THIRTEENTH CONGRESS OF THE 
1 
REPUBLIC OF THE PHILIPPINES 
1 
First Regular Session 
1 
S E N A T E  
S .B. ‘$0. 
Introduced by SENATOR LUISA “LOI” P. EJERCLTO ESTRADA 
EXPLANATORY NOTE 
Economic undertakings are best pursued not only through promotion and 
protection of national and multinational enterprises, albeit these are the ‘lifeblood of any 
country’s economy indubitably, but through adequate support and enhancement as well 
of both small and medium scale enterprises. 
Indeed, small and medium scale enterprises or SMEs have the potential for more 
employment generation and economic growth. They vigorously activate and intensify 
economic initiatives, which as a result provide for a healthy, solid, and self-sufficient 
industrial foundation for the country. 
There is therefore a need to look for creative ways and strategies to truly promote, 
support, strengthen and encourage the growth and development of SMEs. Unfortunately, 
existing laws, particularly R.A. 6977, a.k.a. the “Magna Carta for Small Enterprises” are 
no longer responsive to the ever changing needs of said enterprises. 
Hence, there is a need to amend its pertinent provisions, malting them responsive 
to the changing times, if only to genuinely promote entrepreneurship, support 
entrepreneurs, encourage the establishments of small and medium enterprises and ensure 
their continuing viability and growth and thereby attain concrete countryside 
industrialization. 
Given its significance, the immediate passage of this proposed measure is 
earnestly sought. 
4 
LUISA “LOP I!. EJERCITO ESTRADA 
Senator 


THIRTEENTH CONGRESS OF THE 
1 
First Regular Session 
) 
REPUBLIC OF THE PHILIPPINES 
) 
SEC. 2. Section 2 of Republx 
Introduced by SENATOR LUISA "LOL" P. EJERCITO ESTRADA 
Act No. 6977 is hereby amended to read as 
AN ACT 
TO 
FURTHER 
PROMOTE 
ENTREPRENEURSHIP 
AND 
SUPPORT 
THE 
DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES, AMENDING FOR 
THE PURPOSE REPUBLIC ACT NO. 6977, AS AMENDED, OTHERWISE JSNOWN 
AS THE MAGNA CARTA FOR SMALL ENTERPRISES. 
Be it enacted by the Senate and the House of Representatives of the Philippines in 
Congress assem bled: 
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." 
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 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] SMEs in all productive sectors of the economy particularly 
rurallagri-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 
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 small and medium enterprises;] 
[b)]A) [by] intensifying and expanding programs for training in entrepreneurship 
and for skills development of 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; 
[e] D) [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; 
[fl E) [by] instituting safeguards for the protection and stability of the credit 
delivery system; 
[g] F) [by] raising government efficiency and effectiveness in providing 
assistance to [small and medium enterprises] SMEs throughout the 
country, at the least cost; 
[h] G) [by] promoting linkages [between large and small] AMONG 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] SMEs through the promotion and participation of 
private voluntary organizations, viable industry associations, and 
cooperatives; and 
u] I) [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] SMEs. 
SEC. 3. Section 3 of Republic Act No. 6977, as amended, is hereby further 
amended to read as follows: 
"SEC. 3. Small and Medium Enterprise as Beneficiaries. - ['Small and 
medium enterprise'] SMEs 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] 
small : [P 1,500,001] 15,000,000 and below 
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 
organizations) concerned taking into account inflation and other economic 
indicators. The Council may use other variables such as, the number of 
employees, equity 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; 
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, [ifl WHETHER single 
proprietorship 
for] , 
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/crop production; and 


d) 
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] SME 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] 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 [Sections] PROVISIONS of this Act shall be 
exclusively [targeted] 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 
enterprises are competitive. 
THE DEPARTMENT OF BUDGET AND MANAGEMENT 
SHALL MONITOR 
THE 
COMPLIANCE 
OF 
GOVERNMENT 
AGENCIES ON THE REQUIRED PROCUREMENT FOR SMEs is AND 
SUBMIT ITS REPORT TO THE SMED COUNCIL ON A SEMESTRAL 
BASIS. 
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 simplification of procedures and requirements. 
All government agencies, having to do with small enterprises shaII 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. 
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 
federatiodassociation. 
b) 
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 Banglto 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] SMEs. 
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, 
d) 


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 ouyt 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 bf [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, [as 
well as] 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 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: 
Director General of the National Economic and Development 
Authority; 
Secretary of Agriculture; 
Secretary of Labor and Employment; 
Secretary of Environment and Natural Resources; 
SECRETARY OF INTERIOR AND LOCAL GOVERNMENT; 
Secretary of Science and Technology; 
Secretary of Tourism 
The Chairman of the Monetary Board; 


