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PH Innovation Act to Benefit MSMEs

Posted on
March 27, 2020 2:09 PM

PH Innovation Act to Benefit MSMEs

Good things are coming to Micro, Small, and Medium Enterprises (MSMEs) in terms of empowerment through the Philippine Innovation Act or Republic Act 11293. This was signed into law by the President in April 2019. Its approval also mandates the Government to promote local innovation through relevant provisions, which will push our country towards greater progress. Enabling our MSMEs with skills and technology to sustain their business also means propelling our country to rise with and above our neighbours in Southeast Asia.

With over 90 percent of the Philippines’ total business establishments comprised of MSMEs, it was certainly time to have a law that supports their growth. This is especially since the numbers don’t translate to our Gross National Product (GDP), as only 35% of our GDP comes from our MSMEs as a consequence of scarce funding and high cost of setting up and sustaining businesses here.

This is a shame as it’s usually MSMEs who come up with the most innovative products and solutions needed in our day-to-day activities. We’ve seen entrepreneurs below the age of 30 do extremely well in providing convenient and useful products, most recently in the tech industry. Many get to benefit from products like online payments, vouchers, discounts, etc. and since startups usually start with a small capital, some are unable to sustain their businesses due to difficulty in accessing funding.

Even more pressing would be MSMEs in the food, and farming industries, as well as those from marginalised groups, who need regular trainings to innovate their business for survival. They are the lifeblood of the Philippines, generating 61% of employment.

Strong Support for MSMEs

How does this law address the many barriers that a million businesses across the country face? It directly promotes wider and easier access to funds for MSMEs with a Php1 billion revolving fund mandated by the law, access to market and technology, and a comprehensive support program from incorporation to internationalisation.

It has also created a National Innovation Council (NIC) that will operationalise the law’s goals for both short and long term. The NIC is chaired by the President and the National Economic and Development Authority director general will serve as the vice chairperson. Tasks of the NIC include creating strategies that will encourage the flow of new ideas that will produce quality products, processes and services that improve the welfare of low income and marginalised groups.

Rooted in knowledge-based economic development and strategic innovation, the law will take on a “whole of government” approach that engages with business, research, development and extension sector, MSMEs and the broader community to ensure that that law is effectively implemented.

Greater Financial Access

While education and capability-building are the fuel that enable MSMEs to sustain their businesses, access to business loans is equally important in seeing through the Innovation Law. The specific provisions are: section 22- espouses the development of an Innovation Credit and Financing Program; Section 23- creates a credit quota that mandates all banking institutions (government or private), to set aside at least 4% of their total loanable funds for the innovation development credit; and Section 21- provides for the establishment of a Php1 billion Innovation Fund.

Through the provisions set above, MSMEs can now enjoy the benefit of strengthening their businesses through a bigger working capital budget. This will allow them to either bolster their operations, hire better people or provide better training for their staff, accept more orders, and other activities that will support the growth and innovation of their business.

Section 23 covers financial inclusion for MSMEs as it mandates banks to allocate an exact percentage of their loanable funds, which are usually given to bigger companies to offset risk. While it is good to have, there are still a few barriers that MSMEs may encounter with the banks’ processes and list of requirements.

Collateral is usually the main cause of ineligibility of MSMEs and this is where informal sources of financing come to play. If an MSME does not have a wide network to loan from they fall prey to loan sharks through desperation.

This is why Fintech has been thriving in the past decade, as they have filled in a big gap in the MSME industry and our economy. Fintech companies are able to provide quick and convenient business loans without requiring collateral. FinTech companies are also regulated by the Securities and Exchange Commission so that they implement fair policies that protect MSMEs, despite offering lower interest.

First Circle is one of the biggest Fintech companies operating in the Philippines today. We offer flexible business loans to assist MSMEs who need to fill temporary working capital gaps. Through our business financing products — Invoice Financing and Purchase Order Financing — MSMEs are given more opportunities to expand their operations and support their growing clientele.

Learn more about First Circle here: https://www.firstcircle.ph/

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