ABAC Philippine Members 2015 - 2016

DORIS MAGSAYSAY HO, Member

JAIME AUGUSTO ZOBEL DE AYALA, Member
TONY TAN CAKTIONG, Member
GUILLERMO LUZ, Alternate Member
WILLIAM TAN UNTIONG, Alternate Member

Executive Director Programs and Projects Director
PETER ANGELO V. PERFECTO ROXANNE V. LU

Research by Support Services Director

CATHERINE P. MACEDA ANTHONY PATRICK D. CHUA

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ROMUALDO BENJAMIN F. DEL ROSARIO

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2| M B C S p e c i a l P u b l i c a t i o n
PREFACE
The Micro, Small, and Medium Enterprise (MSME) sector is a critical driver of the economy, contributing
thirty-five percent (35%) of the country’s GDP, and accounting for two-thirds of the country’s employment
and a fifth of the country’s exports. These figures are good, but they can be better.

The Philippine government seeks to further increase their contribution to the national economy, mindful
of the challenges that they face, including limited access to funds, raw materials, skilled workers, and
technology. Under the right policy conditions and supported by an effective governance framework,
MSMEs can become powerful agents for inclusive growth.

The Philippine APEC Business Advisory Council (ABAC), as Chair of ABAC in 2015, steered ABAC’s MSME
agenda to achieve three main objectives:

• firstly, bring everyone, specially MSMEs, into the internet and digital economy;

• secondly, enhance the participation of MSMEs in market driven technology-based economy through
innovation; and

• thirdly, bring more MSMEs into the global value chain.

In cooperation with the Asian Institute of Management, the book, Going Global Together, was published,
highlighting the significant role of big businesses in creating the pathways for MSMEs to join the global
value chain. Beyond these partnerships, however, rest a more critical element -- governance -- that will
provide our MSMEs the guidance and support to enable them to push the boundaries, create ideas, and
translate these into products or services that are responsive to the changing landscape of consumer
expectations and tastes in a much more complex global supply chain.

A number of policies have been put in place which have created inroads to MSME development in the
country, but it would nonetheless be instructive to derive lessons from the experiences of other economies.

The Philippines, as Chair of the APEC Meetings in 2015, has had the opportunity to take a broader view of
other countries’ experiences in terms of maximizing the potential of MSMEs as creators of new sources of
growth through their participation in global value chains.

This review is necessitated by a compelling need to look at the Philippine MSME experience through the
lens of the existing global economic structure. There is now a broader global economic terrain that needs
to be considered in enhancing the country’s MSME policies.

This study has three major objectives.

First, it aims to document Philippine MSME policy experience.

Second, it attempts to draw useful lessons from the experiences of economies whose MSME sector has
thrived. In the case of Vietnam, its experiences will provide insights on the evolution of its MSME policies
and strategies and its current challenges.

Finally, this paper will look at the country’s governance framework for MSMEs and recommend ways to
address some of the issues that impair MSME growth and sustainability.

Policy Brief on MSME and Entrepreneurship |3

 MSMEs IN THE PHILIPPINES
The Philippines has two operational definitions Table 1. Criteria for classifying MSMEs in Philippines
of MSMEs – based on employment, and the other, No. of
based on assets. Category Assets Employees
Less than 3 million
Republic Act (RA) 9501 or the Magna Carta for Microenterprise 1-9
pesos
MSMEs defines MSMEs as any “business activity or 3 million to
Small Enterprise 10-99
enterprise engaged in industry, agribusiness and/or 15 million pesos
services, whether single proprietorship, cooperative, More than
partnership or corporation” whose total assets, Medium Enterprise 15 million to 100-199
100 million pesos
exclusive of “land on which the particular business
entity’s office, plant and equipment are situated” fall
under any of the categories enumerated in Table 1.

Resolution No. 1, series of 2003 of the SME Figure 1. Enterprises in the Philippines by Category
Development Council of 2003, on the other hand,
defined the categories of MSMEs based on the
number of employees.

Figure 1 and Table 2 show the number of registered

enterprises in the country on selected years,
beginning in 1995 or four years after the Magna Carta
for Small Enterprises (RA 6977) was passed into law.
The law was amended in 1997 by RA 8289.

If the number of MSMEs were an indication of the

laws’ impacts, one may attribute the surge in the
number of MSMEs from 1995 to 2000 from these Source: DTI-BSMED, Philippine Statistics Authority, Census
and Technical Coordination Office
policy measures – from 492,610 in 1995 to 818,076 in
2000.

The highest number of enterprises was registered Table 2. Number of Enterprises by Year and
in 2014 at 946,988, with 99.6% of these enterprises by Category
accounted for by MSMEs -- a great number of which Philippine Enterprises
(90%) are classified as microenterprises. Total number Year Micro Medium Small Large Total
of MSMEs during this period was 940,886.
1995 449950 2712 39848 2447 495,057
2000 747740 3070 67166 2984 821,060
From 1995 to 2014, microenterprises dominated the
2003 762573 3521 69175 3745 839,114
economy. As of 2014, microenterprises accounted for
2006 720191 2839 57439 2596 783,165
at least ninety percent (90%) of all enterprises. In 2014,
small enterprises accounted for only 9%. Medium 2010 709899 2839 61979 3023 777,687
enterprises, in terms of asset and size structure, were 2011 743250 3287 70222 3496 820,255
negligible at .4%. 2012 844764 4095 92027 4011 944,897
2013 846817 3748 86762 3847 941,174
In both developed and developing economies, MSMEs 2014 851756 3886 87283 4063 946,988
do- minate the economy. In many instances, they
Source: DTI-BSMED, Philippine Statistics Authority, Census
constitute more than 99 percent of all enterprises. and Technical Coordination Office

