MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) has thumbed down the long proposed MSME (micro, small and medium enterprises) Credit Exchange as alternative compliance to the Magna Carta Law which mandated banks to allot credit to MSMEs.

The MSME Credit Exchange is a proposed mechanism where over-compliant banks may shift credit to non-compliant banks. Under the law, eight percent of lending institutions’ credit resources are required lending for MSMEs and another two percent for medium enterprises. In 2008, the BSP issued Circular 625 to implement the Magna Carta Law.

Sources with documents said BSP Deputy Governor Nestor A. Espenilla Jr. has already reported to the Monetary Board that the proposed MSME Credit Exchange, as "previously determined" is not appropriate as alternative compliance under the Magna Carta for MSMEs or Republic Act 9501.

“(The proposed credit exchange) is beyond the alternatives provided under RA 9501 and thus can not be deemed as a form of alternative compliance,” said Espenilla in a memo. To date, the BSP has yet to formally issue a decision on the proposal.

Trade Secretary Gregory L. Domingo has reminded the BSP recently that the issue is still pending. In a letter to the BSP, he said, “RA 9501 provides alternative modes of compliance other than direct lending to enterprises for banks which are not presently in a position to lend directly to MSMEs.”

Aside from the proposed MSME Credit Exchange, Domingo referred to SB Corp. which banks could purchase preferred equities or debt instruments issued by the corporation. SB Corp. is mandated under the law to look for alternative ways for banks to comply with the Magna Carta for SMEs.

The BSP has been a staunch supporter of expanding credit to the small and medium enterprises sector however the central bank also has to make sure lending institutions were capital sufficient and had enough resources to provide credit.

In fact Espenilla had said that there was still not enough credit being made available to the SMEs. He earlier cited a study done by the World Bank's International Finance Corp. that said funding obtained by the SMEs in the Philippines from formal financial institutions account for only 12 to 21 percent of their total current funding compared to the usual benchmark of 30 percent in other developing countries like India and Thailand.

The SMEs still rely on internally generated funds, loans from family or friends, and other informal lenders, said Espenilla.