As the Philippine economy delivers another robust performance and - - PDF document

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S erving Agribusiness mS IVIE s

Ambassador Jesus P. Tambunting 19 May 2015 Good morning. It is a pleasure to be invited to speak on a topic that is close to my heart, and indeed, crucial to nation-building and improving people's lives. As the Philippine economy delivers another robust performance and prepares for integration with the ASEAN Economic Community, the clamor for inclusive economic growth becomes more pressing. In order to sustain growth and ensure that all Filipinos have a fair share of the benefits of development, our nation must work towards a strong, vibrant and competitive Micro, Small and Medium Enterprise sector, especially in the countryside, where development is needed most.

The Plantersbank S tory

My initial experiences working with SMEs started back in 1971. After working for one the country's largest commercial banks as a corporate lender, I decided to strike out on my own and apply my ideas about how a bank should be run.

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I bought a small thrift bank in Malolos, Bulacan, which eventually became Planters Development Bank. My plan then was to convert the institution into a commercial bank and transfer to Makati, the country's financial center, where we would cater to large corporate accounts. Because of the bank's small size and the provincial location of its first

• ffices, we had no choice but to cater to the small farmers and traders in

the region. But what started as work bom out of necessity soon turned into meaningful and gratifying work. Working with SMEs required a lot ofzyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA handholding, meaning, we spent more time and effort with the borrowers to ensure or protect the viability of their projects. Handholding involves serving as "informal" advisers to clients, providing them with financial and managerial advice and marketing linkages. For more than half of our corporate history, majority

• f borrowers who benefited from our handholding approach were in

agribusiness—rice and feed millers; pig, poultry and fish farm operators; traders of agricultural produce; and suppliers of feed, fertilizers and pesticides. Dealing with the small farmers and traders in the countryside opened my eyes to the wonderful realization that we were making an impact where it mattered most—with the marginalized sectors and the small entrepreneurs in the countryside. And we felt good about it.

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Working with Uganayang IVIags as aka

Our experience with the Ugnayang Magsasaka cooperative in San Simon, Pampanga is one example of how our handholding and assistance made a huge difference in the lives of our clients. The Ugnayang Magsasaka came to us for help in the early 1980s. Local banks had stopped lending and their cooperative was running short of funds for important projects. At that time, the farmers were using crop loans from a government bank to cover the palay production expenses and repaying the loans at harvest

• time. They complained that there was hardly any cash left after settling

their crop loans, because they were forced to sell their produce immediately upon harvest when prices were low. To enable the farmers to benefit from better palay prices, we helped Ugnayan secure a loan from the Quedan Guarantee Finance Board, using the rice stock as collateral. This allowed the farmers to settle their

• bligations on time and hold on to their rice stock until prices improved.

When we saw that these Ugnayan Magsasaka cooperative members had accumulated enough profits, we advised them to put up their own rice mill. Plantersbank helped professionalize their record-keeping, and when the cooperative qualified as bankable, we financed the project.

AgriBiz MS ME s ver 18 May

Having their own a rice mill provided the cooperative with another source

• f income. It was not long after that the project generated additional

income by milling palay of non-members. Our role in Ugnayan seemed minimal to me at the time, yet it made such an impact on the lives of these farmers and their families. Our zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA handholding approach helped this community earn more and prosper, and this experience served as a model that has been replicated over and

• ver again in our dealings with SMEs.

At this point, we had reached a critical crossroad in our journey, and we chose the road less taken. Our plan changed, from converting the bank to a commercial bank—a more profitable and prestigious undertaking then—to being a bank focused on SMEs and proving that it was a viable business proposition. We wove corporate social responsibility into the way we did business. And we vowed no matter how big our bank became, we would always stay committed to SMEs. There were no models to follow at the time. We had to learn by trial and error and to improvise along the way. We have never regretted our decision ever since.

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What sustained us all throughout was our deep faith in the SMEs, our dogged determination to make an impact, and the success stories of many SMEs that we assisted. Developmental agencies, local and foreign, saw and appreciated the value

• f what we were doing. Soon foreign financial institutions, namely the

Netherlands Development Finance Company or FMO, Asian Development Bank (ADB) and the World Bank's International Finance Corporation (IFC) became our partners and shareholders. From the 500,000 Pesos we started with, we became a 54 Billion Peso business, the 18* largest bank in the country, among 38 commercial banks, 100 thrift banks and 800 rural banks. Plantersbank had become the successful model of privately-managed, market-driven and profitable SME

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finance. It was this model that the World Bank and FMO invited Plantersbank to teach partner banks in countries including Vietnam, Cambodia, Pakistan and Micronesia. More than anything else, the experience of Planters Development Bank I consider as proof of the largely untapped potential of the SME sector.

