TRANSFORMING THE MSME LANDSCAPE
Introduction
Public Development Banks (PDBs) and Development
Financial Institutions (DFIs) are uniquely and strategically
positioned to deliver on a country’s public policy objectives
and to address pressing societal challenges and crises. As
the unprecedented Covid-19 pandemic has highlighted,
governments play an important role in directing and guiding
public policies and resources in the public interest (Romero,
2020). This is because investments with high social returns
are less likely to attract sufficient private capital if capital
allocation is left purely to the market.
However, while public finances and service delivery are
more strained than ever in the wake of the protracted
pandemic, it will always be the first building block (Saeed,
2022). As such, governments – through PDBs and DFIs, for
example – are expected to pursue affirmative actions and
improve their performance in mobilizing public sector
resources in order to catalyze private resources towards
increased social investments.
CORPORATE PROFILE
This distinguishes SBCorp from other BSP Supervised
Financial Institutions (BSFIs), including those that are stateowned, such as the Development Bank of the Philippines
(DBP) and the Land Bank of the Philippines (LBP). In fact,
SBCorp is the only government financial institution (GFI)
established and mandated to specifically serve the
financing needs of the Philippine MSME Sector. In contrast,
other GFIs, i.e., DBP and LBP, have broad policy mandates,
including assisting large enterprises as part of their
development financing strategies.
Furthermore, SBCorp is strategically placed to: 1) address
potential market failure by filling gaps in access to MSME
credit; 2) undertake both sector-specific and cross-cutting
measures such as directing financial resources to vulnerable
sectors and/or regions on more favorable terms; 3)
incubate, grow and graduate enterprises; and, 4) promote
economic stability by playing an important countercyclical
role. The Corporation has demonstrated that it can direct
public finance to vulnerable sectors and/or regions,
enabling effective access to a wide range of financial
services. It has likewise performed a critical countercyclical
role in times of crises, including during the immediate
aftermath of Typhoon Yolanda in 2013 and the current
protracted Covid-19 pandemic.
Mandate
The Small Business Corporation (SBCorp), as a GovernmentOwned and Controlled Corporation (GOCC) classified as a
non-bank financial institution (NBFI) by the Bangko Sentral
ng Pilipinas (BSP), has a clear public policy mandate
expressly provided under Republic Act (RA) No. 9501 or the
Magna Carta for Micro, Small and Medium Enterprises
(MSMEs) to “implement comprehensive policies and
programs to assist MSMEs in all areas including, but not
limited to, finance and information services, training and
marketing”.
Governance Structure
The policymaking body of SBCorp is its Governing Board
composed of 11 members, two (2) of whom are ex-officio
members (Secretaries of Trade and Industry and Finance)
and the rest are Appointive Directors – one (1) private
sector representative, one (1) Director to be elected by the
Board as President and Chief Executive Officer from among
its ranks as provided under Section 18 of RA No. 10149
otherwise known as the GOCC Governance Act of 2011, and
seven (7) representatives of the common shareholders
based on proportional distribution.
Stockholders’ Equity
The authorized capital of SBCorp is PhP10.0 billion divided
into 80 million common shares and 20 million preferred
shares with a par value of PhP100 per share. The enactment
of RA No. 11494 or the Bayanihan to Recover as One Act
(Bayanihan 2 Act) provided for an additional capital infusion
of PhP10.0 billion to SBCorp. Per said Act, the infusion of the
capital shall be specifically allocated “to the COVID-19
Assistance to Restart Enterprises (CARES) Program and
other financing programs of SBCorp, as well as interest
subsidy, to be extended to MSMEs, cooperatives, hospitals,
tourism industry and Overseas Filipino Workers (OFWs)
affected by the Covid-19 pandemic and by other
socioeconomic reversals”.
