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Development Bank of the Philippines: Supporting business resilience in the Philippines 14 October 2021

Development Bank of the Philippines President and Chief Executive Officer, Emmanuel G. Herbosa, details the lengths to which the bank has gone to support businesses throughout the pandemic.

Recent reports show that MSMEs (Micro, Small, and Medium Enterprises) are considerably weakened by the Covid-19 crisis. What has the situation been like in the Philippines?

MSMEs remain a vulnerable sector. This segment does not have the same capital structure nor immediate access to finance as big corporations. In fact, with the sector's weakened financial performance, access to finance has become even more difficult.

The impact of the pandemic on the MSME sector in the Philippines is perhaps better differentiated by region, group, and firm size. Considering that Metro Manila or the National Capital Region underwent a number of stricter community quarantine measures, logically more MSMEs in the area are still not operational or if they do operate at all, they are doing so at decreased capacity- an indicator of the difficulties MSMEs are still confronted with in restoring their business to pre-pandemic levels.

Further, in areas with continued lockdowns and decreased mobility, micro and small enterprises in the manufacturing, transportation and storage, construction, accommodation and food services, education, human health, and social works sectors have endured the most difficulties with permanent or temporary business closures, lackluster sales, and sharp drops in revenues.

In the transport sector, provincial buses are still not allowed to operate. This has also led to a substantial loss of employment due to lack of public transportation.

Even while maintaining current expenses at an optimal level, this situation has also disrupted the cashflow of many businesses and for some, has led to the inability to meet credit obligations based on the original terms of their loan contracts. These enterprises, unfortunately, comprise a significant number of the 957,620 business establishments recorded in the Philippines in 2020.

MSMEs in the Philippines comprise 99.5% of business establishments and employ approximately 65% of the country's workforce. The decrease in MSME business has created a dent in national productivity. Thus, it has negatively affected Philippine Gross
 
Domestic Product (GDP), as evidenced by the recession the country experienced in 2020 due to the pandemic.

There is a pronounced need for micro and small enterprises to pivot, by finding ways to conduct their business at a much-reduced cost, by diversifying products and services, or by shifting altogether to new business lines that fill the gap in the new normal. MSMEs also need access to financing. However, because future cash flows are hard to establish or determine for many adversely-affected MSMEs, banks who adopt risk-based credit parameters may not always able to provide the needed assistance.

Nevertheless, a number of MSMEs have begun implementing adaptive business measures, among which are digitalization in their processes and use of online platforms for their business transactions, utilization of electronic payment options, and shifting some of their employees to work-from-home arrangements.

The Philippine government for its part has endeavored to assist MSMEs under two legislations: the Bayanihan to Heal as One Act and the Bayanihan to Recover as One Act. These efforts by the National Government to provide MSMEs with financing access during this pandemic is particularly crucial as it gives borrowers a lifeline in ensuring the continuity of their businesses, allowing them to provide a livelihood for the people under their employment, and access to services in the communities that they are in.

However, to help MSMEs fully recover from the pandemic, they will also need more differentiated assistance. In addition to loans, they will require government subsidies. At present, SMEs have limited absorptive capacity for additional credit since a good majority are already burdened with loans. Subsidies will help them resume and sustain operations despite the limited business until the economy normalizes.

With the gradual opening of the Philippine economy, accelerating vaccine rollout, and the shift to less restrictive or refined granular lockdown measures and increased use of digital technologies, there is hope that by mid-2022, survivor-MSMEs in the country will be able to regain their footing.
 
How have your relationship managers served MSME customers during the pandemic? Did you have to change your way of working and do more remote work? Has it been a smooth transition?

The Bank's relationship managers are now more credit vigilant given the vulnerability of the SME sector. Focus has shifted from prioritizing the marketing and packaging of new loans towards assisting current borrowers through restructuring or the provision of additional financing. Communication with current clients has become more frequent (though more often virtually due to travel restrictions) to promptly address accounts about to turn problematic.

The Bank's Loan Program Officers have adapted to the "new normal" by setting up work­ stations at home and transitioning into online meetings. Online conferences are becoming the norm for marketing the bank's products and coordinating with stakeholders. The availability of online meeting platforms and file sharing services allows DBP personnel to perform their tasks remotely.

