Keeping MSMEs Afloat amidst the Pandemic
On Tuesday, December 1, 2020, The House of Representatives passed House Bill 7749 or the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) Act. The Act focuses on recognizing the necessity of keeping Micro, Small, and Medium Enterprises (MSMEs for brevity) afloat during this pandemic as these businesses play a strategic role in providing employment to the Filipino people and in supporting the Philippine economy. Thus, it is deemed essential that the State be able to provide the necessary access to credit and financial assistance to these kinds of businesses.
The Philippine Government has imposed what has been identified as the longest lockdown in the world during this pandemic. However, as the year is about to end, restrictions have been eased primarily to aid in the recovery of the economy.
The Act classifies micro, small, and medium enterprise as business activities or enterprises engaged in industry, agribusiness and/or services whether single proprietorship, cooperative, partnership or corporation whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, must have value falling under the following categories:
Micro: not more than Php3,000,000
Small: Php3,000,001 to Php15,000,000
Medium: Php15,000,001 to Php100,000,000
Salient provisions of the House Bill No. 7749 are as follows:
- Loan Guarantee Expansion by the Philippine Guarantee Corporation — The guarantee program for MSMEs heavily hit by the COVID-19 pandemic shall be given a maximum loan guarantee coverage per borrower, at the same time reducing the guarantees and other similar schemes.
- Loan Assistance Program of the Development Bank of the Philippines (DBP) — Eligible MSMEs under this program include businesses engaged in infrastructure, service industry and/or manufacturing businesses. The DBP may also rediscount loans and provide for other credit accommodations for the enterprises eligible under its program.
- Loan Assistance Program of the Land Bank of the Philippines (Land Bank) — MSMEs eligible under this program include those engaged in the agribusiness chain, where such business is defined as farmers, fisherfolk, traders, suppliers, processors, and aggregators, who make up the linked sequence of value-adding activities undergone by an agricultural product when converted from raw material to the final form it is presented to the consumers. Rediscounting loans and credit accommodations for enterprises eligible under this program are also available.
Note however, that eligibility under the aforementioned loan programs should meet the applicable prudential standards and regulations of the Bangko Sentral ng Pilipinas.
- Creation of a Special Holding Company — The DBP and Land Bank are authorized to invest in strategically important companies to keep these companies solvent. They may invest, enter into joint venture agreements to incorporate a special holding company.
- Tax exemptions and Fee privileges — For the effective implementation of this Act, the transactions of the DBP, Land Bank and the Special Holding Company shall be exempt from documentary stamp tax, capital gains tax, creditable withholding income tax, value-added tax, gross receipts tax, and such other taxes under the NIRC of 1997 as amended.
Given the abovementioned guidelines, MSMEs are assured of assistance from the government during these challenging times. When House Bill 7749 becomes law, business owners may look further into the qualifications to determine their eligibility.
It is imperative on the part of the government to answer the call for aid of our businessmen. The recovery of our economy rests on the survival of our MSMEs. They stimulate economic development in rural and far-flung areas. “They serve as valuable partners to large enterprises as suppliers and providers of support services. They serve as breeding ground for new entrepreneurs and large corporations. A vibrant MSME sector is thus an indication of a thriving and growing economy.”1