With the downloading of PhP8.08 billion in equity from the
Department of Budget and Management (DBM) to SBCorp
in November 2020, the PhP10.0 billion authorized capital of
SBCorp has been fully subscribed. However, with the expiry
of the Bayanihan 2 Act in 30 June 2021, the remaining
PhP1.92 billion in supposed additional capital infusion to
SBCorp was no longer downloaded by DBM. The same could
have been treated as a share premium resulting to an
additional paid in capital (APIC) of SBCorp1. The APIC would
have been beneficial to the Corporation as it could later act
as a safety net against expected future losses in net income
arising from the mandated objectives, purposes, and
features of the CARES Program as provided for in the
Bayanihan 2 Act. This is consistent with the purpose of APIC,
which is to provide a layer of defense against potential
losses.
CORPORATE PERFORMANCE
Positive Net Income Since 1991
SBCorp’s PhP10.0 billion capital is intact and has not been
impaired at any point in time since inception in 1991. This is
despite being significantly undercapitalized for almost 30
years, or up until November 2020. Losses on the SBCorp’s
financing programs arising from failure of borrowers to pay
have been within the pricing returns and earning capacity
of SBCorp’s financing products and investments.
SEC Opinion No. 14-13 dated 11 June 2014 – Additional Paid in Capital
(APIC) is any contribution of stockholders over the par value of shares.
Incidentally, share premium is also defined as the amount received by a
firm over the par value of its share. APIC can be infused purposely to
eliminate deficit and to support the company’s operations.
1
Cumulatively Issued PhP724.5 Million in
Dividends to Stockholders
In 2021, SBCorp was able to remit PhP58.6 million in
dividends to the National Government and to its other
stockholders, bringing the cumulative dividends issued to
stockholders to PhP724.5 million as of end-December 2021.
This is despite the enormous scale and ongoing challenges
arising from the pandemic. The level of dividends – while
relatively small compared to those remitted by higher
capitalized GOCCs – reflects the needed balancing act
between sustainability and developmental objectives
required and is expected from the Corporation.
Towards this end, SBCorp shall continue to assiduously
deliver on its mandate through a corporate governance lens
by engaging in an equitable and efficient allocation of the
resources and investments entrusted to it by the
stockholders while at the same time exacting accountability
for the stewardship of said resources.
ISO 9001 Certified Since 2015
In 2021, SBCorp was able to maintain its ISO 9001:2015
Quality Management System (QMS) certification for its
Head Office and South Luzon Group Office in Makati City
and its North Luzon Group Office in Baguio City and secure
an ISO 9001:2015 certification for its Mindanao Group
Office in Davao City. The Visayas Group Office in Cebu City
shall be for ISO 9001:2015 certification in 2022.
SBCorp’s ISO 9001:2015 QMS was pursued in accordance
with Executive Order (EO) No. 605, series of 2017, which
directs the adoption of QMS in the public sector. Being
certified as compliant to the international standards on
QMS provides comforting reassurance to the public and is
part of the organization’s effort to streamline business
processes, systems and procedures and promote a culture
of excellence. Nevertheless, SBCorp remain committed and
shall regularly review its business processes, systems and
procedures as well as train and professionalize its workforce
to ensure continuous compliance with the requirements of
ISO 9001:2015.
SEC-OGC Opinion No. 19-14 dated 28 March 2019 – APIC is considered “a
premium paid over and above the price of shares,” wherein the amount
paid for the shares (as recorded on the balance sheet) is increased but
there is no further issuance of shares. APIC will increase owner’s equity
(net worth).
2
Strong Corporate Governance, Ranking in the
Top 10 in Terms of the Corporate Governance
Scorecard for GOCCs from 2018 to 2020
provide the sufficient level of financing needed to help
countries and economies successfully emerge from crisis
situations.
SBCorp ranked Number 7 in 2018, further improved to
Number 5 in 2019 and is in the Top 10 (no ranking indicated)
in terms of the Corporate Governance Scorecard (CGS) out
of the 82 GOCCs in the country. Established on 8 October
2015, CGS is a quantitatively-driven evaluation tool based
on existing and globally accepted standards and practices.
