The Bangko Sentral ng Pilipinas (BSP) clarified that the mandatory credit quota for micro, small and medium enterprises (MSMEs) under the Magna Carta has already lapsed, even as the central bank underscored steady growth in bank exposure to the sector.

In a statement on Wednesday, the BSP said the eight-percent credit allocation to MSMEs expired in June 2018, though banks remain subject to close supervisory monitoring of their MSME loan performance through quarterly reporting.

“The 10.8 percent growth in MSME credit exposures in June 2025, which represents 4.6 percent of the banks’ total loans, reflects the continuing support of the banking system to MSMEs,” the central bank said.

The clarification comes after recent data showed that total loans to MSMEs stood at P540.9 billion as of end-June, representing only a fraction of banks’ P11.78-trillion loan portfolio.

Beyond quotas

The BSP said that instead of relying on mandated quotas, it is focused on fostering a more sustainable and enabling ecosystem for MSME financing. This includes improving credit risk assessment, streamlining application processes, expanding digital finance, and developing frameworks to encourage broader lending to small firms.

“The BSP continues to foster and strengthen a more conducive ecosystem for MSME lending by improving credit risk assessment, streamlining loan application processes, promoting digital finance, and developing enabling frameworks,” the statement added.

Economists said the shift highlights a more long-term approach to MSME financing. SM Investments Corp. economist Robert Dan Roces had told DAILY TRIBUNE that structural barriers — such as limited credit histories and higher monitoring costs — have constrained lending to smaller businesses, with many banks choosing to pay penalties rather than take on perceived risks.

Still, Roces noted that the BSP’s launch of a credit risk data base and web-based scoring system is a “positive step” that can narrow information gaps and allow banks to price risks more effectively.

Uneven performance

While medium enterprises posted loan growth that would have exceeded the old two-percent quota, micro and small enterprises continued to face the widest financing gap.

Rural and cooperative banks channeled a far larger share of their portfolios to MSMEs compared with big banks, which still directed only a small fraction of loans to micro and small borrowers.