4| M B C S p e c i a l P u b l i c a t i o n
In many developed economies, microenterprises Figure 2. Distribution of Employment
far outnumber small and medium enterprises. In by Enterprise Category, 2014
Japan and Korea, for example, microenterprises
account for eighty-seven percent (87%) and
eighty-eight percent (88%) of the economy,
respectively. Developing economies would
appear to have a lower percentage of
microenterprises, but this is attributed to the
presence of a large informal sector and weaker
business environments. (UNESCAP, 2012)

On the employment front, MSMEs in the

Philippines account for at least 62% of the
employment figures of enterprises in 2014, 30%
of which was accounted for by microenterprises.
(Figure 2)

MSMEs were predominantly in the wholesale

and retail trade. Repair of motor vehicles and
motorcycle industries accounted for 437,205 or
46% of business establishments. Ninety-four
percent (94%) of these were microenterprises.

The accommodation and food services sector

accounted for 127,518 or thirteen percent (13%) Figure 3. Percentage Distribution of
of enterprises; while manufacturing, electricity, MSMEs by Sector, 2014
water, gas, and construction sector accounted
for 124,736 or thirteen percent (13%).
Eighty-six percent (86%) of MSMEs as of 2014
are in the services sector, while thirteen percent
(13%) is accounted for by the manufacturing
and industry sector. (Figure 3)

It may be further noted that while the number

of MSMEs has increased from 1995 to 2014, the
number of MSMEs in the manufacturing sector
declined from 15,748 in 1999 to 13,494 in 2014,
down by fourteen percent (14%).

PHILIPPINE As MSMEs assert their roles in the country’s growth

ENTREPRENEURSHIP POLICY story, the government has woven MSME-oriented
The country’s first major push into entrepreneurship policies in different facets of its development agenda.
began in the 1970s.
Over the years, various laws have been enacted to
The 1987 Philippine Constitution recognized boost entrepreneurship in the Philippines. The most
entrepreneurship as a driver of economic growth. basic and fundamental of which is the Magna Carta for
It guarantees the promotion of industries Small Enterprises which was legislated in 1991 under
and employment. It vows to protect Filipino Republic Act 6977, and amended in 1997 and 2008.
enterprises against unfair competition and trade
practices and commits to give opportunities for The Magna Carta for Small Enterprises establishes
private enterprises to grow. the state policy to “promote, support, strengthen

Policy Brief on MSME and Entrepreneurship |5

and encourage the growth and development of • private sector participation in the
MSMEs in all productive sectors of the economy, implementation of MSME policies and
particularly rural/agri-based enterprises” and to programs; and
foster “entrepreneurship, support entrepreneurs,
encourage the establishment of MSMEs and ensure • coordination of government efforts to
their continuing viability and growth and thereby develop the MSME sector.
attain countryside industrialization.” (Republic Act
9501) The SME Development Plan also sought to support
the national government’s initiative of creating
The law sought to achieve these objectives by six million jobs in six years. The MSME sector
establishing a favorable business environment, was positioned as a key driver for the creation of
improving access to financing, providing new jobs and economic recovery. The plan was
adequate business support, providing training succeeded by the 2011-2016 MSME Development
on entrepreneurship and worker skills, providing Plan which covers a range of support services.
linkages between SMEs and large firms, and
working in partnership with the private sector. The MSME sector’s performance is basically
affected by key challenges, including high cost
The 2004-2010 MSME Development Plan was of doing business, lack of access to finance and
anchored on the following principles to set the market information, and low productivity and
pace for SME development in the country: competitiveness – the very issues which the
Magna Carta for SMEs sought to address when it
• minimal set of rules and simplification of was adopted twenty-five years ago.
procedures and requirements;
KEY POLICIES
There are at least thirty-six (36) laws that impact
MSMEs in the country. Eight of these laws are

An analysis of the MSME data in Figure 1 and other indicators, however, will reveal that MSME sector
growth has remained modest from 2000 to 2014, based on the following:

• Microenterprises, which constitute at least ninety percent (90%) of the enterprises, have grown
by only fourteen percent (14%) over a period of fifteen years, from 2000 to 2014, and by only 1%
from 2012 to 2014;

• Medium enterprises constitute only 0.4% of the enterprises from 2008 to 2014, generating a
hollowed middle that has remained unchanged over the past 15 years;

• The percentage share of small enterprises has remained unchanged at 9% from 2012 to 2014,
with its numbers even declining from 92,027 in 2012 to 87,283 in 2014;

• While accounting for sixty-two percent (62%) of the employment in enterprises, the country’s
MSME sector has relatively low value added to the economy, estimated at only 30.8 percent of
value added, lower than in other Asian economies such as Indonesia (53.28%), Vietnam (39%) and
Thailand (37.8%); (Philippine Senate, 2012)

• In terms of labor productivity, microenterprises registered the lowest at only 10% of the labor
productivity of large enterprises. The labor productivity of small enterprises was 52% of that of
large e¬nterprises, while medium enterprises’ productivity performance was at 82%.

6| M B C S p e c i a l P u b l i c a t i o n
aimed at directly promoting the MSME sector’s mainstream economy. Various incentives are provided
growth and development – with half of these under the Act, such as, income tax exemption,
laws having been passed in the past two years. exemption from the coverage of the Minimum
Republic Act 6977 or the “Magna Carta for MSMEs,” Wage Law, priority to a special credit window, and
apart from establishing the country’s MSME policy technology transfer, production and management
training, and marketing assistance programs.

