According to the Tech For Good Institute’s Platform Economy Report, Filipino micro, small, and medium enterprises (MSMEs) comprise 36 percent of the national GDP and employ 63 percent of the population.
Despite their contributions to the economy and their sheer number, there remains an undeniable gap in their access to financial tools and support, keeping them from growing – in fact, 79 percent of MSMEs in the Philippines have since cited a lack of working capital to maintain their business.
MSMEs as the backbone of the economy
While we might not be able to realize it, transacting with MSMEs is something that we most probably do on a daily basis. From food to everyday services, they truly are the backbone of the economy – so why do they continue to remain underfinanced and unbanked?
In a statement, Erwin Yamsuan, Head of Lending of Grab Financial Group Philippines, said that they see great potential for Filipino MSMEs to grow stronger than ever and that there are ways to provide them with the growth and financial opportunities that they need. Below are excerpts of what he shared in his presentation during the recently-concluded Official Monetary and Financial Institutions Forum:
Where do the issues lie?
In order to identify the opportunities for MSMEs, it’s crucial to pin down what is keeping them from growing – simply put, there are structural gaps that keep them from effectively lending.
This is especially felt in the traditional bank lending market. Yamsuan shares that only 4.8 percent of MSMEs obtained bank loans during the pandemic – a small number considering the definitive increase in small businesses throughout this period. Further impediments are seen by the fact that more than 15 percent of cities and municipalities in the Philippines lack any sort of banking presence, according to a report from the Bangko Sentral ng Pilipinas.
Apart from these, administrative and credit assessment processes and lending requirements made mandatory by banks don’t only add to the strain – it also takes more time for MSMEs.
With such barriers in place, it is then clear to see why MSME owners find it difficult to access financial services, especially physically. From here, a domino effect is seen: With a lack of access from the get-go, MSMEs then are kept from securing loans and building up their credit scores. This results in others not getting the support they need, and others having to resort to illegal funding sources.
But effective lending doesn’t have to end with physical spaces. After all, the space for digital online lending is quickly growing and steadily, too.
Time to give MSMEs in PH a fighting chance
This is where Digital Finance Service (DFS) providers enter the picture – of which Grab Financial Philippines is a part. There are many key perks in tapping DFS providers, the most notable of which is how it not only allows for digital lending but also how it makes credit more easily accessible to businesses.
Another benefit is their ability to leverage big data, from customer reviews to income flows, which is lacking in traditional lending. With this ingredient, DFS providers are empowered to build alternative credit scoring models and loaning systems personalized to the different needs and abilities of MSMEs.
These are strategies that Grab Financial Philippines has already actively started working on. Through Quick Cash, its loan service program, GrabFood, and GrabMart merchants can now easily apply for a loan; tailored loans, as well as automatic daily micro-deductions, are put in place to allow Filipino MSMEs to keep a better track of their cash flows. The same is now also being done by Grab in Thailand, wherein approximately US$85 million has already been loaned to 18,000 MSMEs.
Of course, while DFS providers are one step closer to realizing financial inclusion for our MSMEs, support will not be as strong without public-private collaboration. Adds Yamsuan, “For digital lending to scale up responsibly, the inception of the National Strategy for Financial Inclusion would be a good step in the right direction as it will enable policymakers and DFS providers to work together toward a more inclusive, sustainable lending ecosystem.”
While securing loans and other means of financial support were traditionally difficult, it is a challenge that digital lending now aims to eradicate. And now more than ever, in a world that is set in the midst of post-pandemic recovery, everyday entrepreneurs have the opportunity to thrive and grow.