52nd Philippine Economic Society Annual MeetingPanel on SMEs and Inclusive Growth

Rafaelita M. Aldaba & Fernando T. Aldaba2F Grand Ballroom, Intercontinental Hotel, Makati City

November 14, 2014 1:30-3:00 PM

1

Philippine SME Policy Index

SME Policy Index

• Goal: assess whether the policies, programs & institutions in PH are supportive of SME development

Guiding Principles

Information asymmetries: goods, labor financial marketsPublic goods: fixed costs, infrastructure, technology, R&DInstitutional deficiencies: coordination, regulations, fair competition, representations, etc.

Policy Dimensions

1. Institutional Framework

2. Access support services

3. Cheaper, faster start-up, & better legislation & regulation for SMEs4. Access to finance

5. Technology & technology transfer

6. International market expansion

7. Promotion of entrepreneurial education8. More effective representation of SMEs’ interests

SME’s Life Cycle

0 Pre-start-up

1 Start-up

2 Growth

3 Maturity

4 Revival

Policy ObjectivesCompetitive, Innovative, & Dynamic SME Sector

Policy Dimension Respondents

1. Institutional framework Ms. Rhodora Leano,(DTI-BMSMED)

2 .Access to support services Ms. Rhodora Leano,(DTI-BMSMED)

3. Cheaper, faster start-up, & better legislation & regulation for SMEs

Ms. Rhodora Leano,(DTI-BMSMED)

4. Access to finance Mr. Allan Borreo (Planters Bank), Dr. Marife Ballesteros & Ms. Maureen Rosellon (PIDS), Ms. Pia Roman (BSP), Atty. Estrelita Gacutan (Picaso et al Law Offices), Mr. Melvin Abanto (SBC)

5. Technology & technology transfer Usec. Fortunato de la Pena (DOST), Mr. Ricardo Blancaflor (IPOPHIL)

6. International market expansion Mr. Rosvi Gaetos (CITEM), Mr. Virgilio Fulgencio (CIC), Mr. Senen Perlada (BETP)

7. Promotion of entrepreneurial education

Mr. Ramon Lopez (Go Negosyo), Ms. Bella Marinas (DepEd)

8. More effective representation of SMEs’ interests

Mr. Sergio Ortiz-Luis Jr. (Philiexport & PCCI)

SME Policy Index

• 6 levels of policy reform: 1 no specific policy in place (poor) to 6 well functioning institution or effective implementation of measure (good practice)

PH SME Policy Index

• Cheaper, faster start-up, better legislation & regulation for SMEs (3.0)• Better legislation and regulation (biggest gap)

• SG: 5.4; MAL: 4.7; IND: 4.1; TH: 4.1; PH: 3.8; VN: 3.7; BR: 3.0; MY: 2.9; LAO: 2.5; CAM: 2.4

0.00.51.01.52.02.53.03.54.04.55.0

3.7 3.83.0

3.6 3.6

4.4

3.7

4.7

3.8

3.7 3.6 3.6 3.6 3.54.1

3.33.8 3.7

PHASEAN

Policy Dimension 1: Institutional FrameworkSub-dimension Level Notes

1.1 SME definition 4.0• RA 9501• financial sector: asset; MSMED: employment

1.2 Intra-governmental coordination in policy formulation 5.0

• DTI main agency• MSMED Council: trade, agri, local gov’t, S&T,

tourism, SBC, labor, & banking, SME• BMSMED: Secretariat to draft plan, coordinate &

monitor programs & policies 1.3 SME development strategy 3.5

• MSME Plan: enabling environment, access finance, markets, productivity, competitiveness

1.4 SME policy implementation 4.0

• MSMED Council

1.5 Facilitation for a transition from informal to formal 2.0

• BMBE Act: support to microenterprises & informal sector

Institutional Framework

• SME definition: not streamlined in programs & policies (4.0)• Development strategy: review & monitoring strategy must be

formulated & effectively implemented (3.5)• Transition from informal to formal: formulate system of monitoring &

evaluation & action plan for informal sector (2.0)

