World Bank Arm Urges More SME Lending

Thursday, August 16, 2007

Local banks need to further explore opportunities in small and medium enterprise (SME) lending given estimates of almost P70 billion in unmet demand, an International Finance Corp. (IFC) official yesterday said.

IFC Country Coordinator for Advisory Services Euan Marshall told BusinessWorld that providing greater access to finance for SMEs, or firms with less than 500 workers and total assets worth up to P100 million, is a must.

Government data show the SME sector comprises more than 90% of Philippine businesses and employs 80% of the country’s labor force.

“One of the areas where we see significant opportunity is increasing access to finance for SMEs. It is an area that needs some attention,” he said.

IFC estimates, Mr. Marshall said, indicate P67 billion of untapped lending demand for SMEs.

He said IFC, the investment arm of the World Bank, hopes to conclude talks within the year with four local banks – which he declined to name – to get into not just SME lending but SME “banking”.

“A lot of banks lend to SMEs and they do so in a relatively ad hoc manner,” Mr. Marshall said, adding that IFC’s role is to help improve the way banks do business with such firms.

“There’s a lot of liquidity in the market and banks have lots of money which they are looking to intermediate into the system. Market research shows the SME segment is untapped and not properly serviced. The market opportunity is there.”

In 2006, IFC formally opened advisory services in the Philippines to complement its investment role. The former is focused on private sector development. In particular, IFC assists banks in changing systems and processes to improve banking services to SMEs.

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Source: Calibre Macro*World (link opens in a new window)