Loans to micro, small and medium enterprises (MSMEs) remained far below mandated levels in the second quarter, underscoring persistent financing challenges. In August, the Bangko Sentral ng Pilipinas (BSP) launched a web-based credit scoring system that it hopes will improve MSME access to financing in the coming quarters.

SM Investments Corp. economist Robert Dan Roces said in an interview with DAILY TRIBUNE that the shortfall “often reflects structural hurdles – like limited borrower credit histories and higher monitoring costs – rather than a lack of interest in small firms.”

He added that the BSP’s new Credit Risk Database and scoring system is “a positive step, as it reduces information gaps and helps banks price risk more confidently, which should gradually lift compliance. Even if lending doesn’t immediately reach the mandated levels, stronger credit access over time will support entrepreneurship, widen financial inclusion, and add resilience to the country’s growth story.”

Latest BSP data showed that total loans to MSMEs reached P540.9 billion as of end-June, up 10.8 percent from P488.1 billion in the same period last year. Despite the increase, this accounted for only 4.6 percent of the P11.78-trillion banking system loan portfolio – less than half of the 10-percent quota required under the Magna Carta for MSMEs.

The 2008 law mandates banks to allocate eight percent of their loan book to micro and small enterprises (MSEs) and two percent to medium-sized firms. Yet many banks continue to opt to pay penalties rather than absorb the perceived risks of lending to smaller borrowers.

Loans to MSEs stood at P220.6 billion by end-June, or just 1.9 percent of banks’ total loan book – well short of the eight-percent requirement. To comply, banks should have set aside at least P942.6 billion for MSEs. The figure was 12.1 percent higher year-on-year but slightly lower than the P220.8 billion posted at end-March.

In contrast, loans to medium enterprises amounted to P320.4 billion, or 2.7 percent of banks’ loan book – exceeding the two-percent requirement. This was 10 percent higher than last year’s level, though it slipped 1.7 percent quarter-on-quarter.

By bank type, universal and commercial banks accounted for the bulk of lending, extending P139.7 billion to MSEs (1.3 percent of their P10.74-trillion loan book) and P260.2 billion to medium firms (2.4 percent). Thrift banks lent P47 billion to MSEs (5.6 percent of their P846.6-billion portfolio) and P39.8 billion to medium firms (4.7 percent).

Rural and cooperative banks were the only group fully compliant with the MSME lending quota. They disbursed P33.4 billion to MSEs, or 20.5 percent of their P163.1-billion loan book, and P20.3 billion to medium firms, or 12.5 percent. Digital banks, meanwhile, lent P590 million to MSEs (1.7 percent of their P34.7-billion portfolio) and P60 million to medium firms (0.2 percent).

Rizal Commercial Banking Corp. chief economist Michael Ricafort noted that the lack of shared credit data, especially for newer MSMEs, has hampered lending.

“There may also be a need for more loan or credit guarantees for some MSMEs to further mitigate credit risks and encourage more lending, while managing the risks for additional MSME lending,” he said.

Ricafort added that adopting global best practices in credit risk management would be critical as banks balance profitability, margins, and potential credit losses.