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Republic of the Philippines iS RECEIVED
HOUSE OF REPRESENTATIVES — [12.7 November 24, 20210
Quezon City " —

TIME 3:47pm *
Eighteenth by
‘Third Regular Session

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Introduced by: REP. Allan Benedict S. Reyes

HOUSE BILL NO. 10544

EXPLANATORY NOTE

‘The government has finite resources. In as much as it may want to, it can only
give so much to help businesses affected by the pandemic - cither through national
agencies and local government units (LGUs). ‘Therefore, aside from financial subsidies,
special credit facilities that will service the financing needs of Barangay Micro Business
Enterprises (BMBEs)' must also be made more available and easily accessible to them.

Under Republic Act No. (R.A.) 9178? otherwise known as the BMBE Act of
2002, it is the declared policy of the State “to hasten the country’s economic
development by encouraging the formation and growth of barangay micro business
enterprises which effectively serve as seedbeds of Filipino entrepreneurial talents, and
integrating those in the informal sector with the mainstream economy, through the
rationalization of bureaucratic restrictions, the active granting of incentives and benefits
to generate much-needed employment and alleviate poverty.”

One of the incentives and benefits granted to BMBEs under R.A. 9178 is credit
delivery wherein the Land Bank of the Philippines (LBP), the Development Bank of the
Philippines (DBP), the Small Business Guarantee and Finance Corporation (SBGFO),
and the People’s Credit and Finance Corporation (PCFC) were mandated to set up a
special credit window that will service the financing needs of BMBEs registered in
accordance with the said law, and consistent with the Bangko Sentral ng Pilipinas (BSP)
policies, rules and regulations. The Govemment Service Insurance System (GSIS) and
Social Security System (SSS) were likewise directed to set up a special credit window that
will serve the financing needs of their respective members who wish to establish a
BMBE.’ The said financial institutions are likewise encouraged to wholesale funds to
accredited private financial institutions including community-based organizations such as
cooperatives, NGOs and people’s organizations engaged in granting credit, for relending
to BMBEs.

According to a study by the Asian Development Bank (ADB), however, the
share of MSME loans in the total outstanding bank loans was only 6.1% in 2019.

"Barangay Micro Business Enterprise" or “BMBE” refers to any business entity or enterprise

engaged in the production, processing or manufacturing of products or commodities, including,

agro-processing, trading and services, whose total assets including those arising from loans but
exclusive of the land on which the particular business entity's office, plant and equipment are
situated, shall not be more than Three Million Pesos (P3,000,000.00).

2 An Act to Promote the Establishment of Barangay Micro Business Enterprises (BMBES),
Providing Incentives and Benefits therefor, and for Other Purposes, 13 November 2002
{hereinafter, “BMBE. Act”}.

: Section 9, BMBE Act.



Moreover, bank loans to MSMEs accounted for only 3.2% of the country’s GDP during
the same period.

Even under Republic Act (RA) No. 6977¢ or the Magna Carta for Small
Enterprises, while all lending institutions, whether public or private, were required “to set
aside a portion of their total loan portfolio based on their balance sheet as of the end of
the previous quarter, and make it available for small enterprise credit,” the said
mandatory allocation of credit resources to small enterprises was barely meet. In
particular, the portion mandated to be so set aside shall then at least be, five per cent
(5%) by the end of the year of the effectivity of this Act (year 1991), ten percent (10%)
by the end of the second year through the end of the fifth year (years 1992 to 1997), and
five percent (5%) by the end of sixth year (year 1998) and may come down to zero by the
end of the seventh year (year 1999).

Later on, R.A. 6977 was further amended by Republic Act (R.A.) 9501 to become
the Magna Carta for Micro, Small and Medium Enterprises (MSMEs). Under this
amendatory Act, for the period of ten (10) years from year 2008 or the date of the
effectivity of the said law, all lending institutions were mandated to set aside at least eight
percent (8%) for micro and small enterprises of theit total loan portfolio based on their
balance sheet as of the end of the previous quarter, and make it available for MSME.
credit.

