SMEs Appeal to Congress: Support Us or We die!

By Prof. Enrique Soriano

 

There is absolutely no doubt that the worst is yet to come and the devastating threat of more lives lost has extended to saving our livelihood. Even with the lifting of the ECQ (enhanced community quarantine ECQ), the months with little or no revenue stream continue to take their toll on SMEs. In our W+B survey conducted from March to April, it revealed massive losses for SMEs, both in output and jobs across all sectors. The online survey also found out that most of the SMEs were drowning in debt and were struggling to stay afloat. To realize the value of a three-month lockdown, ask any business owner who has finally decided to permanently close down his business. To realize the value of one day without pay, ask a daily wage earner who has five children to feed and a sick mother to attend to.

Our ECQ, considered as one of the most restrictive mass quarantines in the world has driven many businesses and daily wage earners to helplessness and despair. What is aggravating this misery is the fact that nobody knows how long the situation will last.  With nearly ten million jobs under question if the quarantine continues for months ahead of us, the consequences could be damning.

I have listed my recommendations below. It is my hope that those who wield power can finally effect change and translate words into actions, release the COVID-19 lifeline fund of P140 billion and save thousands of SMEs. This is one economic lifeline devoid of politics nor fear of a credit rating downgrade. This is one act of government singularly focused on rescuing businesses and saving millions of impoverished lives before it’s too late.

 

Remove interest rates for micro-credits

The government should set aside the mandated interest rates for the micro-credit scheme this year. The scheme should have an allocation of P10 billion and will allow micro enterprises to receive a loan of up to P50,000. This will benefit around 300,000 micro or ultra-micro businesses. This will also save them from heartless and unreasonable loan sharks charging usurious rates of 60% to 90% annually.

 

Business Disruption Schemes

• Moratoriums or interest subsidies on loan repayments where the government will cover the first 6 months of interest payments and any lender-levied fees so smaller businesses will benefit from no upfront costs and lower initial repayments.
• Another option is for registered financing or lending groups who offer credit facilities to small businesses will be mandated to provide 6-month delayed loan repayments starting July 2020
• BSP (Central Bank) should focus on creating refinancing facilities for sectors that were badly affected by COVID-19.  These are travel and tourism, arts and entertainment, education, food retail, textiles, clothing, leather and footwear (TCLF) and other sectors badly affected by the pandemic.
• For midsize businesses with loans, interest subsidies can cover 3% for the first three months and 2% for the next three months.
• For cooperatives, farmers and fisherfolks, loan interest subsidies for six months is recommended.
•  Government can cover more than half of the interest to be paid by the SMEs on condition that they don’t lay off workers. The objective is to provide SMEs some breathing space, help revive their operations and save jobs. The scheme will be delivered through commercial lenders, backed by the government-owned DBP and LBP. All accredited lenders will also offer the scheme, including all the major banks.
• Suspension of government mandated fees like Pag-Ibig, PhilHealth, SSS among others statutory payments on SMEs operating in affected industries

 

Bank Loan Guarantee

The government can also guarantee a registered SME borrower up to 80% of the loan proceeds. This will allow banks to loosen their restrictive borrowing requirements and further give them the confidence in continuing to provide financing to SMEs for as long as they have a good credit history and have the capacity to pay back the loan. The BSP initiated rate reduction will further spur more lending activity.

Anticipating the impact of the pandemic on businesses, the government should consider the requests of several industries, including interest waiver for a year, rescheduling of loans by a year, rent waivers or reduction, compensation for losses suffered during the lockdown, rebate in electricity bills by 50 percent, and a one-time subsidy on the purchase of raw materials for essential industries.

To be continued…