A new bill seeking to motivate lending to micro, small, and medium enterprises (MSMEs) is seen to contribute to the country’s competitiveness, according to the Department of Finance (DOF).
The Secured Transaction Systems Bill is pursuing the use of movable collateral such as inventory, receivables, crops, livestock, and equipment for loan applications to financial institutions and lenders.
The current system only allows real estate properties to be accepted as loan collateral, an arrangement which is seen as limiting in terms of access to credit, thus encumbering potential small businesses.
According to the DOF, the bill “will encourage more lending” to MSMEs and the agriculture sector once passed.
It is also expected to fortify the country’s ranking in the ‘Getting Credit’ indicator of World Bank’s Ease of Doing Business survey and escalate it by 100 places, the DOF explained in an economic bulletin, projecting that the ranking will go up to 42 from 142 out of 190 countries.
Ratification of the bill into law would also lead to the development of a “professional, regulated warehousing industry which issues receipts that can be used as collateral by lenders and can be traded by investors and industry players”.
Another feature it would bring is an automated movable collateral registry for participants to access information on transfers and make pledges of collateral.
In anticipation of the approval, the Land Registration Authority has established the automated while the Securities and Exchange Commission is currently preparing regulations for the operation of the warehouses.
The DOF also said that the proposal, once enacted, would “develop the backbone of an efficient commodities market that will stabilize prices and expand transactions”.
It also pointed out that other countries that implemented the reform saw a 50 to 100 percent in lending.
Currently, the bill is on second reading in the Senate and is awaiting the third reading in the Congress.