1) 
J) 
Chairman of Small Business [Guarantee and Finance] Corporation; 
Chairrnan of the small and medium enterprises promotion body 
which the President shall undertake to establish under this Act; and 
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 to 
be appointed by the President; [and] 
K) 
L) 
A representative from the private banking sector to serve 
alternately among 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 COMMITTEE ON ECONOMIC 
AFFAIRS 
OF 
THE 
SENATE 
AND 
THE 
SPECIAL 
COMMITTEE ON ENTREPRENEURSHIP DEVELOPMENT 
OR ANY APPROPRIATE COMMITTEE CONCERNED OF 
THE HOUSE OF REPRESENTATIVES. 
ALL MEMBERS OF THE COUNCIL SO APPOINTED, 
EXCEPT FOR THE EX-OFFlCIO MEMBERS, SHALL SERVE 
FOR A TERM OF THREE (3) YEAKS. THE PERSON SO 
APPOINTED TO REPLACE A MEMBER 
WHO HAS 
RESIGNED, DIED, OR BEEN REMOVED FOR CAUSE SHALL 
SERVE ONLY FOR THE UNEXPIRED PORTION OF THE 
T E W .  
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 per diem [of One thousand pesos (Pl,OOO)] 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 SHALL BE DETERMINED BY THE 
SMED COUNCIL 


[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.] 
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 [, from time to time,] call upon the 
participation of any NATIONAL OR LOCAL government agency 
or [association] PRNATE SECTOR ORGANIZATION when 
such agency OR PRIVATE SECTOR ORGANIZATIONS is 
DLRECTLY OR INDIRECTLY concerned with and/or affecting 
the growth and development of [small and medium enterprises] 
MSMEs in any particular area or manner. 
The Council may create an Executive Committee of five 
(5) members elected by the Council fi-om 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 Cquncil. 
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)] SMED Council shall have the following powers, duties 
and functions: 
a) 
to help establish the needed environment and opportunities 
conducive to the growth and development of the [small and 
medium enterprises] SME sector; 


f) 
to recommend to the President and the Congress all policy matters 
a€fecting [small and medium enterprises] SMEs; 
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 THE SPECIAL 
COMMITTEE ON ENTREPRENEURSHIP DEVELOPMENT, 
OR ANY AF'PROPFUATE COMMITTEE, OF THE 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] SMEs; 
to monitor and determine the progress of various agencies geaved 
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 and/or assisting relevant 


government agencies and institutions at the national, regional and 
provincial levels towards the: 
Provision of business training courses, technical training for 
technicians and skilled laborers and continuing skills 
upgrading programs; 
Provision of labor-management guidance, assistance and 
improvement of the working conditions of employees in 
[small and medium enterprises] SMEs; 
Provision of guidance and assistance regarding product 
quality/product development and product diversification; 
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; 
Provision of assistance in marketing and distribution of 
products 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 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; 
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; 
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; 


Provision of banluuptcy 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; 
Intensification of information dissemination campaigns and 
entrepreneurship education activities; 
Easier access to and availment of tax credits and other tax 
and duty incentives as provided by the Omnibus Investment 
Code and other laws; 
Provision of support for product experimentation and 
research and development activities as well as access to 
information on commercialized technologies; and 
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 COMMITTEE ON ECONOMIC AFFAIRS AND THE 
SPECIAL 
COMMITTEE 
ON 
ENTREPRENEURSHIP 
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; 
to assist in the establishment of modern industrial estates outside 
urban centers; and 
k) 
L) 
TO 
EXERCISE 
ALL 
POWERS 
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-FmANCING 
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 meetings; 
to assist the Council in coordinating and monitoring [small and 
medium enterprises] SMEs policies and progranis and activities of 
all government agencies with respect to small and 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. 
2) 
3) 
4) 
5 )  
6) 
SEC. 10. Section 10 of Republic Act No. 6977, as amended, is hereby further 
amended to read as follows: 
"SEC. 10. Rationalization of Existing Small and Medium Enterprise 
Programs and Agencies. - The SMED Council shall conduct continuing review of 
government programs for [small and medium enterprises] SMEs and submit to 
[Congress 
and] 
the 
President 
AND 
CONGRESS, 
THROUGH 
THE 
COMMITTEE ON ECONOMIC AFFAIRS OF THE SENATE AND THE 
SPECIAL COMMITTEE ON ENTREPRENEURSHIP DEVELOPMENT, OR 
ANY 
APPROPRIATE 
COMMITTEE 
OF 
THE 
HOUSE 
OF 
REPRESENTATIVES, 
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 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 
andor abolished and absorbed, incorporated and integrated into the SMED 
Council.] 
SEC. 11. Section 11 of Republic Act No. 6977, 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 CORP., 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 alternative 
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 PURPOSES: 
A) 
SOURCE AND ADOPT DEVELOPMENT INITIATIVES FOR 
GLOBALLY COMPETITIVE SMEs IN FINANCE AND 
BUSINESS TECHNOLOGIES; 
TO EXTEND ALL FORMS OF FINANCIAL AND TECHNICAL 
ASSISTANCE TO QUALIFIED AND REGISTERED SMEs. 
GUARANTEE LOANS OBTAINED BY QUALIFIED MSMEs 
UNDER SUCH TERMS AND CONDITIONS ADOPTED BY 
THE SMALL BUSINESS CORP. BOARD OF DIRECTORS. 
B) 
C) 
SEC. 12. There shall be incorporated after Section 11 of Republic Act No. 6977, 
as amended, new sections to read as follows: 


