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Small and Medium Enterprises` (SMEs) Access to Finance: Philippines

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  • Aldaba, Rafaelita M.

Abstract

Based on a survey of 97 firms in the garments, textiles, automotive, electrical and electronics, and food manufacturing industries; the paper highlights the difficulties faced by small and medium enterprises (SMEs) in accessing finance. For both firms with access to finance as well as those that did not make any finance request, financing obstacles posed as one of the top four serious problems for the growth of their businesses. The survey indicates the continued dependence of SMEs on internal sources of financing not only during the start-up phase but also to finance the current operations of the business.Close to 41 percent of the respondents intend to expand the size and scope of their business in the next two years. Sixty-seven percent said that financing the expansion through internal funds alone is not sufficient with the same proportion of firms indicating that they would finance their expansion by making a loan request. Previous surveys also showed a substantial proportion of firms that planned to borrow in the future. However, the continuing dependence of firms on internal sources of financing seem to suggest a gap between the plans of firms to borrow and the actual amount of funding made available by banks.SMEs particularly the smaller ones have been unable to access funds due to their limited track record, limited acceptable collateral, and inadequate financial statements and business plans. The bank survey showed that the top reasons for turning down financial requests were the firms` poor credit history, insufficient collateral, and insufficient sales, income or cash flow, unstable business type, and poor business plan.To improve MSMEs access to finance, the paper suggests the implementation of the Central Credit Information Corporation in order to address informational asymmetries. Changing the mindsets of banks and introducing nontraditional approach to SME lending would also be important along with trainings and capacity-building programs for SMEs to improve their financial literacy and management capacity.

Suggested Citation

  • Aldaba, Rafaelita M., 2012. "Small and Medium Enterprises` (SMEs) Access to Finance: Philippines," Discussion Papers DP 2012-05, Philippine Institute for Development Studies.
    • Handle: RePEc:phd:dpaper:dp_2012-05
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    File URL: https://www.pids.gov.ph/publication/discussion-papers/small-and-medium-enterprises-smes-access-to-finance-philippines
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    References listed on IDEAS

    as
    1. Medalla, Erlinda M. & Aldaba, Rafaelita M. & del Prado, Fatima & Yasay, Donald B., 2010. "Integrating SMEs into the East Asian Region: Philippines," Discussion Papers DP 2010-31, Philippine Institute for Development Studies.
    2. Aldaba, Rafaelita M., 2008. "SMEs in the Philippine Manufacturing Industry and Globalization: Meeting the Development Challenges," Discussion Papers DP 2008-15, Philippine Institute for Development Studies.
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    Cited by:

    1. Abiot Animaw Semegn & Narendra Kumar Bishnoi, 2021. "Analysis of Effect of Microfinance on the Performance of MSEs in Amhara National Regional State, Ethiopia," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 30(1), pages 153-178, March.
    2. GAMAGE Pandula, 2015. "Bank Finance For Small And Medium-Sized Enterprises In Sri Lanka: Issues And Policy Reforms," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 10(2), pages 32-43, August.
    3. Rufo R. Mendoza, 2015. "Financial Performance Of Micro, Small And Medium Enterprises (Msmes) In The Philippines," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(4), pages 67-80.
    4. Lazo, Lucita S., 2015. "Increasing Economic Opportunities of Women in the APEC," Discussion Papers DP 2015-18, Philippine Institute for Development Studies.
    5. Bing Baltazar C. Brillo & Aileen C. Simondac-Peria, 2021. "Sustainability of a local government-instituted ecotourism development: Tayak adventure, nature and wildlife Park in Rizal, Laguna, Philippines," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(11), pages 16145-16162, November.
    6. Babette Never, 2023. "Green and Social Regulation of Second Hand Appliance Markets: the Case of Air Conditioners in the Philippines," Circular Economy and Sustainability,, Springer.
    7. John X. LAMBINO, 2017. "The Contribution of SMEs to the Local Power for Economic Reproduction in the Philippines," Japan Social Innovation Journal, University of Hyogo Institute for Policy Analysis and Social Innovation, vol. 7(1), pages 1-1, March.

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    Keywords

    Philippines; small and medium enterprises (SMEs); finance access; Philippine SMEs;
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