P140 B COVID Bailout Fund for SME Urgently Needed

By Prof. Enrique Soriano

A growing chorus of calls for the government to step in and bail out SMEs is resonating and the call is getting louder.

The initial P1 billion SME package under the DTI Small Business Corp (SB Corp) or CARES program for COVID  is not sufficient. At an average of P100,000 loan per MSME, the companies that can be accommodated will only cover 1%  of the estimated 1,000,000 MSMEs in the Philippines. Congress and the DOF should immediately release another bailout fund if it wants to rescue close to 30% of all MSMEs that are on the brink of collapse in the next 60 days and another 20% that will be permanently shutting its doors before the end of 2020.  These companies need a lifeline now and not later!

I am urgently proposing a new round of financial bailout dedicated to MSMEs in the amount of P140 billion (US$2.8 billion). The fund will provide a lifeline to more than 200,000 SMEs so they can manage their cash flow and at the same time retain employees. The proposed amount is only the equivalent of 10% of the government’s total stimulus package of P1.4 trillion (US$28 billion).

Our SME bailout package is nowhere near our ASEAN neighbors’ COVID Rescue fund. Thailand recently released its third stimulus package for SMEs to the tune of more than US$20 billion. Malaysia recently announced the government’s total support of close to US$60 billion where the bulk of the measures are aimed at SMEs and at limiting retrenchment. Just to compare with some of our ASEAN neighbors, the stimulus packages allocated for their SME sector hovers around 40% to 60% of their total bailout plan. My proposed SME COVID fund is a paltry 10% of what Congress passed. The current SB Corp fund facility equivalent to P1 billion translates to .7% of my proposal. It’s almost month-end and cash flow is rapidly becoming a problem for thousands of SMEs as customers delay or avoid payment, ask for more time to pay, ask for contracts to be paused or simply reply ‘Closed until further notice’.   I have put together a list of recommendations for the Government to adopt, based on a “COVID Lifeline” incentive for successful SMEs.

 

Initiate wage subsidy for the SME Workforce

Under the proposed package, the government should allocate P50 billion of the amount for a wage subsidy scheme equivalent to a third of the worker’s salary. Industry leaders have sought contributions from the government to pay workers’ wages along with tax exemptions and interest subsidies. A formula where the employer bears 30 percent of wages while the government contributes 30 percent and the workers bear the rest. The remaining 40 percent can also be in the form of advance leave credits and work hour reduction. The condition is that businesses in affected industries and CQ declared areas must retain their staff for at least six months to be eligible for this wage subsidy (three months during the assistance period and three months after). It is estimated that 5 million employees will benefit from this initiative.

 

Roll out Working Capital Credit 

As mentioned, Congress should pass another bailout fund and this time immediately increase the Small Business grant from the current P1 billion to P50 billion . The current bailout is not enough. This distress sector has more than a million businesses with more than half on the brink of permanent work closure. As recommended by the Department of Trade and Industry,  SMEs can apply for loans of up to P500,000 at zero percent interest.

To facilitate the grant releases, only businesses registered with the LGUs, BIR, SEC and DTI are pre-qualified to avail.  Those affiliated with local associations like PCCI, PRA, PFA and AFFI or its equivalent will have preferential status. When the grant is increased, it is expected to benefit around 200,000 small businesses throughout the country.

 

To be continued…