It is an instrument that assesses the corporate governance
initiatives of GOCCs through a methodology benchmarked
against the Organisation for Economic Co-operation and
Development Principles (OECD Principles) and the ASEAN
Corporate Governance Scorecard (ACGS).
SBCorp’s Important Role in Terms of Enterprise
Rehabilitation Financing
The CGS annually assesses the Corporate Governance
performance of GOCCs to help identify and evaluate their
strengths and weaknesses compared to existing corporate
governance provisions and adherence to best practices and
international standards. Along with the Performance
Scorecards of GOCCs, the CGS ensures the transparency of
GOCCs on their corporate governance initiatives and
practices.
PRS A Rating with Stable Outlook from
PhilRatings Since 2007
In 2021, SBCorp was assigned an Issuer Credit Rating of PRS
A with a Stable Outlook by the Philippine Rating Services
Corporation (PhilRatings). A company rated PRS A is
somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than
higher-rated corporates. Still, the obligor has an above
average capacity to meet its financial commitments relative
to that of other Philippine corporates.
IMPORTANT COUNTERCYCLICAL ROLE
The Covid-19 pandemic has demonstrated the central role
that governments play in directing and guiding public
policies and resources in the public interest. Given efforts
to situate policy responses to the pandemic under a
building back better approach, it is imperative to rethink the
role of PDBs and DFIs in potentially channeling
development finance in times of socioeconomic crisis. As
Romero (2020) posits, the “right type” of finance needs to
flow through the “right type” of institutions as private banks
and other private financial institution (PFIs) are unlikely to
SBCorp swiftly responded to the unprecedented challenges
posed by the Covid-19 pandemic with decisive, targeted,
and generous actions, confronting the dual health and
economic crisis head-on. Armed with clear and accountable
public purpose mandate, the Corporation took full
advantage of its built-up expertise and experience in
enterprise rehabilitation financing (ERF) by offering
appropriate, timely and directed interventions to allow
MSMEs some much needed time to breathe and overcome
the worst of the crisis.
Further, given that SBCorp is within the public sphere, the
Corporation was able to effectively work with its public
sector partners, e.g., Congress, DTI Negosyo Centers,
Department of Labor and Employment (DOLE), among
others, and has proactively championed the provision of
financing assistance and payment relief to MSMEs
adversely affected by the pandemic through the following
sector-specific and cross-cutting measures:
1. Approval in April 2020 of the Covid-19 Assistance to
Restart Enterprises (CARES) Program. The CARES
Program is a PhP1.0 billion special financing facility for
micro and small enterprises (MSEs) adversely affected
by the pandemic.
2. Approval in May 2020 of the SME PPE Program. This is in
view of the steady rise of confirmed Covid-19 cases and
the continuing shortage of personal protective
equipment (PPE) and Covid-19-specific medical devices
such as ventilators and respirators.
3. Approval in June 2020 of the Helping the Economy
Recover through OFW Enterprise Start-ups (HEROES)
Program. HEROES is a PhP100.0 million special financing
facility for repatriated or returning Overseas Filipino
Workers (OFWs) due to the pandemic.
4. Payment moratorium on principal repayment for a
period of six (6) months to SBCorp borrowers beginning
June 2020.
As demonstrated by the SBCorp’s swift and decisive
response during the pandemic and similar to when Typhoon
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Yolanda devastated Central Visayas in November 2013, the
limited capitalization did not deter the Corporation from
fulfilling its mandate to assist MSMEs especially in times of
crisis. Perhaps in recognition of SBCorp’s crucial role and
proven track record in enterprise rehabilitation financing,
Congress approved an additional capital infusion of PhP10.0
billion to SBCorp under RA No. 11494 or the Bayanihan to
Recover as One Act (Bayanihan 2 Act), of which PhP8.08
billion was eventually downloaded by the Department of
Budget and Management (DBM) to the Corporation in
November 2020.
