Republic of the Philippines 
HOUSE OF REPRESENTATIVES 
Quezon City 
19th CONGRESS 
First Regular Session 
HOUSE BILL NO.  ____ 
___________________________________________________________________________ 
Introduced by REP. BERNADETTE “DETTE” G. ESCUDERO 
___________________________________________________________________________ 
EXPLANATORY NOTE 
The enactment of Republic Act No. 6977, as amended by Republic Act Nos. 8289 and 
9501 in 1997 and 2008, respectively, otherwise known as Magna Carta for Micro, Small and 
Medium Enterprises (MSMEs), affirmed the responsibility of the State to promote, support, 
strengthen, and encourage the growth and development of MSMEs in all productive sectors of the 
economy. One of the salient features of the MSME law is the mandate imposed in all lending 
institutions to set aside part of their loan portfolio and make it available for small enterprise credit 
for a period of ten (10) years. This mandatory credit allocation benefits MSMEs in two ways: first, 
through the provision of channels to source financing to expand or jumpstart their operations; and 
second, generation of funds through penalties to finance MSME interventions.  
The pandemic and its impact on business operations and customer demand have adversely 
impacted the MSME sector, causing temporary and permanent closures of MSME establishments 
and the displacement of thousands of employees. While the economy is on its way to recovery, 
MSMEs remain particularly vulnerable to pre-pandemic concern such as the limited access of 
MSMEs to financing and markets. As noted in the 2017-2022 MSME Development Plan, lending 
institutions tend to prefer non-MSME borrowers because of higher gains, lower credit risk, higher 
repayment rate and collateral availability. Data from the Bangko Sentral ng Pilipinas (BSP) show 
that in the last quarter 2021, banks only extended 2.08% and 3.3% of their total loan portfolio to 
micro, small, and medium enterprises, respectively. 
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The restricted access to financing, among other challenges, needs to be addressed to ensure 
swift recovery not only of MSMEs but the entire economy. This bill seeks to reinstitute this 
mandatory credit allocation to provide a time-bound intervention to ease the MSMEs’ financial 
burden and hasten its recovery from a global pandemic. Additionally, the proposed measure 
mandates the Department of Trade and Industry, in coordination with the department of finance 
and the BSP, to formulate and implement other interventions to improve MSMEs’ access to formal 
sources of financing. With these twin provisions, it is hoped that providing better access to wider 
range of financial services would help MSMEs realize their full potential in generating 
employment and boosting economic growth. 
In view of the foregoing, the passage of the measure is earnestly sought. 
Respectfully submitted. 
BERNADETTE “DETTE” G. ESCUDERO 


