Salceda: Credit refinancing, mediation service fir SMEs to save jobs

A CO-CHAIRPERSON of the House Economic Stimulus Cluster of the Defeat COVID-19 Ad Hoc Committee (DCC) on Tuesday proposed a credit refinancing and mediation service for small and medium enterprises (SMEs) to save more jobs as an offshoot of the coronavirus disease-19 (COVID-19) pandemic.

Albay Rep. Joey Sarte Salceda, the co-chairperson of DCC’s House Economic Stimulus Cluster, said his proposal will be incorporated as part of House Bill (HB) No. 6619 or his “National Stimulus Strategy Act.”

Salceda, an economist and former banker, said that credit access is often complicated not just by the risky financial position of SMEs, but also by information gaps between the bank and the borrowing client.

In his explanatory note, Salceda said that the Credit Mediation and Refinancing Service will “ensure that SMEs are able to fulfill obligations under more favorable terms of credit.”

He also explains that with the CMRS, “the Small Business Corporation (SBCorp) and the Philippine Guarantee Corporation (PGC) can provide a MSME Credit Mediation and Restructuring Service to assist MSMEs in negotiating more favorable credit terms with banks, lending institutions, and financial intermediaries; provide technical advice and assistance with credit mediation; and offer loans with favorable terms for refinancing the obligations of MSMEs.”

Salceda said that “the PGC and the SBCorp can administer the loan and guarantee portion of the CMRS through the government banks, Landbank and DBP.” Meanwhile, Salceda said that the credit advisory and mediation portion can be performed by Negosyo Centers set up by the Department of Trade and Industry (DTI).

“The parts of a workable framework for credit mediation and refinancing already exist in the country, and could be modified and repurposed. Negosyo Centers of the Department of Trade and Industry (DTI) can act as credit advisers and mediators, while the Small Business Corporation and the Philippine Guarantee Corporation can provide loans or guarantees. Loans can be channeled through off-balance credit with the government financial institutions, Land Bank of the Philippines (LBP) or Development Bank of the Philippines (DBP),” Salceda, the chairman of the House committee on ways and means, said in a brief note on the CMRS.

Refinancing is when a borrower finances an old loan with a new loan at more favorable terms. Credit mediation is when an institution acts as a mediator to help the borrower attain more favorable terms for a new loan, Salceda explained.

“Credit mediation is process-intensive. Credit refinancing is cash-intensive. Both tools, however, may be necessary, especially for small and medium enterprises. For example, an early-stage SME that contracted debts for capital but did not consider a pandemic in its financial projections may need both to refinance the loans and to seek credit mediation for accessing refinancing options, especially in view of its difficult financial position,” Salceda’s note pointed out.

“Landbank has given me word that they will propose zero-interest loans off their balance sheet, to be funded by Congress. I welcome that assurance as it can be integrated as the main facility for CMRS, and also as it is getting closer to my negative interest loan proposal,” said Salceda.

“I’ve also been engaging with the bankers’ groups and they seem to be alright with the CMRS,” Salceda added.

Salceda’s structural economic stimulus proposal contain four components: Negative interest loans, a bailout function for the National Development Company (NDC), enhanced infrastructure spending, and the CMRS.

“My proposal for CMRS is to allow the PGC to issue up to 200 billion in guarantees. The SBCorp will also be allowed to lend up to 100 billion. When we get to it, we will seek the opinion of the economic managers on these amounts, but overall, we are getting close to a consensus on the principles of the structural reforms,” Salceda said.