A major milestone, however, The effectiveness of this law in facilitating the

in MSME policy is the Go Negosyo Act transition of MSMEs from informal to the formal sector
remains to be seen as the Philippines fared poorly
which mandated the establishment of in the ASEAN SME Policy Index in this dimension,
Negosyo Centers in all garnering its lowest score of 2.
provinces, cities, and
municipalities. These centers are Many of the country’s laws also seek to help
responsible for promoting ease of MSMEs access credit or financing.
doing business and facilitating access
These laws gave birth to SULONG financing
to programs and services for MSMEs.
program and other MSME-focused loan and credit
facilities by government financing institutions,
banks, micro-finance NGOs, and cooperatives.
framework, mandated and tasked institutions to
promote MSME growth and development. It was only in 2015, however, that Congress
passed a law which focused on strengthening
The Small and Medium Enterprise Development entrepreneurship education. The Youth
(SMED) Council was created to undertake, principally, Entrepreneurship Act aims to “establish, maintain,
coordination activities for the “promotion, growth and support a complete, adequate, and integrated
and development of small and medium enterprises.” system of education and training to encourage
It also established the Small Business Guarantee and the entrepreneurial spirit among our youth as
Finance Corporation to handle financing initiatives well as support and promote the growth of young
for MSMEs. entrepreneurs nationwide.”

The Magna Carta was subsequently amended by RA Table 4 lists the major laws that directly support
8289 and then by RA 9501, with the latter mandating the development agenda for MSMEs. The nature
a more aggressive effort to promote MSME role in and coverage of these laws are outlined in the
nation building and renaming the SMED Council table, highlighting the policy areas that they seek
into the Micro, Small and Medium Enterprise to address.
Development (MSMED) Council. It also established
the “Presidential Awards for Outstanding MSMEs”.
Table 3. Tally of Legislations and Their Policy
Republic Act 9178 or the Barangay Micro Business Scope/ Areas Relevant to MSMEs
Enterprises Act of 2002 sought to integrate
Number
microenterprise in the informal sector into the Policy Area
of Laws
Ease of Doing Business 6
Access to finance 14
The country is not lacking in policies that Market expansion/trade 8
seek to promote the growth of MSMEs. It Access to Technology 6
is important, however, that the extent by Access to Training 10
which these laws are implemented across rel- Tax Incentives 9
evant agencies is moniitored and assessed. Advocacy/Representation 3
Failing to do so would provide no basis to Entrepreneurial education 2
improve policy frameworks and programs. Operations-related policies
17
(fiscal, labor, etc.)

Policy Brief on MSME and Entrepreneurship |7

Table 4. Legislations Enacted to Promote MSME Growth and Development
Remarks
Ease of Access Market Advisory
Techno. Tax Entrep. Ops. Credited/
Laws Year Doing to expan- Training services
access incentives Educ’n. Related Reorganized
Business finance sion /reps
Entities
RA 10744
Credit Surety Fund 2015 x x **
Act
Microfinance
RA 10693
2015 x x NGO Regulatory
Microfinance NGO Act
Council
Entrepreneur-
RA 10679
ship Education
Youth Entrepreneurship 2015 x
Committee
Act
(EEC)
Negosyo
Centers

Micro, Small,
RA 10644
2014 x x x x x x x and Medium
Go Negosyo Act
Enterprise
Development
(MSMED)
Council
RA 9501 Micro, Small,
Magna Carta for Micro, and Medium
Small, and Medium Enterprise
Enterprises Development
2008 x x x x x x x
(MSMED)
(Amending RA 6977 as Council
amended by RA 8289)
Bureau of MSME
Development
RA 8289 - An Act
(BMSMED)
Amending RA 6977 1997 x x x x x x
“Magna Carta for SMEs”
Small Business
Guarantee and
RA 6977 - Magna Carta Defined Finance Corp.
1991 x x x x x
for SMEs SMEs (SB Corporation)

RA 9178
Barangay Micro Business
2002 x x ** ** ** x
Enterprises Act

RA 9281
An act to strength-
en agriculture and
fisheries modernization
in the Philippines by
2003 x x
extending effectivity
of tax Incentives and
its mandated funding
support
(Amending RA 8435)
RA 8435
Agriculture & Fisheries
1997 x
Modernization Act

RA 9520
Philippine Cooperative
Policies on
Code
2009 x x x creation of
(Amending RA 6938,
cooperatives
“Cooperative Code of the
Philippines”)
RA 6938
Cooperative Code of the 1990 x x x
Philippines

Legends:
x – MSME area of concern that is directly addressed by the law
** - MSME area of concern that is indirectly addressed by the law

8| M B C S p e c i a l P u b l i c a t i o n
 Remarks
Ease of Access Market Advisory
Techno. Tax Entrep. Ops. Credited/
Laws Year Doing to expan- Training services
access incentives Educ’n. Related Reorganized
Business finance sion /reps
Entities
RA 6939
Cooperative
An Act Creating the
1990 x Development
Cooperative Devel-
Authority
opment Authority

RELATED LAWS AND LEGISLATIONS

Financing
RA 8791
General Banking 2000 x
Law
RA 8425
National
Social Reform and
1997 x ** Anti-Poverty
Poverty Alleviation
Commission
Act
RA 7353
Rural Bank Act
(As amended by RA
1992
10574, “An Act Al-
x
lowing the Infusion
(2013)
of Foreign Equity in
the Capital of Rural
Banks”)

Labor and Human Resources

RA 7796
Technical Education
1995 x
Skills Development
Act
RA 7686
Dual Training 1994 x
System Act
RA 6727
Wage 1989 x
Rationalization Act Refers to
statutory
RA 6640 provision on
An Act Providing for minimum
Statutory Minimum salaries of
1987 x
Wage and Rates of workers
Employees in the
Private Sector
RA 602
1951 x
Minimum Wage Act
Labor Code, Articles
106-109 (Presiden- Treatment of
1974 x
tial Decree No. 442 workers
(As Amended)

