOVERNMENT
AGENCIES ON THE REQUIRED PROCUREMENT FOR MSMEs

AND SUBMIT ITS REPORT TO THE MSMED COUNCIL ON A

SEMESTRAL 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 {small and
medium enterprise] MSME development, the State shall be guided by the
following principles: ’

a) Minimal set of rules and simplification of procedures and
requirements, All government agencies, having to do with small enterprises
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] MSMEs, 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] MSMEs 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] MSMFs. The Government shall encourage the
organization and establishment of [small and medium enterprise] MSME
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 Reform, 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 Sentral 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] MSMEs.

4) 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 the same Act, as amended, is hereby further amended to read

as follows:

"SEC. 6. Creation of [a] MICRO, Small and Medium Enterprise
Development (MSMED) Council. - To effectively spur the growth and
development of [small and medium enterprises] MSMEs throughout the
country, and to carry out the policy declared on this Act, a MICRO, Small
and Medium Enterprise Development [(SMED)] (MSMED) 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]
MSMEs [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, [as well as] AND seeking ways to

maximize the use of our labor resources.”

SEC. 7. Section 7 of the same Act, as amended, is hereby further amended to read

as follows:

"SEC. 7. 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 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;

©) Secretary of Labor and Employment;

d) Secretary of Environment and Natural Resources;

E) SECRETARY OF - INTERIOR AND LOCAL
GOVERNMENT;

fe] F) Secretary of Science and Technology;


{f]  G)Secretary of Tourism;

[8] H) — The Chairman of the Monetary Board;

{h] D Chairman of Small Business [Guarantee and Finance]

Corporation;

[i] J) Chairman of the small and medium enterprises promotion
body which the President shall undertake to establish under this Act; fand]

[i] K) Three (3) representatives from the private sector at
large, all Filipino citizens, to represent Luzon, Visayas and Mindanao, [and
one representative from the small and medium enterprise sector]
RESPECTIVELY, to be appointed by the President; [and]

[k] _L) A representative [from the private banking sector to
serve alternately among] EACH FROM the Chamber of Thrift Banks, Rural
Bankers’ Association of the Philippines (RBAP) and the Bankers Association
of the Philippines (BAP); AND

M) CHAIRPERSONS OF THE SENATE COMMITTEE ON
ECONOMIC AFFAIRS AND THE HOUSE OF REPRESENTATIVES
COMMITTEE ON TRADE AND INDUSTRY AND SPECIAL
COMMITTEE ON ENTREPRENEURSHIP DEVELOPMENT. IN THE
ABSENCE OF THE CHAIRPERSONS, THE SENIOR VICE-
CHAIRPERSONS OR THE NEXT MOST SENIOR MEMBER OF THE
COMMITTEE MAY ATTEND THE MEETING.

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
REMOVED FOR CAUSE SHALL SERVE ONLY FOR THE UN-
EXPIRED PORTION OF THE TERM.

EXCEPT FOR THE SECRETARY OF TRADE AND
INDUSTRY, [Cleabinet-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 per
diem of One thousand pesos (P1,000) ] 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 Department of Trade and Industry shall allocate Five million
pesos (P5,000,000) 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] SEPARATELY
PROVIDED IN THE GENERAL APPROPRIATIONS ACT
BEGINNING IN THE FISCAL YEAR IMMEDIATELY FOLLOWING
THE APPROVAL OF THIS ACT.

The Council may [, 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 ORGANIZATION is DIRECTLY OR INDIRECTLY


concerned with and/or affecting the growth and development of [small and
medium enterprises] MSMESs 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. 8. Section 8 of the same Act, as amended, is hereby further amended to

read as follows:

"SEC. 8. Powers and Functions. - The [Small and Medium
Enterprise Development (SMED)] MSMED Council shall have the following
powers, duties and functions:

a) to help establish the needed environment and opportunities
conducive tothe growth and development of the [small and medium
enterprises] MSMESs sector;

b) to recommend to the President and the Congress all policy
matters affecting [small and medium enterprises] MSMEs;

©) to formulate a comprehensive [small and medium enterprises}
MSMEs development plan to be integrated into the National Economic and
Development Authority (NEDA) Development Plans;

d) to coordinate and integrate various government and private

sector activities relating to [small and medium enterprises]. MSMEs;



©) to review existing policies of government agencies that would
affect the growth and development of [small and medium enterprises]
MSMEs and recommend changes to the President and [/or to the] Congress
THROUGH THE SENATE COMMITTEE ON ECONOMIC AFFAIRS
AND THE HOUSE OF REPRESENTATIVES COMMITTEE ON
TRADE AND INDUSTRY AND SPECIAL COMMITTEE ON
ENTREPRENEURSHIP DEVELOPMENT, 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] MSMEs;

f) 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]
MSMEs {particulasly the cottage and micro-sized firms J;

g) 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;

h) 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] MSMEs development;


i) to promote the productivity and viability of [small and
medium enterprises] 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 [small
and medium enterprises}. 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;