0

1

2

3

4

5

6

4

5

3.54

2

3.7

4.2 3.8 3.8 3.9

2.7

3.7

PH

ASEAN

Policy Dimension 2: Access to Support Services Sub-dimension Level Notes

2.1 Policy framework for supporting services

3.8

• Plan covers range of support services implemented with moderate success

• Network of OSS business development centers

2.1.1 Government action plan on development of SME support services 3.5

• 2004-10 Plan: 6.5 M jobs, streamlined issuance of mayor’s permit, P367.4B loans, US$1.8B exports, capacity building, technology assistance technology trainings

2.1.2 One-stop shop business development centres

4.0

• NERBAC: OSS providing assistance to start-ups in business registration, licensing, knowledge management, investment promotion & facilitation

• SME Centers: act as OSS providing information, advisory, consulting services in productivity improvement, tech’y upgrading, marketing, etc

Policy Dimension 2: Access to Support Services (cont’d)

8

Sub-dimension Level Notes

2.2 Promotion of E-services 4.0

• Regulations in place to foster e-commerce• Some e-gov’t services can be filed online,• Maturity level e-government still low

2.2.1 Promotion of E-commerce 3.8

• CICT: ICT policy, planning, coordinating, implementing, regulating ICT systems & communication

2.2.2 Provision of E-government services 4.0

• E-Services portal: single entry for accessing government services

• EBayad: internet-enabled portal allowing electronic payment to government

• Maturity level still low due to modest level of ICT infrastructure, low PC penetration rate, low internet access

2.2.3 On-line portal for SMEs 3.5

• SBC (MSME financing programs)• WB-IFC-Planters Bank (SME toolkit) • DTI-FFE SMEplus (links SMEs directly with banks

& financing institutions)

Access to Support Services

• Government action plan covers a range of support services implemented with moderate success but a monitoring system to measure impact must be established (3.5)

3

3.2

3.4

3.6

3.8

4

4.2

3.8

3.5

4

3.8

4 4

3.5

3.83.7 3.7 3.7

3.53.4

3.7

3.53.6

PH

ASEAN

Policy Dimension 3: Cheaper, Faster Start-Up and Better Legislation & Regulation for SMEs

Sub-dimension Level Notes

3.1 Cheaper and Faster Start up 3.9

• Overall registration process cumbersome• 6 days to obtain business permit to operate

from BPLO, 7 days to register with SSS, 3 days to register with SEC & receive pre-registered taxpayer ID number

• Government support to start-ups limited

3.2 Better Legislation and regulation 2.0

• Review & amendment of legislations & regulations not conducted in a systematic way

• No regulatory impact assessment • A simplified, pilot RIA program is being used in

certain areas of regulations of the Finance, Labor & Employment, & Tourism departments under an ADB project

Cheaper, Faster Start-Up & Better Legislation & Regulation for SMEs

• Overall registration process is cumbersome especially in terms of number of days and number of steps (2.8)

• Review & amendment of legislations & regulations not conducted in a systematic way, no systematic RIA (2.0)

0

1

2

3

4

5

6

7

3.9

5.36

4

6

2.82

1

3

5

3.73

4 4

22.5

1.5

33.9 4.6

5 4.6 4.3

3.42.7

2.5 3.3

4.9

3.73.9 4.1

3.23.4 3.4

3.3

3.6

PH

ASEAN

Policy Dimension 4: Access to Finance

Sub-dimension Level Notes

4.1 Legal and regulatory framework

3.3

• Cadastre system in place, land ownership not fully documented

• Collateral requirement ranges from 100-150% of loan amount

• Legal framework on secured transaction in place4.1.1 Cadastre (including land use right) 3.5

• Cadaster on landownership fragmented, not updated • Land ownership not fully documented • 54.6% of land ownership is documented

4.1.2 Collateral and provisioning requirements

3.5

• Loans can be secured by real estate mortgages, chattels, intangible properties, personal properties bonds, securities

• Movable assets are accepted by financial institutions as collateral

• No collateral registry in operation unified geographically & by asset type

4.1.3 Creditor rights 3.0

• Financial Rehabilitation & Insolvency Act 2010 recognizes creditor rights & respect priority claims