Taxes and Incentives

RA 7916
Special Economic
Zone Philippine
1995
(As amended by x x x Economic Zone
(1999)
RA 8748, “An Act Authority
Amending RA 7916”
in 1999)
RA 7918
An Act Amending 1995 x x
Article 39 of EO 226
EO 226:
The Omnibus 1987 x x
Investments Code
RA 8424 Tax obligations
National Internal of enterprises
1997 x
Revenue Code of in the
1997 Philippines

Policy Brief on MSME and Entrepreneurship |9

 Remarks
Ease of Access Market Advisory
Techno. Tax Entrep. Ops. Credited/
Laws Year Doing to expan- Training services
access incentives Educ’n. Related Reorganized
Business finance sion /reps
Entities
RA 7716
Expanded Value Added
Tax Law 1994 x VAT policies
(As amended by RA 8241
in 1996)

OTHER RELATED LAWS

Philippine
Competition
Commission
RA 10667
Philippine Competition 2015 x Anti-
Act competitive
acts,
enforcement,
and penalties
RA 8792 Use of
Electronic Commerce 2000 x x x e-commerce in
Act operations
Intellectual
Property Office
RA 8293
(IPO);
Intellectual Property
Code of the Philippines
Laws on (1)
(As amended by RA 1997
x patent, (2)
10372, “An Act Amending (2012)
trademarks,
certain provisions of the
service marks,
Intellectual Property
and trade
Code of the Philippines”)
names; and (3)
Copyright
National
Consumer
Affairs Council

Policies on
RA 7394
product quality,
Consumer Act of the 1992 x
consumer
Philippines
protection,
as well as
prohibited acts
and penalties/
violations
Policies relating
BP 68
to
Corporation Code of the 1980 x
establishment
Philippines
of corporations
Ownership,
transfer, and
RA 386
governance on
Civil Code of the 1949 x
trade marks;
Philippines
and Provisions
re contracts
Penalties for
RA 3815 frauds in
1930 x
Revised Penal Code business/
industry

10| M B C S p e c i a l P u b l i c a t i o n
 opportunities conducive to the growth and
Number development of the MSME sector.” One of its
Policy Area
of Laws key responsibilities is that of coordinating and
Ease of Doing Business 6 integrating various government and private sector
Governance 12 activities relating to MSME development. Apart
from the Chairman, the Council has ten members.

INSTITUTIONAL SUPPORT TO PH MSMES Given the cross-sectoral nature of MSME concerns,

The government plays a crucial role in MSME its members include the Secretaries of Interior
development as it provides the essential policy and and Local Government, Tourism, Science and
program environment to support its growth. Technology, and Agriculture; the Chairman
of the Small Business Corporation; three (3)
The MSMED Council is the primary government body representatives from the MSME sector of Luzon,
responsible for developing MSME promotion policies Visayas and Mindanao; one representative from
and for providing guidance on implementing MSME the labor sector, to be nominated by accredited
programs. labor groups; and a representative from the private
banking sector.
It is attached to and chaired by the Department of Trade
and Industry (DTI), which is responsible for developing The Bureau of Micro, Small and Medium Enterprise
and regulating business enterprises. Several bureaus Development (BMSMED) of the DTI serves as the
and corporations under DTI, as well as its attached MSMED secretariat.
agencies, implement programs to promote MSME
development. While the Magna Carta for SMEs mandates
the Council to “promote the productivity and
MSMED COUNCIL viability of MSMEs by way of directing and/
The MSMED Council is a policy recommendatory or assisting relevant government agencies
and coordination body. Its primary mission is and institutions at the national, regional and
to help “establish the needed environment and provincial levels,” it does not have the means

Figure 4. Philippine SME Institutional Structure

Policy Brief on MSME and Entrepreneurship |11

to extend such assistance due to logistical The Philippines has trade offices in strategic
and institutional constraints. It appears to be locations worldwide.
a very power ful entity on paper, but does not
have the wherewithal to deliver such support 4. Design Center of the Philippines
to the agencies. Assists MSMEs in the areas of product / package
design, product technology demonstration,
design and technical information, and library
DEPARTMENT OF TRADE AND INDUSTRY information on design-related topics.
Implementation of MSME policies are carried
out by the DTI through its Regional Offices (17 5. Philippine Trade Training Center
offices) and Provincial/City Offices (81 offices). Conducts training programs, including export
The Bureau of Export Trade Promotion, Export marketing and management, entrepreneurial
Marketing Bureau, and the Foreign Trade Services management, quality and productivity, and trade
Corps assist in expanding the market access and exhibition. It also offers post-training advisory
internationalization of MSMEs. and consulting services. It rents out its facilities
as training, exhibition, and events venue.
The DTI has also established a total of one hundred
forty-four (144) Negosyo Centers as of December 6. Center for International Trade Expositions
2015. The establishment of these centers was and Missions
mandated by the “Go Negosyo Act.” These Organizes international trade fairs where MSMEs
Centers help promote ease of doing business can participate in order to promote their products
by facilitating access to services for MSMEs, and services to target customers. It assists
including business registration assistance, exporters in the areas of marketing, promotion,
business advisory services, business information and capability building.
and advocacy as well as access to market
linkages. Within the DTI are various bureaus 7. Philippine International Trading Corporation
and units that support MSME development. The Provides trade and trade-related services to
BMSMED provides secretariat support to the private enterprises. These include buyer-
MSME Council, but due to limited resources, is supplier matching, export documentation,
unable to deliver large scale and broad support product sourcing, quality inspection and
to agencies undertaking MSME programs which assurance, as well as use of PITC custom bonded
is called for in the Magna Carta for SMEs. warehouse for storage, handling, and trucking
of products and raw materials.
The following are the DTI attached agencies,
bureaus and corporations that deliver MSME 8. Philippine Economic Zone Authority
programs and services: Sets the general policies for, operates, manages,
and develops economic zones in the country.
1. Bureau of Domestic Trade Promotion
Promotes efficient marketing and distribution of 9. Bureau of Micro, Small and Medium Enterprise
local products and services. BDTP implements Development
programs and services to strengthen linkages Initiates and implements projects for MSMEs
among MSMEs nationwide. in the areas of training, technology transfer,
financing, and marketing. It serves as Secretariat
2. Export Marketing Bureau of the MSMED Council.
E nha nce s c apab ilit ies an d g l o bal
co m pe ti ti ve ne s s o f ex p o r ters an d wo u l d- 10. DTI Regional and Provincial Offices
b e ex por te r s by providin g t h em t imely and DTI has 17 regional offices and 81 provincial /
re l eva nt i nfor mat io n an d assist an ce o n city offices that cascade DTI services and assists
i nter nati onal m ar k et s. MSMEs in the countryside.

