Credit guarantee fund for MSMEs now in place

By Ben O. de Vera – November 13, 2020 (Philippine Daily Inquirer)

Loans of small businesses struggling amid the COVID-19 pandemic can now be covered by a P42.3-billion guarantee line, according to the Department of Finance (DOF).

In a statement on Thursday, the DOF quoted Philippine Guarantee Corp. (PhilGuarantee) president and chief executive Alberto Pascual as saying that an initial P3.6 billion would be made available before the end of this year to guarantee loans to 6,000 micro, small and medium enterprises (MSMEs).

In 2021, a larger P20 billion was earmarked by PhilGuarantee to cover loans of 40,000 MSME-borrowers, Pascual said in a report to Finance Secretary Carlos Dominguez III, who chairs the state-run agency.

Pascual told Dominguez that “banks have now been extending more loans to micro and small businesses following the launching of this program, unlike before when lenders would only prioritize the needs of their existing MSME clients.”

Given the total amount of the guarantee line, about half of the estimated multibillion pesos in loans being extended to MSMEs in the country can now be covered by PhilGuarantee, a bigger share compared to Thailand’s 30 percent.

To date, PhilGuarantee has accredited 10 rural banks, eight universal banks, six thrift banks and one commercial bank for its MSME guarantee program, while 16 more lenders have pending applications.

PhilGuarantee’s MSME program covered a maximum loan amount of P50 million, slapped with a guarantee fee of 1 percent a year.

“Under the guarantee program, the maximum term for working capital loans is one to five years with a 50-percent guarantee, and up to seven years for term loans with the guarantee covering up to 80 percent of the loan amount,” Pascual said.

“PhilGuarantee mirrors the terms of the loan that banks will grant to MSMEs. On a case-to-case basis, we can extend the guarantee for up to 10 years depending on the banks’ risk appetite,” Pascual added.

Also, PhilGuarantee will cover loans of large enterprises by up to P300 million once it receives the P5-billion equity infusion mandated under the Bayanihan to Recover as One Law.

“We can leverage the P5-billion additional equity 15 times. This will allow an extra guarantee capacity of P75 billion. With PhilGuarantee’s unimpaired capital of P23 billion, its current guarantee capacity at 15 times is P345 billion,” Pascual said

While PhilGuarantee’s end-September outstanding guarantees declined to P170 billion from P207 billion in 2019, Pascual said they had “recently seen an increase in the number of housing and SME applications for guarantee.”