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Macroeconomic considerations in the Philippine microfinance industry

Economic growth in the Philippines has been on the rise in the past decades since the 1997 Asian financial crisis.  In fact, the Philippine economy exceeded expectations amidst the political tension and security threats as the country’s Gross Domestic Product (GDP) surged to a 6.9% growth as of the first quarter of 2016 while Gross National Income (GNI) grew to 7.6%, the highest since the third quarter of 2013.

The creation of the ASEAN Economic Community (AEC) which includes the ASEAN Free Trade Agreement (AFTA) is also seen as a huge advantage to future economic growth. By 2050, HSBC and Goldman Sachs have predicted the Philippines to be the 14th largest economy in the world, 5th largest economy in Asia and the largest economy in Southeast Asia by 2050. 

Due to the diversification of local products and continuing liberalization of trade, opportunities arise in many industries such as manufacturing and service. Micro, small and medium enterprises (MSMEs) also have a prime spot in the ongoing ASEAN economic integration, as the government has prioritized to promote the growth and development of MSMEs and give them access to participation in regional and global trade. 

MSMEs comprise 98% of all registered businesses and 50% of the domestic workforce are employed by them. The Department of Trade and Industry confirms that Small and medium enterprises (SMEs) comprise 99.6% or 816,759 businesses of the total Philippine industries

Of the 944,897 business enterprises in the Philippines, 99.6% (940,886) are micro, small, and medium enterprises (MSMEs) and the remaining 0.4% (4,011) are large enterprises. Of the total number of MSMEs, 89.8% (844,764) are micro enterprises, 9.8% (92,027) are small enterprises, and 0.4% (4,095) are medium enterprises.

In terms of value-added, the MSME Development Plan for 2011 to 2016 states that this sector contributes 35.7% of the total with manufacturing contributing the largest share of 6.87%; wholesale and retail trade and repair with 6.58%; and financial intermediation with a share of 6%. Small enterprises account for the largest share of 20.5%, followed by medium enterprises with a share of 10.3% and microenterprises with 4.9%.

The government has provided intensified assistance to micro, small and medium enterprises development through the passage of various laws. These include the Barangay Micro Business Enterprise. 

The act provides various incentives and benefits to entrepreneurs. The Department of Trade and Industry has also crafted the National SME Development Agenda. 

The agenda aims to increase the share of SMEs to the economy by providing services through the convergence of assistance composed of finance, product development, technology, training, marketing and advocacy for an enabling environment. However, despite the effort of the government’s policy and program support, the problems and issues mentioned above still remain.

The microenterprise sector, clearly, is a crucially important component of the Philippines economy. Microenterprises, like all enterprises, need access to quality financial services if they are to prosper and grow.


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