3. Foreign Trade Service Corps 11. Small Business Corporation

Promotes Philippine expor ts and investments Promotes financing and credit delivery systems
overseas through various marketing and for MSMEs.
commercial intelligence ac tivities.

12| M B C S p e c i a l P u b l i c a t i o n
Figure 5. DTI Organizational Structure

Source: Department of Trade and Industry

OTHER GOVERNMENT AGENCIES Department of Education (DepEd) which is mandated

INVOLVED IN ASSISTING MSMES to promote entrepreneurship education.
Implementation of MSME policies are carried out by
the DTI through its Regional Offices (17 offices) and The preponderance of agencies attending to the needs
Provincial/City Offices (81 offices). The Bureau of Export of the MSME sector presents a challenge by itself.
Trade Promotion, Export Marketing Bureau, and the Alignment of priorities, program objectives, strategies
Foreign Trade Services Corps assist in expanding the would be needed to maximize the impact of services
market access and internationalization of MSMEs. and interventions.

MSME challenges and needs span a wide range of BUSINESS ASSOCIATIONS AND
sectors. As such, numerous agencies are charged with NON-GOVERNMENT ORGANIZATIONS
implementing policies and programs that are relevant WITH MSME-RELATED ADVOCACIES
to MSME concerns. The Magna Carta for SMEs provides that the private
sector will be the government’s partner “in the task
These agencies include the Department of Science of building up MSMEs through the promotion and
and Technology (DOST) which leads efforts to participation of private voluntary organizations,
promote innovation and technology transfer among viable industry associations, and cooperatives.”
MSMEs; Bangko Sentral ng Pilipinas, and government-
owned financing institutions such as Landbank of The law also mandates consultation with the private
the Philippines and Social Security System (SSS); sector in the formulation of the six-year micro, small
Department of Agriculture; Local Government Units; and medium enterprises development plan which is
National Anti-Poverty Commission; Department of prepared by the DTI.
Finance-National Credit Council; People’s Credit and
Finance Corporation; Philippine Information Agency; As such, the private sector and civil society are actively
Department of Interior and Local Government; National involved in MSME development initiatives. They
Commission on the Role of Filipino Women; and the either organize and execute their own programs or

Policy Brief on MSME and Entrepreneurship |13

partner with the government. These organizations
also actively participate in consultations and PROGRAMS FOR MSMES
deliberations about policies impacting MSMEs. There are various programs and projects carried
out by the public and private sectors benefiting
What is lacking though is a more defined and regular MSMEs nationwide. Below is a list of these programs,
mechanism for public-private sector partnership in clustered according to MSME development stage.
the delivery of programs and services for MSMEs. Many Figure 6 outlines these programs and classifies them
of the private sector initiatives are independently by stages of MSME growth.
branded and implemented as stand-alone initiatives
with the participation of government from time to INCEPTION AND
time. FORMATION STAGE
Programs for those that are just starting a business.
Programs for MSMEs need to be integrated as part
of a coherent “whole,” guided by a shared vision and
plan of action that everyone in the society – public 1. Philippine Business Registry (DTI) - a web-based
and private sector alike – embraces and supports. registration system that integrates, into a one-stop
shop, the various services of government agencies

