DTI, not commercial banks, should help MSMEs

Philippine Daily Inquirer / 05:01 AM November 19, 2020

The Nov. 16 editorial, “MSMEs need credit lifeline,” should be addressed to the Small Business Corp., the corporate arm of the Department of Trade and Industry (DTI), which was created and authorized by law to provide stimulus to micro, small, and medium enterprises (MSMEs) under COVID-19.

Lifeline loans are really urgent, and time is of the essence for these small firms to take advantage of the Christmas season up ahead to generate revenues and be back on their feet. We cannot blame commercial banks’ cool attitude to lend when their top-of-mind concern is their stockholders equity, and thus they cannot take risks by lending in an uncertain environment and to doubtful portfolios like MSMEs.

It is the role of the government to move the economy out of COVID-19 by giving life back to business. We suggest that the DTI through the Small Business Corp. aggressively get into it now by providing stimulus to MSMEs. The DTI is in a better position than commercial banks since it has government sovereign backing and the lending risk is assumed.

There are ways of calibrating and ensuring that the loans have reasonable chance of repayments, by incorporating productivity measures into the lending program. First, MSMEs must present a project study to justify the loan and ability to repay; second, the terms of payment should be in low and liberal terms of 8 percent per annum, amortizable after one year for a period of five years; third, MSMEs must present a simple formula for giving rewards to their workers for the increase in revenues of up to 50 percent of the net incremental revenues. Finally, MSMEs should be exempted from any increase in the minimum wage within the five-year period.

The result is a win-win for both business owners and employees, and the loans will have a much better chance of repayment. Employees will be motivated to work together with the business establishment to be more productive and generate more revenues when reward for them is up ahead.

MARVEL K. TAN
[email protected]

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