Mainstreaming small and medium enterprises into the Philippines’ formal financial system

By Janine Marie Crisanto

Acknowledging the disconnect between available credit and the underserved small and medium enterprise (SME) market, the Development Bank of the Philippines (DBP) ventured into serving highly risky market segments through its Sustainable Enterprises for Economic Development (SEED) programme.

Micro, small and medium-sized enterprises (MSMEs) are said to be the backbone of the Philippine economy as it fuels job creation and employment in the country. Moreover, it significantly contributes to the gross domestic product (GDP), accounting for a third of the total output for the first half of 2016. However, despite the important role it plays in propelling the Philippine economy, the sector still experiences challenges in accessing formal financing from banks to sustain their businesses.


The Bangko Sentral ng Pilipinas reported that the loans extended by Philippine banks to MSMEs increased by 9.3% in the first half of 2016 as banks are now mandated by law to allocate 8% of their total loan portfolio for micro and small enterprises and 2% for medium enterprises. However, even with the improvements of the supply of loanable funds available for MSMEs, the DBP still recognizes financing gaps between the flow and the direction of the loans and the recipients of these.


In response, DBP introduced the Sustainable Enterprises for Economic Development (SEED) programme to target the marginalised such as women borrowers and cooperatives, high-risk such as Overseas Filipino Workers and pre-bankable with the likes of social enterprises and start-up sub-segments of the MSME market. According to DBP, the programme began to be fully operational in 2013 in line with its MSME Roadmap anchored on establishing an MSME-friendly DBP infrastructure.

Through this programme, the bank intends to specifically boost the access of MSMEs to credit facilities and fast-track the credit process; bring MSMEs into the mainstream of banking by implementing alternative ways of securing MSME financing support; and maximise the bank’s lending reach and create employment and income opportunities.

The SEED programme distinguishes itself through key features such as competitive rates based on credit rating; alternative collateral as a means of securing the loan; flexible repayment terms with grace period based on cash flow; and minimal equity requirement.

Mainstreaming SMEs into the Philippines’ formal financial system

Acknowledging the disconnect between available credit and the underserved SME market, the Development Bank of the Philippines (DBP) ventured into serving highly risky market segments through its SEED programme.

In addition, the bank continues to fine-tune its products, services and technology. DBP is in the midst of implementing its Integrated Core Banking Solution (ICBS) project to enable them to offer a fully integrated solution comparable to the best local and global best practices. Covering different interfaces with the existing systems of the bank, ICBS will be a foundation for DBP to enhance customer service and employee efficiency, at the same time; it will bring down operational costs.

The bank also developed an improved credit scoring system with the assistance of US-based Innovations for Poverty Action of the World Bank Group to shorten the evaluation process of the determining the credit worthiness of prospective borrowers. The bank also mobilised dedicated MSME specialist account officers to quicken loan processing and expand financial inclusion. As of June 2017, a total of 86 personnel have been trained as MSME specialist account officers and assistants.

Business impact

In 2016, the bank was able to grow its SME business by 38% as supported by the continuous strengthening of its programmes such as SEED. On top of the loans it has extended through local government units (LGUs), water districts and electric cooperatives, the bank has witnessed a build-up of its MSME retail portfolio amounting to $163.47 million (PHP8.3 billion) through the SEED programme by the end of the first half of 2017. Moreover, as the programme specifically targets the underserved market, it has brought in new accounts which contributed to new income generation of the business.

Meeting demands through inclusive product propositions

DBP’s SEED programme has a more comprehensive reach and scope covering all industries and special segment compared to other programmes in the market. It has introduced inclusive product propositions which are attuned to the demands and needs of the underserved and marginalised SME segment, which did not only demonstrate their capabilities in volume and value generation for their business, but drove economic and social changes.

Categories: Philippines, SME Banking, Transaction Banking
Keywords: DBP, Philippines, SME, SEED, retail banking, financial inclusion


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