The Department of Finance (DOF) has committed to support the swift passage of, and create an enabling environment for, pending legislative measures that would allow the use of non-traditional collateral for loans and other reforms that aim to ensure greater financial access for micro small and medium enterprises (MSMEs).

DOF Undersecretary Gil Beltran said pending bills in the Congress that seek to strengthen the existing secured transactions framework and modernize the country’s Warehouse Receipts system are among these measures that would help ensure financial inclusion for MSMEs, including those in the agriculture sector.

“I cannot but emphasize how important [the Secured Transactions Law and Warehouse Receipts Law are] given the country’s goals of improving competitiveness, harnessing the potential of the country’s MSMEs, and making these MSMEs, especially with those that have linkage to the global supply chain, at par with that of regional players,” said Beltran in his closing remarks at the 5thAsia-Pacific Economic Cooperation (APEC) Financial Infrastructure Development Network (FIDN) conference held recently in Manila.

The proposed secured transactions law seeks to establish a legal framework for the use of non-traditional collateral, such as accounts receivable and inventory in applying for loans in financial institutions.

Modernizing the warehouse receipts system involves overhauling a 105-year old law to make way for a computerized central registry for all warehouse receipts, which are used by farmers and other members of the agriculture sector as collateral to obtain credit.

Farmers are issued warehouse receipts as proof of ownership for their goods stored in warehouses. Such receipts are then traded or encumbered in exchange for credit to informal lenders as banks are often hesitant to extend loans using unreliable and easily tampered paper receipts as collateral.

“On the part of the Department of Finance, we remain committed to support the passage of the Secured Transactions Law and the Warehouse Receipts Law. We will also work on creating the enabling environment for these laws to affect their intended benefits, such as creating linkages between financial services suppliers and users, and supporting the development of a market for secured transactions,” Beltran said at the conference.

Beltran noted that since the FIDN was established in 2015, APEC member-economies have strived to achieve their shared goal of widening and further easing financial access to “the underserved and unserved, particularly MSMEs.”

“We focused on MSMEs, recognizing their important role to the economy. MSMEs provide not only employment but also enable linkages in the production chain. We have seen many economies, particularly in Southeast Asia, emerge to be among the engines of global growth, on the back of a healthy MSME ecosystem,” Beltran said.

In his welcome remarks at the conference, Beltran underscored the need to empower MSMEs to realize the global goal of eradicating poverty, pointing out that these enterprises “are the life-force of the regional economy, account for over 40 percent of the total economy, 97 percent of total enterprises, and employ half of the labor force in the region.”

More than 40 percent of MSMEs in the region, however, are hampered by lack of hard assets that can be used as collateral and a credible credit information system that banks used to make loan decisions, Beltran noted.

The goal of the FIDN, which was launched under the Cebu Action Plan during the 2015 APEC Finance Ministers Meeting, is to remove these hindrances from MSMEs through reforms on secured transactions, warehouse receipts and credit information.

Beltran noted that in the 5th FIDN conference, discussions have gone beyond MSMEs and now include agriculture finance, which is equally important especially for countries like the Philippines in terms of not only providing jobs but also in ensuring food security.

”We often hear about how the agriculture sector is shrinking in terms of both potential and actual output, as a result of declining labor participation and investments in the said sector. It is our hope that our work here in the FIDN will help address these challenges,” he said.

At a recent DOF Executive Committee (Execom) meeting, Beltran reported to Finance Secretary Carlos Dominguez III that besides supporting the swift approval in the Congress of the laws on secured transactions and warehouse receipts, the participants in the 5th FIDN conference, also:

· Cited the progress of financial infrastructure development in APEC and ASEAN, with 7 out of 10 economies in ASEAN and 11 out of 20 APEC economies enacting secured transaction laws; 5 ASEAN economies and 11 APEC economies establishing movable collateral registries; and 8 APEC economies setting up credit information bureaus;

· Noted that economies which adopted secured transaction systems and set up movable collateral registries experienced a 45 percent to 100 percent rise in MSME and agricultural lending;

· Decided to support policies and programs to enhance the viability of MSMEs and agriculture, including infrastructure development and the requisite tax reforms to enhance fiscal space; microinsurance; credit guarantee systems; online information and payment systems and ease of doing business; legal framework and improved enforcement; ID systems; proportionality in financial regulation; liberalization of foreign investments; financial literacy and capacity building; and better agricultural and MSME extension.

· Recognized the expanding number of development partners in support of financial infrastructure, including World Bank-International Finance Corporation, the governments of Canada, Japan, Switzerland and Germany and private sector groups APEC Business Advisory Committee (ABAC) and Asia-Pacific Financial Forum.

In a recent forum, Dominguez assured the country’s MSMEs that the government is ready to provide funding support to gird them up for competition in the imminent common market for Southeast Asian economies, with two state-run banks having already extended or made available over P82 billion so far this year to help entrepreneurs in the countryside expand their businesses.

Dominguez said the Land Bank of the Philippines, which has offices across the country’s 81 provinces, has so far provided outstanding loans to MSMEs totaling P71 billion from January to September this year.

Another government-run financial institution, the Development Bank of the Philippines, has extended a total of P11.6 billion to MSMEs in the first 10 months of 2017 and has unveiled plans to increase the number of its account officers serving this sector by 25 percent to beef up its operations in 22 strategically located lending centers starting January 2018, Dominguez said.