How are you helping your MSME customers face the impact of the Covid-19 crisis?

DBP has pursued several initiatives to support the MSME segment as it faces the challenges of the pandemic. We rolled-out the DBP RESPONSE to accelerate MSME Recovery (DBP RESPONSE - MSME RECOVERY) financing program which aims to finance the operating expenses of MSMEs whose operations were affected by the pandemic.

The program offers low interest loans to MSMEs whose operations were affected by the pandemic. The program provides an interest rate of 3% p.a. fixed for three years to MSMEs engaged in agri-fishery and enterprises classified as non-essential.

To reach out to MSMEs especially in the countryside, DBP pursued wholesale borrowers such as rural banks, micro-finance institutions and other financial institutions (FIs) to extend the reach of the program. A 2.5% p.a. interest rate is offered to FIs for on-lending to qualified MSMEs provided that the lending rate to sub-borrowers is reduced by the equivalent of savings on cost of funds of the FI.
 
In addition, with the DBP Rehabilitation Support Program on Severe Events (DBP RESPONSE), the bank was able to restructure or re-amortize loans to help enterprises better face the challenges brought about by the pandemic.

The execution of the Bank's partnership with the Rural Bankers Association of the Philippines has likewise helped DBP reach out to MSMEs in the rural countryside that it may not be able to reach effectively through its wholesale lending facilities.

DBP has also partnered with Small Business Corporation (SB Corp.) for the establishment of a strategic client referral and management system to efficiently manage the assistance programs for MSMEs of both institutions. Under the partnership, the two institutions would segment applicants according to asset size with DBP handling applications of enterprises with an asset size of more than P15-million while firms whose assets are less than P15- million would be referred to SB Corp. DBP and SB Corp. will also collaborate in crafting marketing strategies and undertake joint promotional activities for both the DBP RESPONSE - MSME RECOVERY program and SB Corp.'s Covid19 Assistance to Restart Enterprises program.

Despite the pandemic, the bank has continued to market its programs that support the MSME sector. Several webinars have been conducted in cooperation with national government agencies to assist cooperatives particularly those from the indigenous peoples, farmers, fisherfolk, and MSME segments to access government programs that offer preferential terms to the marginalized sector as well as those affected by the pandemic.

What are your key digital initiatives and what benefits are you looking to generate  from them?

Our key digital initiatives relate to programs of the National Government which have been coursed through DBP. One of these is the Small Business Wage Subsidy program which is a social amelioration program for employees of small businesses adversely-affected by the pandemic. DBP acted as disbursement partner, providing approximately 4 million affected workers nationwide with P8,000 each. The disbursement was effected through direct credit to bank accounts through the PESONet electronic fund transfer service, and via cash pick-up at remittance partners.
 
On the other hand, the Cash and Food Subsidy for Marginal Farmers and Fisherfolks program of the Philippines' Department of Agriculture (DA) was also coursed through DBP. The program provided P3,000 in cash and P2,000 in basic food items including rice, chicken, and eggs to approximately 800,000 farmers and fisherfolk nationwide. While the cash portion of the subsidy was disbursed through remittance centers, the food component was coursed through accredited suppliers using an e-vouchering system, with payment to the suppliers directly settled by DBP to their bank accounts on the next banking day. Aside from providing much needed financial assistance to farmers and fisherfolk, the program also generated P1.6-billion in total sales for the accredited suppliers of the DA.

DBP continues to digitalize its processes, including the online submission of documentary requirements. The Bank is now accepting documentary requirements submitted via email for account opening, credit monitoring, even for submission of bidding documents for bidded out projects/procurement.

From your point of view, what will the future bring for the MSME segment? What will MSME banking look like five years from now?

Given the pandemic, banking services to the MSME sector will be focused on providing digital services to allow for ease in transactions and to minimize the risks associated with infectious diseases. This shall be complementary to the shift of many MSMEs' business models away from a face-to-face approach towards a digital model where ordering, payments, and coordination of logistics are all accomplished via the internet. The trend of using online selling platforms, as well as the use of social media, shall continue for this sector to be agile and adaptive to both meet and anticipate its needs.

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