Policy Dimension 4: Access to Finance (cont’d)Sub-dimension Level Notes

4.2 Sound and diversified financial markets

3.8

• Credit guarantee schemes in place but limited• No centralized credit information • Microfinance sector present• Leasing & factoring growing sectors , several venture

capital, SME Board 4.2.1 Credit guarantee schemes 4.0 • SBC, PHILEXIM, QUEDANCOR

4.2.2 Credit bureau/ registries

1.5

• Private credit bureaus present but no centralized credit information system

• CISA ’08, delayed implementation due to lack of regulatory & funding support

4.2.3 Microfinance Facilities 4.0

• Banks & cooperatives microfinance lending; microfinance NGOs

4.2.4 Leasing 4.0 • Financing Company Act ’98; growing marketFactoring 4.0 • Financing Company Act ’98; growing market4.2.6 Availability of Risk Capital (venture capital, private equity funds) 4.0

• Laws & regulations on risk capital in place, exit is possible through IPO.

4.2.7 Access to stock market 5.0 • SME Board exists, launched in 2001

Access to Finance

• Legal & regulatory framework must be strengthened particularly documentation of land ownership (3.3)

• Centralized credit information system is absent (1.5)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

3.3 3.5 3.53.0

3.8 4.0

1.5

4.0 4.0 4.0 4.0

5.0

3.6

3.74.2 3.1

3.9 3.5 3.6 3.34.1

3.83.0

3.43.2

3.6

PH

ASEAN

Policy Dimension 5: Technology & Technology TransferSub-dimension Level Notes

5.1 promote technology dissemination

3.5• National innovation strategy in place & integrated in

PDP & MSME Plans • SET-UP & TECHNICOM: technology support to SMEs

5.2 foster technology cooperation to develop R&D focused on commercialization of knowledge

4.2

• 2 incubator networks • Networking & coordination on technology development

among universities, R&D labs, incubators, DOST & SMEs • Enterprise development & technology programs• Legal framework on IPR

5.3 promote clusters & business networks

3.8• Broadband connections available in eco zones• Science/industrial parks present but linkages with

universities & innovation centers limited

5.4 finance and technology development

3.0

• DOST programs in place for funding support to MSMEs to accelerate commercialization of technology & financial assistance to innovative projects but still limited & accessed by small number of firms

• Public R&D grants available but still limited

Technology and Technology Transfer

• No database of innovation support services (1.0)• Technology support programs must be strengthened & expanded to

reach out to SMEs, universities & research institutions (3.5)• Limited linkages between science/industrial parks with universities

& other innovation centers (3)• Limited financial support schemes for innovative projects, accessed

by only a few firms (3)

0

1

2

3

4

5

6

3.5

4.5

1

54.17 4

3.5

5

3.754.5

3 3 3 33.6

3.6 3.5 2.9

4.5 3.9 3.8 3.64.4 3.7 4.2

3.3 3 3.1 2.83.5

PH

ASEAN

Policy Dimension 6: International Market ExpansionSub-dimension Level Notes

6.1 Export promotion 4.0

• Programs adequately funded & executed by CITEM

6.2 Advise & high value information of international market 4.0

• BETP, Foreign Trade Service Corps & BOI provide advice and market information

6.3 Export capacity building 4.0

• PTTC designs & implements programs nationwide (M&E in place)

6.4 Financial facilities for SMEs to export 4.0

• PhilExim provides trade credit & loan facilities to exporters

• SULONG; wholesale direct lending; guarantee programs; trade credit

• M&E in place6.5 Reducing costs of custom clearance for exports (per container) 6.0

• DTI-CIC: customs clearance for exports maximum of 1 day and cost is US$ 50

• WB Doing Business 2013: 2 days customs clearance & cost US$85

International Market Expansion

• Larger funding needed for export promotion programs (4)• Export capacity building programs operated with limited

geographical coverage & limited number of SMEs (4)• Financial facilities for SMEs to export are operated with

limited geographic coverage & limited number of SMEs (4)

0

1

2

3

4

5

6

7

4 4 4 4

6

4.43.9

3.43.9 3.9

5.7

4.1

PH

ASEAN

Policy Dimension 7: Promotion of Entrepreneurial Education

Sub-dimension Level Notes 7.1 Entrepreneurial promotion policy 4.0

• EL policy linkages clearly articulated with government policy documents

7.2 Support of EL in basic education 3.0

• Technology, Livelihood & Entrepreneurship is a mandated learning component in basic education