5) provision of assistance in marketing and distribution of
products of [small and medium enterprises] 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 models 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 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]

MSMEs;

i) to submit to the President and the Congress, THROUGH THE
SENATE COMMITTEE ON ECONOMIC AFFAIRS AND THE
HOUSE OF REPRESENTATIVES COMMITTEE ON TRADE AND
INDUSTRY AND SPECIAL COMMITTEE ON
ENTREPRENEURSHIP DEVELOPMENT, a yearly report on the status
of [small and medium enterprises] MSMEs in the country, including the
progress and impact of all relevant government policies, programs and
legislation as well as private sector activities;

kK) to assist in the establishment of moder industrial estates
outside urban centers and

L) TOSEE TOIT THAT THE PROVISIONS OF THIS ACT
ARE FULLY IMPLEMENTED AND THE OBJECTIVES AND

POLICIES FULLY ATTAINED.”

SEC. 9. Section 9 of the same Act, 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 OF THE
DEPARTMENT OF TRADE AND INDUSTRY 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 J annual as
well as medium-term MICRO, small and medium enterprise development
plans for approval of the Council;

2) to coordinate the preparation of position papers and
background materials for discussion or approval during Council meetings;

3) to assist the Council in coordinating and monitoring [small
and medium enterprises] MSMEs policies and programs and activities of all
government agencies with respect to MICRO, small and medium enterprises;

4) to prepare |, collate} and integrate all inputs to the Council's
yearly report on the status of [small and medium enterprises] MSMEs in the
country;

5) 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.”

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

read as follows:

"SEC. 10. Rationalization of Existing MICRO, Small and
Medium Enterprise Programs and Agencies. - The MSMED Council
shall conduct continuing review of government programs for [small and
medium enterprises] MSMEs and submit to [Congress and J the
President AND TO CONGRESS, THROUGH THE SENATE
COMMITTEE ON ECONOMIC AFFAIRS AND THE HOUSE OF
REPRESENTATIVES COMMITTEE ON TRADE AND INDUSTRY
AND SPECIAL COMMITTEE ON ENTREPRENEURSHIP
DEVELOPMENT, 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-
financing government programs, including 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 ] MSMED
Council. The said office shall receive no less than fifty percent (50%) of the

assets, and budgetary allocations of the agencies for promotion,



development and financing of small and medium enterprises that may be
henceforth dissolved and/or abolished and absorbed, incorporated and

integrated into the [SMED] MSMED Council.”

SEC. 11. 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
Small Business Guarantee and Finance Corporation hereinafter referred to
as the [SBGFC] SMALL BUSINESS CORPORATION, which shall
[source and adopt development initiatives for globally competitive small and
medium enterprises. in terms of finance, technology, production,
management and business linkages, and provide, promote, develop and

widen in both scope and service reach various altemative modes of

financing for small and medium enterprises, including but not limited to,
direct and indirect project lending venture capital, financial leasing,
secondary mortgage and/or rediscounting of loan papers to small businesses,
secondary/regional stock markets: Provided, That crop production
financing shall not be serviced by the Corporation] HAVE THE
FOLLOWING FUNCTIONS:

A) SOURCE AND ADOPT DEVELOPMENT
INITIATIVES FOR GLOBALLY COMPETITIVE MSMEs IN

FINANCE AND BUSINESS TECHNOLOGIES;


20

B) TO EXTEND ALL FORMS OF FINANCIAL AND
TECHNICAL ASSISTANCE TO QUALIFIED AND REGISTERED
MSMEs.

19) GUARANTEE LOANS OBTAINED BY QUALIFIED
MSMEs UNDER SUCH TERMS AND CONDITIONS ADOPTED BY
THE SMALL BUSINESS CORPORATION BOARD OF

DIRECTORS.

SEC. 12. There shall be incorporated after Section 11 of the same Act, as amended,

new sections to read as follows:

"SEC. 12. CORPORATE POWERS. THE SMALL BUSINESS
CORPORATION SHALL BE ADMINISTRATIVELY ATTACHED
TO THE DEPARTMENT OF TRADE AND INDUSTRY AND SHALL
BE UNDER THE POLICY AND PROGRAM SUPERVISION OF THE
MSMED COUNCIL. IT SHALL HAVE ITS PRINCIPAL OFFICES
IN METRO MANILA AND WHENEVER NECESSARY, ESTABLISH
BRANCH OFFICES IN THE PROVINCES.