Figure 6. Programs for MSMEs in Every Stage of Business Developmen

14| M B C S p e c i a l P u b l i c a t i o n
 involved in the registration and licensing of new 6. Small Enterprise Technology Upgrading
enterprises. Program (SET-UP) – a technological grant program
of the DOST which helps MSMEs improve their
2. SME Roving Academy (SMERA) (DTI) - a operations and boost productivity. Aside from the
nationwide DTI learning program for new and grant, DOST also assists and advises entrepreneurs
existing entrepreneurs in the area of business on product quality, packaging, workforce,
registration and licensing, financing, marketing, operational costs, waste management, and other
productivity improvement, taxation, product operations-related activities.
trends, target markets, among others.
7. Science and Technology Experts Volunteer
3. Micro-financing Programs – financing options Program (STEVPP) –MSMEs, NGOs, and
offered by the government, including: cooperatives in the countryside could avail of
technology support through volunteer scientists
and experts who are tapped to extend free
• Credit Surety Fund (CSF) Program – credit technical assistance under this DOST program.
enhancement scheme developed by the BSP
which aims to increase the credit worthiness of 8. Shared Services Facility (SSF) – Led by the DTI,
micro, small and medium enterprises (MSMEs) a shared service facility allows MSMEs to access
that are experiencing difficulty in obtaining loans better technology and more sophisticated
from banks due to lack of acceptable collaterals, equipment. SSF lends MSMEs equipment that
credit knowledge and credit track records. could boost their productivity and improve their
efficiency through product proto-typing, package
• SME Unified Lending Opportunities for National testing, 3D printing, etc.
Growth (SULONG) Program (GFIs) – short-
and long-term funding offered by accredited 9. One Town-One Product (OTOP) – Led by the
government financial institutions to SMEs for DTI, this program promotes unique products of
export financing, temporary working capital, cities/ municipalities or products where the cities/
purchase of equipment or lot, or building municipalities have competitive advantage.
construction.
10. Industry Skills Grant Scheme (ISGS) – DOT
• Venture Financing Program (VFP) – DOST funding program that provides grants for training that
for start-ups and technology-based projects to focuses on upgrading skills and competency levels
help accelerate the commercialization of new and of the tourism industry workforce.
emerging technologies or inventions. 11. Two-Tiered Wage Program – a system and policy
reform implemented by DOLE which aims to
4. Movable Collateral Registry – a system developed improve Philippine global compe- titiveness on
by the DOF that increases MSMEs’ access to finance flexible wage determination.
by allowing them to leverage movable assets, such 12. Other Skills Training Programs – Various
as inventory, crops and equipment, into capital for government agencies hold training courses for
investment and growth. MSMEs.
5. Alternative Learning System – a literacy cum
livelihood program of the Department of Education The training programs include the following:
that allows participants to acquire formal basic • E-Commerce Caravan – seeks to increase
education or to upgrade knowledge and technical the number of MSMEs engaged in online
skills through a Continuing Education Program for merchandising / business by helping them to
gainful employment. (Department of Education, adopt e-commerce in transacting businesses,
http://www.deped.gov.ph/als ) such as e-payment, logistics, customer
relationship management, and consumer
GROWTH STAGE protection.
Programs for MSMEs that are already operating • Training Enhancement for Competitiveness in
to help improve business operations in the area of Harnessing Innovative Entrepreneurs (TECHIE)
productivity, cost efficiency, marketing, people and – helps entrepreneurs become more IT-enabled
manpower improvement, among others. by teaching them basic computer literacy

Policy Brief on MSME and Entrepreneurship |15

 and applications as well as internet-based Roving Academy program are eligible to join.
marketing. This program is run by DTI regional offices.

• Negosyo Center Training – courses focus mostly 15. Export Pathways Program (EPP) – helps
on product development, basic marketing, and exporters with client-focused interventions at
as well as packaging and design. all business stages.

• PTTC Training – these courses intend 16. Trade Fairs and Exhibits – government
to help MSMEs improve their day-to-day assistance to MSMEs that wish to participate
operations. Courses include, among others, in international trade fairs and exhibitions,
logistics management, food packaging and including the conduct of trade fairs such as
labeling, basic accounting, MS office software Manila FAME - the country ’s premier trade
applications, business continuity, and ISO platform for MSME’s lifestyle products,
certification processes. design and craftsmanship; International Food
Exhibition (IFEX Philippines); National Food
Other training programs are also conducted by Fair, etc.
agencies such as Technological Education and
Skills Development Authority (TESDA) and the 17. Business Matching and
UP-Institute of Small Scale Industries (UP-ISSI). Inbound / Outbound Mission – DTI-led
missions to help MSMEs promote and market
EXPANSION AND GLOBALIZATION their products and services and find business
These are DTI-led Programs that seek to expand partners in the country and overseas. DTI
SME’s market reach to international markets organizes and assembles delegations for
business travel to target markets such as North
13. Doing Business in Free Trade Area (DBFTA) America, Europe, and Asian countries.
– a nationwide information campaign on
the country’s current free trade agreements MARKET ACCESS FOR MSMEs
to promote awareness on overseas market Regionalism in Asia, spurred by global value chains
opportunities, tariff reductions, rules of origin (GVCs) and free trade agreements (FTAs), highlights
and customs procedures, etc. the crucial role of MSMEs in the region’s development.
14. Regional Interactive Platform for
Exporters (RIPPLES) – an advance program The trade patterns have changed as capital goods
on export readiness, export market entry, and final products no longer dominate trading across
export sustainability, and export expansion. economies. Today, parts and components of products
Entrepreneurs who have completed the SME are increasingly being traded within and across

Figure 7. Trade Pattern in East Asia

16| M B C S p e c i a l P u b l i c a t i o n
industries and regions. Production processes today Underscoring the important role of MSME
involve production blocks with stages of production participation in the regional economic order, the
taking place in different economies. Philippines, as Chair of the Asia Pacific Economic
Figure 7 shows the increasing levels of importation Cooperation (APEC) in 2015, placed MSMEs at
of parts and components within East Asia from 7.2% the “front and center” of the APEC agenda. Key
in 1980 to 32.2% in 2003, while those of processed outcomes of the Philippine Chairmanship in
goods decreased from 37.3% to 28.0% in those relation to the MSME agenda are outlined in
same years. (Asian Development Bank, 2010) Table 5.

The fragmentation of production processes and These outcomes seek to address the barriers to
the elimination of barriers to trade generate trade and investment which disproportionately
vast opportunities for MSMEs to participate in impact the MSMEs.
the regional and global value chains.

