benjamin e diokno : launching of the citi micro entrepreneurship awards 2020 message by mr benjamin e diokno, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), at the launching of the citi micro entrepreneurship awards 2020, manila, 1 december 2020. * * * citi philippines ceo, mr. aftab ahmed ; members of the cma national selection committee ( nsc ) ; partners from the microfinance council of the philippines, inc. ( mcpi ) headed by mr. eduardo c. jimenez ; colleagues in the bsp ; fellow microfinance advocates ; and friends from the media : good afternoon. welcome to the virtual launch of the 18th citi microentrepreneurship awards ( cma ). this year is a landmark for the cma program, for being launched amid the covid - 19 pandemic and showcasing the determination of filipino microentrepreneurs to succeed at this trying time. a critical sector of our country, msmes account for 99. 5 % of business enterprises, 62. 4 % of total employment, and 35. 7 % of gross value added ( gva ). the pandemic disrupted msmes in unprecedented ways. more than ever, it is vital to sustain our microentrepreneurs, who provide essential products and services in the “ last mile. ” predominant in low - income areas and serving as engines driving local economies, microentrepreneurs also nurture swathes of the filipino population depending on them for postpandemic recovery and rebuilding. hence, the bsp is pulling out all the stops to support microentrepreneurs and smes. to stimulate lending to the sector, the bsp has included new loans granted to msmes as part of industry compliance with reserve requirements ; reduced the credit risk weight of current loans granted to msmes ; and assigned zero percent risk weights for loans covered by government guarantee programs. to broaden usage of digital payment streams, the bsp encouraged financial service providers ( fsps ) to waive fees for pesonet and instapay transactions. likewise, the benefits of digitization initiatives supporting our digital payments transformation roadmap ( dptr ) are expected to redound to msmes as they adopt and utilize digital financial services ( dfs ). the bsp is also implementing several projects to facilitate credit flows to the msme sector. our

##worthiness on the interbank market, leading to possible shortfalls in their liquidity. it is precisely these aspects of deleveraging which are potentially fraught with problems. in an unfavourable scenario, a shortage of capital and liquidity causes banks to curb their lending even to enterprises who really have no need to reduce their debt on account of their financial situation. these enterprises then become the collateral damage of a disorderly deleveraging process, with matching consequences for the real economy and, thus, for growth and employment. what is crucial, therefore, is that such a process be conducted in an orderly manner. enterprises which have a functioning business model and which produce competitive goods or services must be able to go on funding their activities, while enterprises that miscalculated before the crisis have to reduce their debt. a good example of such an orderly deleveraging process is the strengthening of many german enterprises ’ capital base since 2000. above all, formerly insufficiently capitalised small and medium - sized enterprises used their increased corporate profits during this period to raise their capital base and reduce liabilities. overall, their capital ratio went up by 10 percentage points. in most cases, therefore, germany enterprises already have their deleveraging process behind them. and that is very much to be welcomed. for this process to succeed, three points were decisive. first, german enterprises ’ profits rose sharply during the past ten years, which made it significantly easier to build up capital. in other words, they made use of the cyclical tailwind in the last few years. second, enterprises became aware at an early stage that the stricter capital requirements under basel ii would mean them having to meet higher standards of creditworthiness. in many cases, an increase in equity capital meant that it was possible to avoid higher interest charges or less favourable credit standards. finally, tax law also gave a major boost to the greater accumulation of capital and reserves. the tax reform in 2000 removed the unfavourable tax treatment of reinvested earnings and created an incentive for retaining more profits. deleveraging yes, but not driven by a credit crunch : that is how a successful deleveraging process can best be summed up. central banks can support this balancing act – but only to a limited extent. it is true that, by providing liquidity assistance to the banks, they can ease tensions on the interbank market – which, as we all know, is something they do. but they cannot adjust balance