• Guidelines issued in ‘12 to strengthen tech-voc educ’n program & TLE for junior high school

7.3 Support of EL in higher education 3.5

• CHED sets competency standards & curriculum for EL in higher education

• Key universities offer such programs, only 1 university adopted COBLAS

7.4 Business-academe collaboration 4.5

• Both universities & private sector jointly support EL programs

• Go Negosyo, UPISSI, DTI-PTTC

7.5 Non-formal education on EL and management of SMEs 3.5

• DepEd BALS : free education for out of school youth & adults, combines academics with entrepreneurial & technical skills

• eSkwela alternative learning thru interactive e-modules in 4 pilot sites

Promotion of Entrepreneurial Education

• Entrepreneurial learning policy linkages clearly articulated (4)• Key universities offer entrepreneurship programs, only one university

adopted ASEAN Common Curriculum (consulting-based learning for ASEAN SMEs) or COBLAS (3.5)

• Universities & private sector jointly support EL programs (4.5)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

4

33.5

4.5

3.5 3.7

32.5

3.74.2

3.3 3.3

PH ASEAN

Policy Dimension 8: More Effective Representation of SMEs’ Interests

Sub-dimension Level Notes

8.1 Role and capacity of SME association

4.7

• MSME membership is mainstreamed with Philexport & PCCI

• Both have professional staff & able to service respective members; capacity for research, advocacy & resource mobilization

8.2 Participation in Consultations on SME Policies

4.7

• MSMED Council: provides institutionalized broad, cluster-based nationwide consultation mechanism at various levels

• Recommendations from the private sector have been adopted by government e.g. in the MSME Development Plan 2011-2016, Phil Export Development Plan

More Effective Representation of SMEs’ Interests

• Philexport & PCCI: national organizations strongly advocating SME interests

• MSMED Council: consultation mechanism between government & MSME sector

0

1

2

3

4

5

6

4.67 5 54

4.67 5 54

4.67

3.74.5

3.73.1

3.9 4.23.7 3.8 3.8

PH

ASEAN

Ways ForwardPolicy Recommendations

Institutional Framework(3.7)

• coordination mechanism among various government agencies part. at department secretary level

• system to monitor MSME policies & programs implemented by various government agencies

• M&E framework Cheaper, Faster Start-Up and Better Legislation & Regulation for SMEs (3.8)

• overall registration process: reduce administrative barriers & streamline regulations

• program assessment in terms of scope & delivery • support services: business incubators, vouchers, grants & loans

on favorable terms • RIA framework & simplify legislations, regulations

Access to Support Services (3.0)

• M&E of MSME Plan: direct impact on MSME performance• e-government services: centralized online portal for MSME

programs and services

Ways Forward (cont’d)Policy Recommendations

Access to Finance (3.6)

• legal & regulatory framework: documentation of land ownership• centralized & computerized registry for chattel mortgage • alternative forms of finance: venture capital, private equity,

leasing, factoring • credit information bureau & secured property registers for

collateral related purposes• financial literacy programs for MSMEs

Technology & Technology Transfer (3.6)

• on-line database on innovation services & programs• incubator programs to reach out to more SMEs, universities,

research institutions • linkages bet. science parks & universities• information programs on IPR to educate public esp. MSMEs • broadband infrastructure • funding schemes for innovation projects

Policy Recommendations

International Market Expansion (4.4)

• more resources available for export promotion programs • capacity building & credit programs thru more effective

targeting of MSMEs Promotion of Entrepreneurial Education (3.7)

• framework & detailed strategy for promotion of EL in government plans

• adequate funding & effective M&E system for EL promotion programs

• networking by universities with their ASEAN counterparts towards adoption of the ASEAN Common Curriculum

• accreditation system for training program providersMore Effective Representation of SMEs’ Interests (4.7)

• regular annual or biennial summit of individual MSMEs & clusters to highlight innovative products & articulate issues and concerns vis-à-vis government

• more effective system of feedback, monitoring & documentation of successful policy outcomes, insights & lessons learned

Ways Forward (cont’d)