SBCorp’s Fundamental Purpose and Important
Countercyclical Role
SBCorp’s fundamental purpose as expressed in its Mission
Statement is to “relentlessly champion the neglected
business segments of the country to get them to access the
capital needed to grow successfully”.
In pursuit of its fundamental purpose and important
countercyclical role in MSME financing, SBCorp bucked the
trend of risk aversion shown by the Philippine Banking
Sector in general and higher capitalized banks, i.e.,
universal, commercial and thrift banks, in particular amid
uncertainty over the protracted dual health and economic
crisis. In fact, SBCorp decisively acted countercyclically,
more than doubling (115.2%) its MSME loan portfolio, from
PhP5.9 billion in end-2019 (pre-pandemic) to PhP12.7
billion in end-2021 (Table 1).
Financial Institution
Banking Sector
UKBs
TBs
RCBs
Microfinance NGOs
SBCorp
End-Dec
2019
579.1
463.5
73.5
42.1
50.9
5.9
End-Dec
2020
 480.5
 373.7
 64.3
 42.5
 53.2
 7.4
It is also important to highlight that SBCorp’s significant
MSME portfolio growth has been achieved through an
affirmative action of government under a direct retail credit
delivery strategy powered by an internally-developed
digital customer onboarding platform and loan origination
system. This further lends credence to the countercyclical
role of SBCorp in confronting societal challenges in the
public interest, in contrast to the firm profit maximization
objectives by private banks and other PFIs.
The challenges and limitations that the pandemic created
prompted SBCorp to enter the digital space. With its
business processes, applications and systems going through
a continuous process of review and enhancements under an
accelerated platformification strategy, this can only lead to
more efficient MSME credit delivery systems.
As the rapid and significant MSME portfolio generation has
demonstrated, SBCorp as an institution has collectively
responded to the urgent call to action and implemented
immediate and innovative approaches to credit delivery
and risk management in light of the unique and
unprecedented challenges presented by the pandemic.
TRANSFORMING THE MSME LANDSCAPE
Table 1. Lending to MSMEs (in billion pesos)
End-Dec
2018
574.8
452.8
82.4
39.6
45.0
4.7
spillover from the financial sector to the real economy and
support lending in a downturn2 (Bank for International
Settlements, 2010). Available BSP data would support this
as capital adequacy ratios (CAR) of local banks immediately
prior to the pandemic (end-December 2019) indicate that
they had sufficient capital buffers to absorb potential losses
at the beginning of the pandemic (Glindro et al., 2020).
End-Dec
2021
 463.1
 348.8
 68.0
 46.3
 61.4
 12.7
Value Proposition
SBCorp’s value proposition is to advocate for the full
capitalization of the Philippine MSME development finance
agenda, making inroads in unchartered territories and
sharing viable financing models with the marketplace.
On the other hand, lending by the Philippine Banking Sector
contracted by 20 percent during the same two-year period.
This is consistent with the procyclical behavior by banks,
despite availability of regulatory capital buffers to act as a
buffer to absorb shocks arising from financial and economic
stress, regardless the source, in order to reduce the risk of
As part of the Basel III capital reforms, the Basel Committee on Banking
Supervision introduced a series of measures to promote the buildup of
regulatory capital buffers in good times that can be drawn upon in periods
of stress to support new business or lending activity.
2
4
STRATEGIC INITIATIVES
Focus on Serving the Unfinanceable
The current economic conditions have further exposed the
significant MSME credit supply gap in the country, posing
both challenges and opportunities in SBCorp’s pursuit of its
mandate to focus on serving “unfinanceable” MSMEs, or
those that pose higher risks which banks and other PFIs are
unwilling to finance. SBCorp further defines unfinanceable
MSMEs to include those that operate as ongoing businesses
yet are unable to access credit at non-usurious rates.
