‘Philippines faces $206 billion funding gap for SMEs’

“The unmet capital requirements of small businesses are pulling the handbrake and slowing down the velocity of growth for small businesses.”

MANILA, Philippines — The Philippines is facing a $206-billion funding gap for small and medium enterprises (SMEs), the second largest in Asia-Pacific, amid various financial barriers that effectively slow the industry’s growth.

In a briefing yesterday, leading global digital payments Visa said Filipino SMEs continue to face challenges, specifically funding access, even as the sector makes up 99 percent of all business enterprises in the country.

Visa country manager Jeffrey Navarro said the Philippines has a $221-billion demand for formal credit, but only a measly $15 billion is available for SMEs.

Similarly, the Magna Carta for SMEs mandates lending institutions to allocate eight percent of their loans for small businesses, but only half or just 4.52 percent is the share of SMEs in banks’ total loan portfolios.

Among the challenges the SMEs are facing is the lack of capital, with 44 percent of Filipinos saying cash flow is a significant worry and 54 percent noting that their cash reserves would last for only six months.

SMEs are also dealing with the exclusion from the formal ecosystem amid lack of collateral, limited credit history, informal business practices and financial literacy gaps.

SMEs represent 66 percent of the Philippine workforce and contribute 32 percent to the gross domestic product.

“If the funding is there, imagine how much more they can contribute to the economy,” Navarro said.

Gareth Parrington, Visa head of commercial money movement for Southeast Asia, said the unmet capital requirements of small businesses are pulling the handbrake and slowing down the velocity of growth for small businesses.

“It is manifested in the lack of opportunity to invest and expand businesses, to develop into new markets and new products. It restricts employment and impacts ability to compete and prosper both locally and in the region,” Parrington said.

In Asia-Pacific, there are over 200 million SMEs employing 70 percent of the labor force and contributing 60 percent to the regional economy. Globally, the funding gap stands at $5.2 trillion, and 46 percent or $2.4 trillion of that is in the region.

More notably, women-led SMEs in the region face additional social barriers, including gender bias in lending and limited property rights, which restrict their ability to use financial collateral.

Visa recently launched a $100-million small business accelerator initiative aimed at advancing digital financial inclusion, stimulating job creation and increasing access to capital for SMEs in Asia-Pacific, including the Philippines.

The program has reached an estimated 29.6 million SMEs in the region, including 10.9 million women-led ones.