‘The ten-year period mandatory allocation of credit resources to. MSMEs as
provided under R.A. 9501, already ended on 16 June 2018. Consequently, ‘the allocation
has been on a major downward dive, with the following data: a) 2017: 3.32% micro and
small enterprises (MSEs) and 5.03% medium enterprises (MEs); b) 2018: 3.12% MSEs
and 4.55% MEs; c) 2019: 2.8% MSEs and 4.3% MEs and d) Q12020:2.09% MSEs and
3.31% MEs.”6 These data are also consistent with the findings of the 2020 Philippine
Statistics Authority (PSA) survey which recorded a total of 957,620 business enterprises
operating in the country. Of these, the PSA noted that 952,969 are actually MSMEs but
“the latest tally of bank loans to them is a mere total of 5.4%.””

To note, this was the situation for MSMEs even prior to the COVID-19
pandemic that hit the country in 2020. Specific data for BMBEs may even be worse. As
can be gleaned from available studies, however, it is very clear that a very small number
of these businesses have access to bank credit “and theie ability to access finance faces
constraints even during non-crisis periods.”* Needless to say, MSMEs, including those at
the barangay level, find it even more difficult to cope with the financial crisis brought
about by the pandemic.

‘ ‘An Act to Promote, Develop and Assist Small and Medium Scale Enterprises Through the
Creation of a Small and Medium Enterprise Development (SMED) Council, and the
Rationalization of Govemment Assistance Programs and Agencies Concemed with the
Development of Small and Medium Enterprises, and for Other Purposes, 24 January 1991.

5 Section 13, Id.

Benel Dela Paz Lagua, The SME finance gap during the pandemic, 17 September 2021, available

at burps://wwwwe bworldonline.com/the-sme-finance-gap-during-the-pandcmic/ (ast accessed 20

November 2021).

7 ld,

' Shigehiro Shinozaki and Lakshman N. Rao, COVID-19 Impact on Micro, Small, and Medium-
Sized Enterprises under the Lockdown: Evidence from a Rapid Survey in the Philippines, 21
February 2021 available at
swpl21G pdf (ast accessed 20 November 2021)

2


In fact, in the same study by the ADB, it was concluded that “a prolonged
pandemic will make it more difficult for MSMEs to raise funds from formal financial
institutions and to survive the crisis and its aftermath, which could contribute to more
potential losses to the Philippine economy and tisk the projected economic rebound in
2021.”

To address this, we need to revisit the BMBE. Act to ensure that it can effectively
address the difficulties faced by BMBEs in obtaining bank financing. Currently, the
BMBE Act only provides that in case of non-compliance with the provisions of Section
9 of the said Act regarding credit facility, “the BSP shall impose administrative sanctions
and other penalties on the concerned government financial institutions, including a fine
of not less than Five Hundred Thousand Pesos (P500,000.00).”” Similarly, the penal
clause of the Magna Carta for MSMEs only authorizes the Central Bank to “impose
administrative sanctions and other penalties on the lending institution for non-
compliance with provisions of the Act.” While “the president, members of boards of
directors, and other officers of the erring lending institutions shall be individually liable
for imprisonment of not less than six (6) months and a fine of not less than Five
hundred thousand (P500,000) each” it is often that big banking institutions will just
“choose to pay penalties for non-compliance rather than take on this riskier segment
compared to the corporate sector.” As amended, the BSP currently imposes
administrative sanctions and other penalties on the lending institutions for non-
compliance with provisions of this Act including a fine of not less than Five hundred
thousand pesos (P500,000.00)."*

As it stands, therefore, we need to better ensure that BMBEs, just like MSMEs,
have available and easier access to bank credit. For this purpose, we need to give our
current laws more teeth to ensure that credit resources are efficiently allocated to cater to
the unique financial needs of BMBEs.