To this end, SBCorp will continue to pursue purposeful,
directed and strategic interventions in the following six (6)
identified MSME segments located in areas or sectors with
low economic activity and/or with high poverty incidence,
namely: 1) micro and small agri-aqua enterprises; 2) micro
retailers; 3) small-island economies; 4) MSMEs requiring
rehabilitation arising from disasters; 5) Indigenous Peopleowned enterprises; and, 6) first time small businesses.
SBCorp aims to accomplish this by continuously developing
loan products based on credible, data-driven research and
analysis to be able to offer loans that are more responsive
to the needs of MSMEs on the ground. By providing the
necessary ‘bridge financing’ to the above identified MSME
segments, the Corporation aspires to eventually make
these MSMEs bankable, enabling them to access the formal
financing system at non-usurious rates.
Institutionalize Innovation and Cultivate an
Innovation Mindset
During the onset of the pandemic in March 2020 when
severe mobility restrictions and lockdowns are prevalent,
much of the world moved online, accelerating a digital
transformation that has been underway for decades.
Consumers, banks and other financial service providers
promptly entered the digital space, driving a global surge in
digital engagements and digital payments.
Against the backdrop of unprecedented challenges and
prompted by the urgent need to extend credit to MSMEs –
which lack sufficient access to credit even prior to the
pandemic – SBCorp developed using its own personnel and
resources, a digital loan origination system characterized by
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electronic customer onboarding and digitized loan
application, evaluation, approval, and disbursement of loan
proceeds. This could not have come at a more crucial time
as this enabled the Corporation to assist more MSMEs,
exponentially increasing its direct retail borrowers from
only around 7,000 unique MSME accounts pre-pandemic to
more than 45,000 unique MSME accounts to date.
SBCorp aims to institutionalize innovation powered by an
organizational culture that support and nurture an
innovation mindset. As part of its digitalization efforts, the
Corporation has submitted its Information Systems and
Strategic Plan (ISSP) to the Department of Information and
Communications Technology (DICT), formalizing SBCorp’s
commitment in providing for major upgrades in its
servers/equipment and network connectivity that should
be able to support the projected a 70,000 unique MSME
borrower base by 2025.
Enhance Customer Experience
The drastic behavioral change due to the Covid-19
pandemic – marked by a historical shift from in-person to
remote life – has permanently altered the way people
interact with banks and other financial service providers.
However, the accelerated shift towards digital
transformation also brings with it bad actors who
themselves are increasingly attempting to capitalize on this
shift. This is notwithstanding the need for banks and other
financial service providers to abide by data protection,
information security, Know-Your-Customer (KYC), AntiMoney Laundering/Combating the Financing of Terrorism
(AML/CTF) laws and controls, which further complicates the
customer experience (CX).
Fully aware that customer-centricity and customer
experience are the driving forces behind digital innovation,
SBCorp has taken a closer look at its MSME CX journey. To
ensure timely service delivery, SBCorp has updated its
Citizen's Charter in October 2022 to reflect the prescribed
turnaround time (TAT) per lending facility from loan
application to loan releasing stage. For retail lending, the
TAT is 14-33 working days while wholesale lending would
entail 20-25 days of TAT.3
As customers continue to demand and expect a seamless
and secure digital experience, incorporating robust
regulatory compliance solutions to deliver better and faster
online customer remain a significant challenge for all
Office Order No. 046, Series of 2022 - Rationalization of the Turnaround
Time for the Loan Origination Process
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financial institutions in the digital space. In this regard,
SBCorp is fully cognizant of the importance of crafting
comprehensive CX strategies in terms of customer
onboarding, retention and maintaining long-term
relationship with new customers. While in-house talents
and resources have enabled SBCorp to successfully
digitalize up to this point, the next stage in the
Corporation’s customer experience initiatives could involve
engaging with highly competent third-party technologybased solutions and customer experience providers.