THE SMALL BUSINESS CORPORATION SHALL
EXERCISE ALL TITE 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 OBJECTIVES OF THIS ACT.


FOR THIS PURPOSE, THE SMALL BUSINESS
CORPORATION MAY ALSO:

A) 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;

B) APPLY FOR, RECEIVE AND ACCEPT GRANTS AND
DONATIONS FROM SOURCES WITHIN AND OUTSIDE THE
COUNTRY;

C) 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 AGENCIES AND INSTRUMENTALITIES OR

ANY GOVERNMENT FINANCIAL INSTITUTIONS.”

“SEC. 13. COMPOSITION, POWERS AND AUTHORITY. —
THE SMALL BUSINESS CORPORATION CORPORATE POWERS
SHALL BE VESTED ON A BOARD DIRECTORS COMPOSED OF
ELEVEN (11) MEMBERS WHICH SHALL INCLUDE THE
FOLLOWING:

A) THE SECRETARY OF TRADE AND INDUSTRY;

24


B) THE SECRETARY OF FINANCE;

c) A PRIVATE SECTOR REPRESENTATIVE TO BE
APPOINTED BY THE PRESIDENT OF THE PHILIPPINES UPON
THE RECOMMENDATION OF THE MSMED COUNCIL;

D) SEVEN (7) REPRESENTATIVES OF THE SMALL
BUSINESS CORPORATION COMMON STOCKS; AND

E) THE PRESIDENT OF THE SMALL BUSINESS
CORPORATION AS EX-OFFICIO MEMBER AND TO SERVE AS
VICE CHAIRMAN OF THE BOARD.

THE PRESIDENT OF THE PHILIPPINES SHALL APPOINT
THE CHAIRMAN OF THE BOARD FROM AMONG ITS
MEMBERS.

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 SMALL BUSINESS CORPORATION, INCLUDING
INTEREST, PENALTIES, FEES AND/OR OTHER CHARGES IN
ACCORDANCE TO ITS OWN BY-LAWS 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; AND

E) EXERCISE ALL OTHER SUCH POWERS AS MAY BE
NECESSARY OR INCIDENTAL TO CARRY OUT THE SMALL

BUSINESS CORPORATION PURPOSES. “

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SEC. 13. Section 12 of the same Act , as amended, is hereby renumbered as

Section 14, and is further amended to read as follows:

“SEC. [12] 14. Capitalization and Funding. - The [Small
Business Guarantee and Finance} SMALL BUSINESS Corporation shall
have an authorized capital stock of [Five] TEN billion pesos [(P
5,000,000,000.00)} (P 10,000,000,000.00). The initial capital of One
billion pesos €1,000,000,000.00) 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 Philippine National Bank (PNB),

the Development Bank of the Philippines (DBP) in the amount of Two


hundred million pesos __(P 200,000,000.00) each. The Social Security
System (SSS) and the Government Service Insurance System (GSIS) shall

also set aside Two hundred

pesos (P200,000,000.00) each [ to be
placed in preferred stocks of the SBGFC] FOR THE SMALL BUSINESS
CORPORATION. THE TEN BILLION PESOS AUTHORIZED
CAPITAL STOCK OF SMALL BUSINESS CORPORATION SHALL
BE DIVIDED INTO 80,000,000 COMMON SHARES AND 20,000,000
PREFFERED SHARES WITH A PAR VALUE OF ONE HUNDRED
PESOS (P=100.00) 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 PREFFERED
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 exiting government agencies, bilateral and multilateral
official development assistance funds; subscriptions from government
owned or controlled corporations, and investments of private financial

institutions and corporations : PROVIDED, THAT ANY INVESTMENT

24


FROM THE PRIVATE SECTOR SHALL ONLY BE IN THE FORM.
OF PREFFERED SHARES.

TO ALLOW FOR CAPITAL BUILD-UP, THE SMALL
BUSINESS 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, 14. There shall be incorporated new sections to read as follows:

“SEC. 15. SOVEREIGN GUARANTEE FOR THE SMALL
BUSINESS CORPORATION. - THE PAYMENT OF GUARANTEE
OBLIGATIONS INCURRED BY THE SMALL BUSINESS
CORPORATION UNDER THE PROVISIONS OF THIS ACT IS
FULLY GUARANTEED BY THE GOVERNMENT OF THE

REPUBLIC OF THE PHILIPPINES, “

“SEC. 16. ORGANIZATIONAL STRUCTURE. - THE BOARD
OF DIRECTORS SHALL HAVE THE AUTHORITY TO PROVIDE
FOR AN ORGANIZATIONAL STRUCTURE AND STAFFING
PATTERN FOR OFFICERS AND EMPLOYEES OF THE SMALL

BUSINESS CORPORATION AND UPON RECOMMENDATION OF

2s


ITS PRESIDENT, APPOINT AND FIX THEIR REMUNERATION,
EMOLUMENTS AND FRINGE BENEFITS AND RETIREMENT
BENEFITS.