In view of the foregoing, passage of this bill is earnestly sought.

QU [x=

HON. ALLAN BENEDICT S. REYES 4|
Representative, 34 District, Quezon City

° Shigehiro Shinozaki and Lakshman N. Rao, COVID-19 Impact on Micro, Small, and Medium-
Sized Enterprises under the Lockdown: Evidence from a Rapid Survey in the Philippines, 21
February 2021 available at husps://swww adh org/sites/defuul/files/publication/677321 /adbi-
swpl2LGipd (ast accessed 20 November 2021),

% Section 13, MBE. Act.
Section 14, Id.
lis Line Lopes, “Big banks fal to meet required MSME lending” avaluble at

(ast accessed
20 November 2021).
Section 19, MSME Act.



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

Eighteenth Congress
‘Third Regular Session

HOUSE BILL NO. 10544

Introduced by: REP. Allan Benedict S. Reyes

AN ACT MANDATING PUBLIC AND PRIVATE BANKING AND OTHER
FINANCIAL INSTITUTIONS TO LEND TO BARANGAY MICRO
BUSINESS ENTERPRISES (BMBEs), PROVIDING PENALTIES FOR
VIOLATIONS THEREOF AND FOR OTHER PURPOSES

Be it enaced by the Senate and House of Representatives ofthe Philippines in Congress assembled:

SECTION 1. Short Title. - This Act shall be known as the “Mandatory
BMBE Credit Facility Act of 2021.”

SECTION 2. Declaration of Policy. — It is hereby declared a policy of the
State to promote, support, strengthen and encourage the growth and development of
Barangay Micro Business Enterprises (BMBEs) in all productive sectors of the economy
by facilitating their access to sources of funds through private banking and other
financial institutions.

SECTION 3. Coverage. ‘This Act shall apply to all private banking and other
financial institutions (collectively, “lending institutions” as defined under Bangko Sentral
ng Pilipinas rules), whether public or private, in the Philippines. As used in this Act, the
term “Barangay Micro Business Enterprises (BMBEs)” shall refer to any business entity
or enterprise engaged in the production, processing or manufacturing of products or
commodities, including agro-processing, trading and services, whose total assets
including those arising from loans but exclusive of the land on which the particular
business entity's office, plant and equipment are situated, shall not be more than Three
Million Pesos (P3,000,000.00) as defined under the BMBE Act of 2002.

SECTION 4. Mandatory Allocation of Credit Resources to BMBEs. All
lending institutions shall set aside at least four percent (4%) for BMBEs of their total
loan portfolio based on their balance sheet as of the end of the previous quarter, and
make it available for BMBE ceedit as herein contemplated.

SECTION 5. Penal Clause. The Bangko Sentral ng Pilipinas shall impose
administrative sanctions and other penalties on the lending institutions for non-
compliance with provisions of this Act including a fine of not less than Five Million
pesos (P5,000,000.00).

SECTION 6. Implementing Rules and Regulations and Standard Forms. -
Within sixty (60) days from the promulgation of this Act, the Bangko Sentral ng Pilipinas

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(BSP) shall formulate rules for the effective implementation of Section 4 of this Act. The
BSP shall also establish an incentive program to encourage lending to BMBEs beyond
the mandatory credit allocation to said enterprises.

SECTION 7. Repealing Clause. — All laws, executive orders, administrative
orders, rules, regulations, decrees, and other issuances or parts thereof, which are
inconsistent with the provisions of this Act are hereby revoked, repealed, or modified
accordingly.

SECTION 8. Separability Clause. - lf any provision of this Act is held
unconstitutional or invalid, the other provisions not affected thereby shall continue in
operation and remain in full force and effect.

SECTION 9. Effectivity Clause. - This Act shall take effect fifteen (15) days
after its publication in a newspaper of general circulation or the Official Gazette.