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SM Es: A S trategic Sector

When we in Plantersbank stumbled into SMEs some 45 years ago, SMEs then were not much talked about. But now SMEs are in the spotlight. In many progressive countries, SMEs form the backbone of the economy, generating employment and livelihood mainly for the middle-income segment of the population, including tax revenues for government. Support for SMEs is now a global phenomenon. At a recent APEC briefing to which I was invited, for example, the SME sector was at the top of the agenda. Let me cite some statistics about Micro, Small and Medium Enterprises in the Philippines:

• 96% of all registered businesses belong to the Micro and Small and

>

Medium Enterprises (mSME) Sector.

• 65% of the country's labor force are employed by the MSME sector.

Significantly, agriculture directly employs 30%) of our workforce.

• The contribution of mSMEs to the country's Gross National Product

is 40%.

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A report cited by PhilExim in 2014 shows that only 13 % of Philippine SMEs used banks to fund their investment and working capital

• requirements. In Thailand, the figure is 60 %, Malaysia at 47%, Sri Lanka

and Nepal at 23zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA %.zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA The Philippines is at the bottom, ahead of only three countries—Afghanistan, Pakistan and Bangladesh. Capital formation figures from the same report indicate that SMEs in the Philippines almost entirely rely on their own internal sources. This is validated by direct experience of Small Business Corporation with mSME clients in areas of Eastern Visayas that were hardest hit by typhoon

• Yolanda. We learned that 80%) of mSME borrowers under the SBCorp

program were accessing formal credit for the first time, despite their having been in business for several years before the disaster. A Bangko Sentral report shows that only about 4 %

• of the banking systems

loan portfolio went to Small and Micro Enterprises, versus the mandated 8 % ) share for mSMEs in the banking systems lending portfolio. While estimates put the contribution of the SME sector to the economy at about 40%) of GDP, the BSP reported that the mSME sector share in credit from the banking systems portfolio in the first quarter of 2013 was only about 10%.

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S mall Business C

• rporation

Which brings me to where I am today: as Chairman of the government agency called Small Business Corporation or SBCorp, whose mandate derives from Republic Act 9501, better known as the Magna Carta for

• SMEs. Our agency mandate is not merely develop and implement

financing services for mSMEs, but also to draw up a comprehensive program to develop SMEs, including capacity building, technology support and linkages to promote a robust mSME sector. I was appointed by the President to this post early this year, after over 50 years in banking. My previous government post was Ambassador to London during the administration of President Fidel V. Ramos. Our team in London was successful in increasing trade, investment and tourism from the United Kingdom. During my time in the United Kingdom I had opportunity to observe the important role the government can play to create the conditions and provide the services that will strengthen Small and Medium Enterprises and uplift the countryside. In advanced economies like the United Kingdom and Japan, development support measures are comprehensive and involve both creation of

• pportunities for business growth as well as providing SMEs the financial

services needed to exploit these opportunities.

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Among the initiatives are including SMEs into the supply chains of government and large businesses. The United Kingdom, for example, has policy mandating government to source a percentage of purchase from

• SMEs. We also have this policy in the Philippines, but it still needs to be

fully appreciated and implemented.

Transformation Agenda

I would like to take this opportunity to share our vision at Small Business Corporation, which is: "We envision Small Business Corporation as a world class, best managed and sustainable development finance institution. " And our mission is: "To transform Small Business Corporation into the agency of choice for promoting

a strong and thriving mSME sector, that, by doing so,

contributes to the attainment of highly sustainable and inclusive economic growth for the country. " Considering the important role the mSME sector plays in our economy, so much needs to be done.

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I must be frank to state that despite the important mission entrusted to the Small Business Corporation by the Congress of the Republic, the Agency remains obscure and unfortunately marginalized. Our own resources have not grown beyond P3 billion during those 25 years, despite the pressing needs of the market and our promises of inclusiveness.zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA Clearly, the mSME sector demands a Bigger, Better and Stronger SBCorporation. Let me take this opportunity to share with you the steps we want to take, while working closely with Congress and the Administration, to build a Bigger, Better and Stronger agency. Our Transformation Agenda is as follows—

• Strengthen mandate. We will work with Congress so the Agency

can fully implement the Magna Carta for SMEs.

• Increase financial resources. We are working with Departments of

Trade and Industry and Budget Management to increase resources available to mSMEs, and consulting with international organizations like the World Bank's IFC among others to strengthen our institutional capability.