ALL POSITIONS IN THE SMALL BUSINESS
CORPORATION SHALL BE GOVERNED BY A COMPENSATION
AND POSITION CLASSIFICATION 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 THE BOARD NO MORE
THAN ONCE EVERY FOUR (4) YEARS WITHOUT PREJUDICE
TO YEARLY MERIT REVIEWS OR INCREASES BASED ON
PRODUCTIVITY AND PROFITABILITY. THE SMALL BUSINESS
CORPORATION 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

CORPORATION SHALL HAVE ITS OWN LEGAL DEPARTMENT

26


AND HIRE EXTERNAL COUNSELS FOR ALL ITS CASES
PENDING BEFORE ANY COURT, TRIBUNAL, ADMINISTRATIVE

BODY, OR ANY QUASI-JUDICIAL BODY.”

“SEC. 18. 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 SMALL BUSINESS CORPORATION SHALL BE JOINTLY

RESPONSIBLE IN ORGANIZING ACTIVITIES FOR THE EVENT.”

“SEC.19. PRESIDENTIAL AWARDS FOR OUTSTANDING
MSMEs. - PRESIDENTIAI, AWARDS FOR OUTSTANDING
MSMEs, CONSISTING OF REWARDS IN CASH OR IN KIND
SHALL BE GRANTED To ONE HUNDRED PERCENT (100%)
FILIPINO-OWNED COMPANIES. DURING THE MSME

DEVELOPMENT WEEK. “

27



28

SEC. 15. Sections 13 and 14 of the same Act, as amended, are hereby renumbered

as Sections 20 and 21, respectively, and are further amended to read as follows:

“SEC. [13] 20. Mandatory Allocation of Credit Resources to
MICRO, Small AND MEDIUM Enterprises. - For a period of ten (10)
years ftom the date of the effectivity 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 MICRO
AND 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 make it
available for [small and medium enterprises] MSMEs credit as herein
contemplated.
A LENDING INSTITUTION SHALL BE DEEMED IN COMPLIANCE
OF THIS PROVISION BASED ON:
A) ACTUAL EXTENSION OF LOANS TO QUALIFIED AND
REGISTERED MICRO, SMALL AND MEDIUM ENTERPRISES; OR
B) ACTUAL SUBSCRIPTION OF PREFFERED SHARES OF
STOCK OF THE SMALL BUSINESS CORPORATION.
The Bangko Sentral ng Pilipinas | , in consultation with the Council, | MAY
PRESCRIBE ALTERNATIVE FORMS OF COMPLIANCE SUBJECT TO THE
APPROVAL OF THE MSMED COUNCIL. THE BANGKO SENTRAL NG PILIPINAS

shall formulate rules for the effective implementation of this provision: Provided , That the



29

purchase of government notes, securities and other negotiable instruments [ with the
exception of such instruments as may be offered by the SBGFC which do not pay market
rates,] shall not be deemed compliance with the foregoing provisions: Provided, further,
That the Bangko Sentral ng Pilipinas shall establish an incentive program to encourage
lending to [small and medium] MSMEs industries beyond the mandatory credit allocation to
said enterprises, such as possible reduction in bank’s reserve requirement.

The [SMED] MSMED Council shall set up the appropriate systems to monitor all
loan applications of [small and medium enterprises] 1 MSMEs in order to account for the
absorptive capacity of the small and medium enterprise sector.

The Bangko Sentral Ng Pilipinas shall [ require lending institutions covered by this
Act to] furnish to the [Small and Medium Development] MSMED Council on a quarterly
basis [regular] COMPREHENSIVE reports fon their compliance with the above
provisions on the mandatory credit allocation 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 MSMEs.”

“SEC. [14] 21. Penalty Clause. - The Bangko Sentral ng
Pilipinas shall impose administrative sanctions and other penalties on the
ending institutions for non-compliance with [provisions of] PROVISION
ON Mandatory Allocation of Credit Resources [of’not less than Five
hundred thousand pesos (P 500,000) ] WHICH MAY BE IMPOSED BY

THE MONETARY BOARD BUT IN NO CASE EXCEED THIRTY


THOUSAND PESOS (P 30,000.00) PER DAY FOR EACH

VIOLATION.”

SEC. 16. Sections 15, 16 and 17 of Republic Act No. 6977, as amended, are

hereby renumbered as Sections 22 , 23 and 24, respectively.

SEC. 17. 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. 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,