Assets as collateral benefits MSME

A new law broadening the use of movable assets as collateral for loans is expected to increase access to finance for micro, small and medium enterprises (MSME) and even the agri sector, to expand business or boost productivity, according to the Department of Finance (DoF).

Aurora Luz Diokno-Villaviray, Chief of the Special Studies Division of DoF, said Republic Act 11057, otherwise known as the Personal Property Security Act (PPSA), aims to provide more options to access finance beyond “5-6” lending scheme.

“With the centralized system, faster loan processing is anticipated with less time spent by banks on due diligence,” she said. “(This will) support the growth of MSME — from a start up to a more sustainable business.”

Under the PPSA establishing a unified and modern legal framework for securing obligations with personal property, MSME, farmers and fisher folks can now secure their loans with the use of non-traditional collateral.

Villaviray said personal property that can be used as collateral include bank accounts, industrial and agricultural equipment, accounts receivable, durable consumer goods, inventory and raw goods, agricultural products (crops, livestock, fish), intellectual property rights and vehicles.

She noted the new law establishes a modern, centralized and electronic collateral registry which is accessible 24/7. “Online registry will help in performing due diligence,” she added.

Villaviray explained that in case of a payment default, lenders and borrowers could negotiate and agree to sell the personal property to settle the obligation at fair market value.

Apart from MSME, farmers and fisher folks, she said the financial institutions (FI) can benefit from enhanced risk management while the warehouse industry with increased access to finance.

“Through the centralized registry, there will be no more blind side for the FI,” she added.

Villaviray also said the draft implementing rules and regulations (IRR) for the law is being finalized to include comments, concerns raised during consultations, and publication in the DoF website.

The PPSA, signed by President Duterte on 17 August 17 2018, also seeks to boost the competitiveness and ease of doing business in the country.