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• Expand range of products and services.zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA

SBCorp aims to increase intervention in agribusiness significantly. We will enhance our portfolios into value-chain financing; implement our equity financing mandate as core service; and work with state universities for the development of high value products and services that can be commercialized by local entrepreneurs. We intend to address capacity building requirements of mSMEs such as entrepreneurial farm development, titling of land holdings, and a movables collateral registry

• Ensure we are Governance System compliant. Recently I met with

senior management as well as our staff to ensure that our Vision and Mission is understood, communicate our Core Values; and motivate a corporate culture of transparency and accountability.

• Review organization. We reviewed the charters of the Board and

Management committees; and are undertaking reorganization based

• n strategic direction, optimized distribution of people; and cost

efficiency.

• Work for increased compensation. In order to attract and retain

talented and highly motivated people, we are working to address shortfall from the Salary Standardization Law rates of government and for increased Capitalization and Revenue Capability so our people qualify for better compensation.

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• Build corporate image.zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA

SBCorp has been around for 25 years and yet the agency is not well known outside our immediate circle. I am here this morning to communicate the SBCorp mission in order to get more support for what we do, and we are counting on MAP ABCD Foundation to inform our colleagues in the agriculture sector that SBCorp is ready to do business.

Medium Term S trategy Direction

To become an effective instrument of a pro-mSME policy, we in SBCorp are going to pursue the following medium term strategy:

• Strengthen the brand for risk-based direct lending to mSMEs.

This means easing in documentation and non-collateral oriented

• lending. We hope to target 5,000 active, viable mSMEs in our client

base.

• Capture the brand for reliable and pro-active Credit Guarantee

service for banks that want to lend to mSMEs. This translates to ease in guarantee call and intact/replenished guarantee fund reserve. At present, SBCorp has 100 active partner banks.

• Introduce equity financing as a real option for mSMEs. SBCorp

will educate and assist in incorporation of the targeted 10% of our direct lending client base.

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• Build internal capability and credibility as a provider of

development services for mSMEs and for mSMEzyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA

• oriented

financial institutions, such as training, consultancy, organizing, networking and research, with establishment of the mSME Finance and Development Institute within medium term. By doing these, we hope to give mSMEs the much needed boost so that the sector will play its role in providing jobs, better incomes and integrating the countryside into the mainstream of economic life.

The Challenge to MAP ABCD

Before I close this presentation, allow me to thank the MAP Agribusiness and Countryside Development Foundation for inviting me to this

• gathering. I naturally could not refuse, the very foundation that I helped

found two decades ago. SMEs and countryside development are two advocacies close to heart and as SBCorp chairman my duty is to give voice to these issues. Two weeks ago, I was invited by Dr. Bernie Villegas of UA&P to meet his group of young executives and entrepreneurs in their 20s and early 30s. It was in this meeting that we discussed the importance of turning towards the countryside and uplifting agriculture through entrepreneurship.

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Here were young entrepreneurs looking to the future and thinking outside the traditional products; thinking about value-added activities; of diversification to higher value produce. It was good experience meeting these young men who are interested in SMEs and seriously considering economic opportunities in the countryside. As we learned in Plantersbank, lending to SMEs is not enough. Along with access to credit, the SME sector needs capacity-building and support services, such as tax information, legal advice, technology access, marketing linkages, and more. Access to formal credit is only the beginning. So, allow me these remaining minutes to challenge the MAP ABCD Foundation. What we are saying is for MAP ABCD Foundation to play a more important role in influencing agricultural policy in the country. While SBCorp communicates the strategic importance of the mSME sector and the role of the Agency within government, MAP ABCD Foundation must advocate the same from the private sector side, in favor of entrepreneurs doing business in the rural areas.

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We need MAP ABCD Foundation to speak with a louder, forceful voice in favor of more investment in infrastructure, like farm-to-market roads, irrigation systems, and post-harvest facilities that will benefit the SMEs. Your advocacy must include development of strong cooperatives, which have been a key contributor to agricultural productivity in Europe and the United States; as well as technical assistance programs that will raise the level of farm efficiency, and livelihood development projects for the least served in the countryside. As the Philippine begins integration with the ASEAN Economic Community, there will be many challenges for Agribusiness mSMEs. But integration will result in new economic entry points and markets for lucrative business, too. It is these opportunities that we must prepare our Agribusiness mSMEs to seize and develop to fullest advantage. By way of closing, I wish MAP Agribusiness and Countryside Development Foundation much success in your endeavors and enjoin you to persevere in our mission to increase the number of rural families who benefit from economic growth and thus enjoy a better quality of life Thank you.

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