Table 5. Outcomes of APEC 2015

Policy Brief on MSME and Entrepreneurship |17

 PHILIPPINE COMPETITIVENESS
AND EASE OF DOING
BUSINESS PERFORMANCE
By promoting the participation of MSMEs in GVCs The country’s competitiveness ranking was on
and international trade, the growth that APEC helps steady increase during the past six rating periods
to actualize, will be more inclusive, thus driving of WEF – from 85th in 2010-2011 to 47th in the
broader economic prosperity in the region. 2015-2016 report, the latter being the highest
ranking achieved by the Philippines over the past
GLOBAL COMPETITIVENESS six years.
Philippine competitiveness improved in 2015-
2016, but its rating declined during the period The countr y ’s world competitiveness index
2016 to 2017, based on the World Economic rating, however, slipped by 10 percentage
Forum (WEF) Global Competitiveness Index. points during the 2016-2017 rating of WEF,
placing the countr y 57th out of 138 economies
covered by the rating system.

Figure 8. World Economic Forum (WEF) Global Competitiveness Index:

Philippine Performance (2015-2016 and 2016-2017)

18| M B C S p e c i a l P u b l i c a t i o n
There were six areas wherein the country’s ratings dipped between the cited periods of review,
including institutions, goods market efficiency, labor market efficiency, technological readiness,
business sophistication, and innovation.

Minimal improvements were noted in the rating for macroeconomic environment (5.9), health and
primary education (5.6), and higher education and training (4.6).

Table 6. Philippine Ranking, WEF Global Competitiveness Index (2010-2017)

Pillars 2010- 2011- 2012- 2013- 2014- 2015- 2016-

2011 2012 2013 2014 2015 2016 2017
Overall ranking 85 75 65 59 52 47 57

Institutions 125 117 94 79 67 77 91

Infrastructure 104 105 98 96 91 90 95

Macroeconomic environment 68 54 36 40 26 24 20

Health and primary education 90 92 98 96 92 86 81

Higher education and training 73 71 64 67 64 63 58

Goods market efficiency 97 88 86 82 70 80 99

Labor market efficiency 111 113 103 100 91 82 86

Financial market development 75 71 58 48 49 48 48

Technological readiness 95 83 79 77 69 68 83
Market size 37 36 35 33 35 30 31
Business sophistication 60 57 49 49 46 42 52
Innovation 111 108 94 69 52 48 62
*Note: Texts in bold font represent significant decline in ranking between the 2015-2016 and 2016-2017 ranking
Source: WEF Global Competitiveness Index, 2010 to 2017

Table 7. Comparative Global Competitiveness Ranking of Selected Economies (2016-2017)

Pillars Germany Japan Malaysia Rep. Korea Vietnam Philippines

Overall Ranking 5 8 25 26 60 57

Infrastructure 8 5 26 10 79 95

Macroeconomic environment 15 104 35 3 77 20

Labor market efficiency 22 19 24 77 63 86

Financial market development 20 17 13 80 78 48

Technological readiness 10 19 43 28 92 83

Market size 5 4 24 13 32 31

Business sophistication 3 2 20 23 96 52

Innovation 5 8 22 20 73 62

Source: WEF Global Competitiveness Index, 2016 to 2017, 138 economies covered by rankings

Policy Brief on MSME and Entrepreneurship |19

Table 8. Ease of Doing Business: Philippines (2011-2016)
Key Indicators 2011 2012 2013 2014 2015 2016
Overall ranking 134* 136 138 108 97* 103
Starting a business 156 158 161 170 157 165
Getting credit 128 126 129 86 105 109
Paying taxes 124 136 143 131 125 126
Trading across borders 61 51 53 42 94 95
Enforcing contracts 118 112 111 114 139 140
Note: * 2011 ranking was adjusted as shown in 2012 Report
**2015 ranking was adjusted as shown in 2016 Report
Source: World Bank Doing Business Reports 2011-2016

The country scored the least in infrastructure instability, and tax regulations, access to
(3.4), innovation (3.4), and institution (3.6), and financing, poor work ethic in the national labor
technological readiness (3.6) pillars. force, corruption, among others.

Figure 8 highlights the little improvement the For the Philippines, the most problematic factors
country has realized in its global competitiveness included inefficient government bureaucracy,
ranking between the last two rating periods. inadequate infrastructure, tax rates, corruption,
Over the past six years, the country also barely among others.
realized improvements under the pillars of
institutions, infrastructure, health and primary EASE OF DOING BUSINESS
education, goods market efficiency, and labor The Philippines has shown improvements in terms
market efficiency. The country’s ranking under of its ranking in the Ease of Doing Business Report
these pillars over the past six years has never published by the World Bank and the International
gone beyond the median. The country’s Finance Corporation. From a rank of 134th six
consistently poor performance in these areas years ago, the Philippines improved 31 notches to
have had a significant impact on the country’s 103rd in the latest Report (2016).
competitiveness performance over the years.
On a year-to-year basis, however, the Philippines’
There have been a couple of minor improvements doing business environment declined from 97th
in the ranking from 2010 up to the 2015-2016 but in 2015 to 103rd in 2016, underscoring the need to
these were concentrated mainly in the pillars of institute business environment and ease of doing
technological readiness, business sophistication, business reforms in the country.
and innovation. The improvements realized
over the past years, however, are overshadowed The country’s performance from 2011 to 2016
by the fact that these are also the pillars that was very erratic across key indicators. While
suffered some of the most significant declines in it implemented a few reforms to ease doing
the 2016-2017 ranking. (Table 6) business, these reforms were not enough to ensure
Table 7 presents the Philippine ranking vis-à- stability in the country’s ease of doing business
vis other countries in the WEF competitiveness performance.
index. The Philippines is lagging behind Vietnam
in terms of infrastructure and labor market In 2015, a city ordinance restricting truck traffic
efficiency. Vietnam has been making great strides in Manila adversely affected the country’s ranking
in improving its competitiveness ranking from under the indicator “Trading Across Borders”
2012 to 2016, declining only in the 2016-2017 relegating the country to the 94th spot compared
ranking by 4 percentage points. to 42nd in the previous year.