"SEC. 12. CORPORATE POWERS. SMALL BUSINESS COW. SHALL 
BE ADMINISTRATIVELY ATTACHED TO THE DEPARTMENT OF TRADE 
AND INDUSTRY AND SHALL BE UNDER THE POLICY AND PROGRAM 
SUPERVISION OF THE SMED COUNCIL. IT SHALL HAVE ITS 
PRINCIPAL 
OFFICES 
IN 
METRO 
MANILA 
AND 
WHENEVER 
NECESSARY, ESTABLISH BRANCH OFFICES IN THE PROVINCES. 
SMALL BUSINESS COW. SHALL EXERCISE ALL THE GENERAL 
POWERS EXPRESSLY CONFERRED BY LAW UPON CORPORATIONS 
UNDER THE CORPORATION CODE. 
FOR THIS PURPOSE, SMALL BUSINESS CORP. MAY ALSO: 
A) 
HOLD, PURCHASE, LEASE OR OTHERWISE ACQUIRE AND 
OWN REAL AND PERSONAL PROPERTY, INTRODUCE 
NECESSARY IMPROVEMENTS THEREON AND TO SELL, 
MORTAGAGE, ENCUMBER OR OTHERWISE DISPOSE OF 
THE SAME AS MAY BE NECESSARY IN THE NORMAL 
COURSE OF BUSINESS, NOTWITHSTANDING ANY LAW 
TO THE CONTRARY; 
B) 
APPLY FOR, RECEIVE AND ACCEPT GRANTS AND 
DONATIONS FROM SOURCES WITHIN AND OUTSIDE THE 
COUNTRY; 
HOLD, OWN, PURCHASE, ACQUIRE, SELL, MORTGAGE, 
C). 
DISPOSE OR OTHERWISE INVEST OR RE-WEST IN 
STOCKS, BONDS, TREASURY BILLS, 
DEBENTURES, 
SECURITIES AND SIMILAR FORMS OF INDEBTEDNESS OF 
THE 
GOVERNMENT, 
ITS 
AGENCIES 
AND 
INSTRUMENTALITIES 
OR 
ANY 
GOVERNMENT 
FINANCIAL INSTITUTIONS, NOTWITHSTANDING ANY 
LAW TO THE CONTRARY. 
"SEC. 13. COMPOSITION, POWERS AND AUTHORITY. - 
THE SMALL BUSINESS CORP. CORPORATE POWERS SHALL BE 
VESTED ON A BOARD DIRECTORS COMPOSED OF ELEVEN (I 1) 
MEMBERS WHICH SHALL INCLUDE THE FOLLOWING: 
A) 
THE SECRETARY OF TRADE AND INDUSTRY 


