Government to unload P42.3 billion in guarantee for MSME loans

By Bernadette D. Nicolas – November 12, 2020 (Business Mirror)

The DOF said last Thursday that PhilGuarantee expects P3.6 billion of total credit guarantees to benefit an initial batch of 6,000 borrowers by the end of this year and another P20 billion will be accessed by the middle or towards the end of 2021, which will cover 40,000 MSMEs.

“This is the first time PhilGuarantee is providing guarantee coverage for MSMEs,” PhilGuarantee President and CEO Alberto E. Pascual said. Pascual added the state-owned firm is “now processing thousands of MSME loan guarantee applications.”

The MSME credit-guarantee program aims to support P120 billion in working capital loans to be granted by banks to its MSME borrowers that were adversely affected by government’s lockdown against the spread of Covid-19.

The program provides for a 50-50 credit-risk sharing arrangement whereby PhilGuarantee guarantees lending banks against the losses they will incur in lending to MSMEs.

Following the launch of the program, Pascual said in the same report that more banks have been extending more loans to MSMEs unlike before when lenders would only prioritize the needs of their existing MSME clients.

He also pointed out that PhilGuarantee’s offer is higher than the 30-percent guarantee offered by Thailand to that country’s small and medium-sized businesses.

“Just like in Thailand, the freed up reserves or extra liquidity of banks were not used to lend to MSMEs. But now we are seeing banks becoming active again and some in fact have been pre-clearing with us bigger loans for new projects,” Pascual said.
Moreover, Pascual said the average loan size under the guarantee program is less than P1 million, with the minimum loan amount set at P100,000 and availed of mostly by micro enterprises borrowing from rural banks. On the other hand, the maximum loan amount that can be guaranteed under the program is P50 million with a guarantee fee of only 1 percent per annum.

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.

While Pascual noted PhilGuarantee mirrors the terms of the loan that banks will grant to MSMEs, he also said they “can extend the guarantee up to 10 years depending on the banks’ risk appetite” on a case-to-case basis.

PhilGuarantee earlier said loans released by banks beginning March 16 this year are eligible for guarantee. Guarantee premium for this program has been reduced while origination fees are waived up to December 2020.

PhilGuarantee has so far accredited eight universal banks, one commercial bank, six thrift banks and 10 rural banks for its guarantee facilities for MSMEs.

The applications for accreditation of another 16 banks are also being processed to further expand the reach of the guarantee program for MSMEs, Pascual said.

Among the banks that have signed up guarantee agreements with PhilGuarantee are the Bank of the Philippine Islands, Union Bank of the Philippines, Malayan Bank, Bangko Kabayan and the New Rural Bank of San Leonardo.

Pascual also said PhilGuarantee plans to start guaranteeing loans of small-scale, medium-sized and large enterprises of up to P300 million with the P5-billion additional equity it will receive under Republic Act 11494.

“We can leverage the P5 billion additional equity 15 times. This will allow an extra guarantee capacity of P75 billion,” he said.

Pascual said that with PhilGuarantee’s unimpaired capital of P23 billion, its current guarantee capacity at 15 times is P345 billion.

PhilGuarantee’s outstanding guarantees dropped from P207 billion at year end-2019 to only about P170 billion as of September 2020, but have recently seen an increase in the number of housing and SME applications for guarantee, he added.