The government will initiate this month a P1-b lending program designed to replace the so-called 5-6 loans with an affordable micro-financing for the country’s micro, small and medium enterprises.
The government is launching the Pondo sa Pagbabago at Pag-asenso, or P3, program in Mindoro and Leyte islands and Sarangani, among the top 30 poorest provinces, following the directive of President Rodrigo Duterte to eliminate 5-6, where borrowers are charged with a 20 percent interest rate in one short transaction.
“The P3 is designed to bring down the interest rate at which micro-finance is made available to micro enterprises,” said Trade Secretary Ramon Lopez.
The 2017 budget has included an initial funding of P1 billion for the program, part of the planned P19-billion financing initiative for micro and small businesses in the next five years.
The program’s fund will be lent out in the business centers of the poorest provinces, chosen based on poverty incidence, where the participating microfinance institutions and Small Business Corp. can operate.
An attached agency of the Trade Department, SB Corp. will administer the P3 program, including the creation of a program management office, which will open a separate back account for the P3 program to oversee the fund.
“Fund delivery to micro-enterprises shall be carried out in either by wholesale lending to non-bank financial institutions like MFI-NGOs, and cooperatives which shall on-lend the fund to beneficiaries or by direct lending by SB Corp.,” Lopez said.
Priority beneficiaries include micro-enterprises and entrepreneurs that do not have easy access to credit, such as, micro-entrepreneurs, market vendors, agri-businessmen and members of cooperatives, industry associations and co-operators.
Loanable amount per end-borrower starts at P5,000 for start-ups to a maximum of P300,000, earning an interest rate of 26 percent per annum with no collateral requirement.
The proposed rate is significantly below the 20 percent per day/week/month charged by 5-6 lenders. It is also lower than what is charged by most micro-finance institutions.
MFIs may opt for portfolio guarantee cover of up to 15 percent of their P3 loan portfolio from SB Corp. at a guarantee fee of 0.4 percent. The guarantee feature is seen to help MFIs address the P3 Program’s inherent risk. The guarantee fund will be secured from the P3 fund.
P3 allocates P100 million for direct lending by SB Corp., in which the target loan beneficiaries are the small enterprises in priority and emerging industries, start-up businesses and technology innovators.
“This alternative funding dedicated for micro and small enterprises is meant to discourage the 5-6 money lending system in our country,” said Lopez, adding that through the established MFIs, the government would reach even the smallest of entrepreneurs in the country.