THE SECRETARY OF FINANCE 
A 
PRIVATE 
SECTOR 
REPRESENTATIVE 
TO 
BE 
APPOINTED BY THE PRESIDENT OF THE PHILIPPINES 
UPON THE RECOMMENDATION OF THE SMED COUNCIL; 
SEVEN (7) REPRESENTATIVES OF SMALL BUSINESS 
CORP. HOLDERS OF COMMON STOCKS; AND 
THE PRESIDENT OF SMALL BUSINESS CORP. 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 : 
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 ; 
COMPROMISE OR RELEASE, IN WHOLE OR IN PART, ANY 
CLAIM OR LIABILITY WHATSOEVER FOR OR AGAINST 
SMALL 
BUSINESS 
COW., 
INCLUDING 
INTEREST, 
PENALTIES, 
FEES 
AND/OR 
OTHER 
CHARGES 
IN 
ACCORDANCE TO ITS OWN BY-LAWS AND BANGKO 
SENTRAL NG PILIPINAS 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 
BUSINESS 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 BUSINESS CORP. shall 
have an authorized capital stock of [Five] TEN billion pesos (P f5J 
10,000,000,000.00). The initial capital of One billion pesos (P1,000,000,000.00) 
shall be established from a pool of funds to be contributed in the form of equity 
investments in common stock by the Land Bank of the Philippines (LBP), the 
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 (P200,000,000.00) 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 80,000,000 
COMMON SHARES AND 20,000,000 PREFERRED SHARES WITH A PAR 
VALUE OF ONE HUNDRED PESOS (P100.00) PER SHARE: PROVIDED, 
THAT 
THE 
COMMON SHARES WHICH 
HAVE 
BEEN 
ISSUED, 
INCLUDING THOSE ISSUED AGAINST THE ASSETS OF THE I G X  
GUARANTY FUND CONSOLIDATED UNDER THE SMALL BUSINESS 
CORP., BY VIRTUE OF EXECUTIVE ORDER NOS. 233, SERIES OF 2000, 
AND 19, SERIES OF 2001, AND INCLUDTNG THOSE ALREADY 
SUBSCRIBED, SHALL FORM PART OF THE 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 
fmding shall come from tmst placements of excess and unused funds of existing 
government agencies, bilateral and multilateral official development assistance 
fbnds, subscriptions 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 SHARES. 
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 EFFECTIVITY OF THIS 
AMENDMENT. THEREAFTER, IT MAY ONLY DECLARE AS DIVIDEND 


NOT MORE THAN 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 SMALL BUSINESS 
CORP.. - THE PAYMENT OF GUARANTEE OBLIGATIONS INCURRED BY 
SMALL BUSINESS CORP. 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 SMALL BUSINESS CORP. AND UPON 
RECOMMENDATION OF ITS PRESIDENT, APPOINT AND FIX THEIR 
REMUNERATION7 EMOLUMENTS 
AND 
FRINGE BENEFITS AND 
RETIREMENT BENEFITS. 
ALL POSITIONS IN SMALL BUSINESS cow. 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. 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 MEDIUIVI 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 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 MSMES. - 
PRESIDENTIAL AWARDS FOR OUTSTANDING MSMEs, 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. - Fora period of ten (10) years from 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 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] SMEs credit as herein contemplated. 
COMPLIANCE OF THIS PROVISION SHALL BE: 
A) 
ACTUAL EXTENSION OF LOANS TO QUALIFIED AND 
REGISTERED 
ACCREDITED 
SMALL 
AND 
MEDIUM 
ENTERPRISES; OR 


B) 
ACTUAL SUBSCWTION OF PREFERRED SHARES OF 
STOCK OF SB CORPORATION. 
The Bunko Sentrnl ng Pilipinns [, in consultation with the 
Council,] 
MAY 
PRESCRIBE 
ALTERNATIVE 
FORMS 
OF 
COMPLIANCE SUBJECT TO THE APPROVAL OF THE SMED 
COUNCIL. FURTHER, THE BANGKO SENTRAL NG PILIPINAS 
shall formulate rules for the effective implementation of this provision: 
Provided, That the purchase of government notes, securities and other 
negotiable instruments, with the exception of such instruments as may be 
offered by the SMALL BUSINESS COW. [SBGFC] which do not pay 
market rates, shall not be deemed compliance with the foregoing 
provisions: Provided, further, That the Banko Sentral ng Pilipinas shall 
establish an incentive program to encourage lending to small and medium 
industries beyond the mandatory credit allocation to said enterprises, such 
as possible reduction in bank's reserve requirement. 
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 enterprise 
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] 
COMPREHENSWE reports [on 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 SMEs. 
"SEC. 21. Penalty Clause. - The Bangko Sentral ng Pilipinas shall 
impose administrative sanctions and other penalties on the lending 
institutions for non-compliance with [provisions ofi the provision on 
Mandatory Allocation of Credit Resources [of not less than Five hundred 
thousand pesos (P500,OOO)l WHICH MAY BE IMPOSED BY THE 
MONETARY BOARD BUT IN NO CASE EXCEED THIRTY 


THOUSAND PESOS (PHP30.000.00) PER DAY FOR EACH 
VIOLATION. 
SEC. 16. Sections 15, .16 and 17 of Republic Act No. 6977, as amended, are 
hereby renumbered as Sections 23, 24 and 25, 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. 
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