For entrepreneurs, no matter how hardworking you are and how much potential your business has, one thing is for sure: you need starting capital.

Access to credit, with reasonable terms and interest rates, is a critical piece in the business development pie, whether for start-ups and micro-enterprises, small and medium enterprises, or large businesses.

When it comes to bigger, established businesses, banks often compete to offer them loans. Their solid track record for success together with assets they can sign off as collateral decreases the risk of lending to them.

But what about our micro, small and medium enterprises (MSMEs), which comprise over 900,000 registered businesses in the Philippines?

The MSME sector, a sector fundamental to our country’s inclusive growth and development, is lacking in financial support.

According to a recent study by the Asian Development Bank (ADB) on SMEs in Asia, the Philippines was ranked one of the lowest in terms of share of SME loans to total bank loans in 2014.

The average share of SME loans to bank loans in lower-middle income Asian countries is considered quite low, at 14.6%. But the Philippines falls shorter than this average at only 10.3%, which is just enough to meet the mandatory compliance requirement for banks provided by law.

What’s more, a closer look at the data reveals that lending to micro and small enterpise by banks was only at 5.6% in 2013 and 4.6% in 2014, both below the legally mandated 8%, which tells us that banks would rather pay penalties than take on the risk of lending to our smaller businesses.

Bridging the gap

Given the situation, the government must take a more proactive stance in bridging the gap between MSMEs and their capital needs.

With policy-mandated quotas unable to encourage banks to lend to our entrepreneurs, we must look for other ways to complete the financing spectrum for this sector.

For micro-entrepreneurs, a growing microfinance industry is a great sign. In 2013, a study released by the ADB showed that there were 2,000 microfinance institutions and 200 banks servicing over 7 million microfinance clients.

Some of them even go beyond offering loans at reasonable terms and work closely with their clients in building their businesses through training and market linkage. These are the microfinance NGOs that will benefit from our recently ratified Microfinance NGOs Act.

However, MFIs are limited to loans between P5,000 and P150,000. The largest gap in access to credit lies in loan requirements from P200,000 to P5 million, which are primarily for our small enterprises.

This break in the chain of financial inclusion hinders the growth of local enterprises and, therefore, must be addressed.

One technique to bridge this gap is to provide them the collateral that banks require – hence our Credit Surety Fund (CSF) Cooperative Act that was just finalized at a recent bicameral conference.

What this legislation does is bring the Bangko Sentral ng Pilipinas (BSP), Department of Finance, Cooperative Development Authority, and Local Government Units (LGUs) together with various cooperatives and NGOs to create funds that will serve as a guarantee or a form of collateral for members of these cooperatives.

The CSF Cooperative Act will give entrepreneurs access to loans from financing institutions by quelling the risk with a “guarantee fund.”

What not many may know is that credit surety funds are already in existence in the Philippines thanks to the 7-year program run by the BSP. There are already 40 CSFs involving 548 cooperatives across 50 LGUs.

With the ratification and signing of the CSF Cooperatives Act within the year, these guarantee funds become accessible and available to more entrepreneurs around the country.

We can hope that more Filipino entrepreneurs will get the financing they need to grow successful businesses, generate more jobs, and spread wealth and opportunities throughout the Philippines.

We can also hope to continue strengthening support for entrepreneurs and complete the range of financing products for MSMEs through policy and inclusive and innovative financing.

First published on Rappler.com