Republic of the Philippines 
HOUSE OF REPRESENTATIVES 
Quezon City 
19th CONGRESS 
First Regular Session 
HOUSE BILL NO.  ____ 
___________________________________________________________________________ 
Introduced by REP. BERNADETTE “DETTE” G. ESCUDERO 
___________________________________________________________________________ 
AN ACT REINSTITUTING MANDATORY CREDIT ALLOCATION  
FOR MICRO, SMALL, AND MEDIUM ENTERPRISES, IMPOSING FINES 
AND PENALTIES FOR NONCOMPLIANCE, AND FOR OTHER 
PURPOSES 
Be it enacted by the Senate and House of Representatives of the Philippines in Congress 
assembled: 
Section 1. Reinstitution of Mandatory Credit Allocation for Micro, Small and Medium 
Enterprises – for the period of ten (10) years from the effectively of this Act, all lending institutions 
as defined under Bangko Sentral ng Pilipinas (BSP) rules, whether public or private, shall set aside 
at least eight percent (8%) for micro and small enterprises and at least two percent (2%) for 
medium enterprises of their total loan portfolio based on their balance sheet as of the end of the 
previous quarter, and make it available for Micro, Small, and Medium Enterprises (MSME) credit 
as contemplated in this Act: Provided, that the Secretary of Finance may extend the effectivity 
period of the mandatory MSME credit allocation as may be warranted by prevailing financial and 
economic conditions as reflected in the number and growth rate of MSME-classified 
establishments, MSME share in the total employment, MSME share in the Gross Domestic Product 
(GDP), and other socioeconomic and financial indicators to be identified by the Department of 
Trade and Industry (DTI) and MSME Development Council. 
Lending institutions may comply with the mandatory MSME credit allocation through any 
of the following: 
(a) Actual extension of loans to eligible MSMEs;
(b) Actual subscription of preferred shares of stock Small Business Corporation (SBCorp);
(c) Wholesale lending to Participating Financial Institutions for on-lending to MSMEs;
(d) Purchase/discount of MSME Receivables;
(e) Extension of loans to export, import, and domestic traders; or
(f) Subscription/purchase of liability instrument as may be offered by the SBCorp.
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The BSP, in coordination with the Department of Finance (DOF) and the DTI shall 
formulate rules for the effective implementation of this provision: provided, that the purchase of 
government notes, securities and other negotiable instruments shall not be deemed compliance 
with the foregoing provisions: Provided, further, that the BSP shall establish an incentive 
program to encourage lending beyond the mandatory MSME credit allocation, such as possible 
reduction in bank’s reserve requirement. 
The MSME Development Council shall establish a mechanism to monitor all MSME 
Loan applications to account for the absorptive capacity of the MSME sector. 
The BSP shall furnish the MSME Development Council on a quarterly basis 
comprehensive report on the bank’s compliance, noncompliance and penalties of the above 
provisions on the mandatory credit allocation for MSMEs. 
Lending institutions which are not qualified to acquire or hold lands of the public domain 
in the Philippines shall be permitted to bid and take part in sales of mortgaged real property in 
case judicial or extra-judicial foreclosure, as well as avail of receivership, enforcement and other 
proceedings, solely upon default of a borrower, and for a period not exceeding five (5) years 
from actual possession; Provided, that in no event shall ownership and title to the property be 
transferred to such lending institutions. If the said lending institutions is the winning bidder, it 
may, during five (5) year period, transfer its rights to a qualified Philippine national, without 
prejudice to a borrower’s rights under applicable laws. 
Sec. 2. Penalties for Noncompliance – The BSP shall impose administrative sanctions 
and other penalties on erring lending institutions for non-compliance with the provisions of this 
Act. In addition, the President, members of Board of Directors, and other officers of the erring 
lending institutions shall be individually liable for imprisonment of ranging from six (6) months 
to one (1) year, a fine ranging from five hundred thousand (500,000.00) to two million pesos 
(2,000,000.00) each, or both, at the discretion of the court. 
Ninety percent (90%) of the penalties for noncompliance shall be remitted to MSME 
Development council fund and shall be used for the extension of low-interest, non-collateral 
loans for MSMEs, while the remaining ten percent (10%) shall be retained by the BSP cover for 
administrative expenses. 
Sec. 3. Other interventions to improve MSME’s access to financing – the DTI, in 
coordination with the DOF and the BSP, shall formulate and implement other interventions to 
improve MSMEs, development of credit enhancement mechanism, and making use of domestic 
savings and foreign exchange reserves. 
Sec. 4. Implementing Rules and Regulations (IRR). – Within thirty (30) days from the 
effectivity of this Act, the BSP, the DOF and the DTI shall promulgate the rules and regulations 
to effectively implement the provisions of this Act.  


 
 
Sec. 5. Separability Clause. – if any provision or part hereof is declared unconstitutional, 
the remainder of this Act or any provision not affected thereby shall remain in full force and 
effect. 
Sec. 6. Repealing Clause. – All laws, act, decrees, executive orders, issuances, and rules 
and regulations or parts thereof which are contrary to and inconsistent with this Act are hereby 
repealed, amended, or modified accordingly. 
Sec. 7. Effectivity. – This Act shall take effect Fifteen (15) days following its publication 
in the Official Gazette or in at least two (2) newspaper of general circulation and shall remain in 
full force and effect for ten (10) years unless otherwise extended provided under Section 1 of this 
Act.  
 
Approved,