Advocate for Funding of the Philippine MSME
Development Agenda Through an Increase in
the Capitalization of SBCorp to PhP100.0 Billion
Rethink and Enhance SBCorp’s Business Model
1. The importance of MSMEs to the Philippine economy
require an affirmative action of government.
With SBCorp being under the purview of the Department of
Trade and Industry (DTI), it is only fitting for its business
model to be geared towards helping MSMEs grow and
support local industries by providing effective financing
access. However, a government financial institution such as
SBCorp is also required by law to abide by BSP regulations
and financial targets as directed by the Governance
Commission on GOCCs (GCG).
The act of balancing the Corporation’s social and economic
thrusts with the financial risks both entail remains a
challenge. SBCorp is currently implementing its collection
plan, which formalizes the referral of past due accounts to
third-party collection agencies, and its Real and Other
Properties Acquired (ROPA) disposal plan, which lists down
foreclosures under the name of SBCorp and maps out the
schedule of its disposal.
While these plans could contribute in SBCorp’s income, the
steady increase in the Corporation’s loan portfolio also
requires more manpower and resources, which is currently
insufficient. In order to ensure organizational sustainability,
government intervention is needed to cover for losses
brought by lending to high-risk borrowers, which is the bulk
of SBCorp’s clients.
It is worth looking into dividing the loan portfolio between
high-risk and low-risk borrowers vis-à-vis the lending facility
(wholesale or retail), striking a balance between serving the
underserved and protecting SBCorp from capital
impairment. This would require the development of specific
and highly-targeted loan products in order to attract and
cater to both types of borrowers.
SBCorp shall advocate for the funding of the Philippines
MSME Development Agenda through an increase in the
capitalization of the Corporation from PhP10.0 billion to
PhP100.0 billion based on the following guiding principles
and assumptions:
2. The significant MSME Credit Gap in the Philippines
which was further exacerbated by the pandemic.
3. As a recognized well-governed, agile, and top
performing GOCC, SBCorp is best-placed to
strategically direct public resources and catalyze
private financing and investments to the MSME
sector.
4. The need for SBCorp to have sufficient scale in order
for the organization to meet pressing societal needs
and more effectively perform and deliver its unique
mandate and enhanced enterprise incubationgraduation business model.
5. SBCorp has demonstrated its relevance, importance,
and countercyclical role in times of crisis.
Nevertheless, there is a need to set-up a credit risk
subsidy fund in order to avoid capital impairment
and ensure organizational sustainability.
6. As an agile organization free from expensive legacy
systems, SBCorp can easily leverage and harness
financial technologies in its digitalization efforts to
expand effective access to financing of MSMEs.
7. SBCorp shall advocate and act to reduce risks
associated with MSME lending through innovative
financing products and services (e.g., data-driven
and out-of-the-box financing models) and by
partnering with MSME stakeholders from both the
public sector (e.g., Negosyo Centers, Bureau of
Internal Revenue, Credit Information Corporation,
Department of Labor and Employment, Social
Security System, Anti-Red Tape Authority, local
government units, etc.) and private sector (e.g.,
Cooperatives, Microfinance NGOs, Rural Banks,
private corporations, credit bureaus, etc.).
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References
Bank for International Settlements (2010). Consultative
Document: Strengthening the resilience of the banking
sector. Retrieved on October 9, 2021, from
https://www.bis.org/publ/bcbs164.pdf
Glindro, E., Parcon-Santos, H., Cacnio, F. & Oliva, M.
(2020). Shifting macroeconomic landscape and the limits
of the BSP’s pandemic response. BSP Working Paper
Series, Series No. 2020-05. Bangko Sentral ng Pilipinas,
Manila.
Romero, M.J. (2020). The Need to Reclaim Public
Development Banks. Public Banks and COVID-19:
Combatting the Pandemic with Public Finance (pp. 27-50).
Brussels, Belgium.
Saeed, A. (2022). Mobilizing Financial Resources for Post
COVID-19 Economic Recovery [Speech transcript]. Asian
Development Bank.
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