Finance Secretary Carlos Dominguez III said the Duterte administration’s move to increase borrowings from the domestic debt market next year won’t crowd out micro and small enterprises, as a new law now provides for a mechanism that would allow these businesses to tap convenient, flexible and affordable loans through microfinance services.

Owing to the excess liquidity in the market, commercial banks would be more willing to take risks and lend to entities that provide microfinance services and operations because they would get higher yields from them than from the government, Dominguez said.

“Our financial markets are very liquid at the moment and there is really very little overlap between government funding. We are not crowding out the commercial enterprises nor the small and medium enterprises,” Dominguez said at a recent congressional hearing.

According to Bangko Sentral ng Pilipinas (BSP) data, domestic liquidity as a percentage of the Gross Domestic Product (GDP) was at 63 percent as of June 2016 while domestic credit as a percentage of the GDP was at 60.1 percent during the same period.

“In fact, the banks would be more encouraged to lend to the smaller enterprises because they certainly get higher yields than they get from us,” Dominguez said.

The finance chief earlier told Congress that the new administration’s policy “is to source much of our financing needs from domestic sources.”

He said this borrowing mix would help protect the welfare of exporters and overseas Filipino workers who would otherwise be at the mercy of foreign exchange fluctuations if the government borrows more from foreign sources.

Dominguez made the assurance in response to concerns raised by legislators over the government’s preference to borrow from domestic, rather than from foreign, sources, which, he said, could shut out small enterprises from the local debt market.

According to Dominguez, banks would be earning only about 1.8 percent per annum if they lend to the government, but at least three times as much if they provide funds for small and medium enterprises.

“If they lend it to the private sector particularly the small and medium enterprises, I think their interest rates at least would maybe be three times as much, and I think it’s worth the risk,” Dominguez said.

He informed lawmakers that under a new law, aspiring small entrepreneurs who would otherwise be considered as “unbankable” by traditional lending sources would be able to conveniently access loan facilities through accredited nongovernment organizations (NGOs) that exclusively provide microfinance services to small enterprises.

At the 13th Association of Southeast Asian Nations (ASEAN) Business and Investment Summit held last September in Vientiane, Laos, President Duterte called on ASEAN to support the development of micro, small and medium enterprises (MSMEs).

Mr. Duterte said in his speech that for the Philippines, “our economic focus will be towards the promotion of inclusive growth through innovation in four areas,” including MSMEs.

Dominguez said at the hearing that “we just signed the IRR for [this new law on microfinance NGOs] and we gave them a very big tax credit.”

Qualified microfinance NGOs are eligible for preferential tax treatment of 2 percent tax—in lieu of national taxes—based on their respective gross receipts from microfinance operations under the recently signed Implementing Rules and Regulations of Republic Act No. 10693, or the Microfinance NGOs Act.

Thus, poor families considered as “unbankable” loan clients can now tap government funding to open up small businesses by accessing credit facilities provided by microfinance NGOs.

One key feature of RA 10693’s IRR is the set of guidelines on the creation of a Microfinance NGO Regulatory Council, which is tasked to accredit NGOs that provide financial products and services to small entrepreneurs.

This new law is attuned to President Duterte’s 10-point socioeconomic agenda designed to sustain the economy’s high growth path and make its benefits felt by all Filipinos.

RA 10693 defines “microfinance” as the “viable and sustainable provision of a broad range of financial services to poor and low-income individuals engaged in livelihood and microenterprise activities.”

Under the law, microfinance NGOs are required to maintain a compensating balance, defined as “the proportion of the total loan of a microfinance client, which is retained with the microfinance institution as capital build-up (CBU) or micro-savings.”