Vietnam has been having challenges in its

inadequately educated workforce, policy

20| M B C S p e c i a l P u b l i c a t i o n
Table 9. Business Reforms Instituted by the Philippines
Reforms / Developments Impacting
Year Key Indicators Impact
Doing Business
• Set-up one-stop shop at municipal level to ease
Starting a Business
business start-up
2011
• Improve electronic customs systems to reduce
Trading Across Borders
time and costs to trade

• Adopted Insolvency Law with provisions on

2012 Resolving Insolvency liquidation and reorganization of financially
distressed companies

2013 None • No business reforms N/A

• Began to distribute positive and negative
information
Getting Credit
• Enacting data privacy law to guarantee
2014 borrowers’ right to access their data
• Introduced electronic filing and payment system
Paying Taxes for social security contributions

2015 Trade Across Borders • City ordinance restricted truck traffic in Manila

• Streamlined communications between Securities

and Exchange Commission and the Social Security
2016 Starting a Business
System, thus expediting process of issuing
employer registration number

MSME
SECTOR PERFORMANCE
Table 9 highlights the business reforms initiated Notwithstanding these achievements, it is
by the Philippines in various policy and regulatory worth noting that the Philippines ranked 5th
fronts. These measures impact upon MSMEs. in the ASEAN SME Policy Index per formance,
highlighting the need to improve its policy
The Mid-Term Review of the MSME Development regime for the MSME sector. With an over-all
Plan for 2011-2016 revealed that the programs aggregate score of 3.8, the Philippines barely
implemented under the plan helped generate surpassed the ASEAN average of 3.7.
new employment, generating a total of
1,555,554 new MSME employment from 2011 The SME Policy Index jointly developed by the
to June 2013. This figure is 75% of the MSME Economic Research Institute for ASEAN and
Development Plan’s 2 million-employment East Asia (ERIA), the Organisation for Economic
target. Co-operation and Development (OECD), and
members of the ASEAN SME Working Group
Table 10 highlights key outputs and outcomes aims to review the effectiveness of MSME
of the MSME Programs implemented by policies across economies and examine the
government agencies, based on the Mid-term effectiveness of their implementation.
Review of the MSME Development Plan 2011-
2016. Figure 9 shows the countr y ’s over-all SME
policy per formance, lagging behind Singapore,

Policy Brief on MSME and Entrepreneurship |21

Table 10. MSME Development Programs Scorecard
Program Areas Outputs and Outcomes
Based on MSME Development Plan 2011 to 2016 Mid-Term Update
Enhancing Business Enabling Environment • 926 LGUs have streamlined their business registration process compared to only 82 in 2010
• PhP257 Billion worth of loans released, more than double the amount of loans released in 2010 which was
only PhP100 Billion
Increasing Access to Finance • Increase in number of MSME borrowers from government financial institutions (GFIs) and government
owned and controlled corporations (GOCCs)

• Generated USD1.34 Million worth of exports with support and intervention from trade fairs and other
export marketing events
Strengthening Access to Markets
• Generated PhP431 Million worth of domestic sales from trade fairs and expositions

• 52,586* MSME beneficiaries attended training programs conducted by the following institutions:
o Philippine Trade Training Center
Improving Productivity and Efficiency
o UP – Institute of Small Scale Industries
o DTI-Bureau of MSME Development

Based on Individual Program Reports

Go Negosyo
Enhancing Business Enabling Environment • Established 144 Negosyo Centers in 2015 to promote ease of doing business and to facilitate access of
MSMEs to services

Doing Business in Free Trade Area (DBFTA)

Strengthening Access to Markets • Conducted DBFTA sessions nationwide. DFTA in the recent years benefit over 25,000 MSME participants/
owner/s employees.
Shared Services Facility
• Established 1,434 SSFs to reach the grassroots level
o Some of these facilities are Fabrication Laboratories (FabLab) such as those unveiled in
Improving Productivity and Efficiency
Ilocos and Bohol
DOST-SET-UP
• Various regions reported achieving 100% target number of projects
• Launched Negosyo ATBP, a business education radio program that seeks to raise public awareness on
MSME Advocacy
MSMEs government programs and success stories
Note: This list reflects the major milestones
*Does not include beneficiaries of other training programs done by other agencies such as DOST, TESDA, etc.

Figure 9. ASEAN SME Policy Index by Country

Source: Economic Research Institute for ASEAN and East Asia (ERIA), OECD

22| M B C S p e c i a l P u b l i c a t i o n
Figure 10. Philippine SME Policy Index

Source: Economic Research Institute for ASEAN and East Asia (ERIA), OECD

According to the OECD, the Philippines achieved moderate success

in the implementation of its MSME Development Plan.

Malaysia, Indonesia, Thailand, and barely outper forming Viet Nam. The Philippines is the only
founding member of ASEAN that failed to achieve a 4+ rating based on this OECD index.

The Philippine performance was based on a detailed review by the OECD of eight policy dimensions,
highlighted in Figure 10.

The Philippines ranked highest in more effective representation for SMEs (4.7) and ranked lowest in
cheaper, faster start-up and better legislation (3.0).

Specifically, the report cited the following dimensions where the Philippines will need to improve on:

1. Review and amendment of legislations and regulations; and

2. Use of Regulatory Impact Analysis (RIA).

Policy Brief on MSME and Entrepreneurship |23

The following are the policy dimensions wherein the Philippines ranked below the ASEAN average.

Table 11. Philippine SME Policy Index Rating vis-à-vis ASEAN Rating
Policy Dimension Philippine Score ASEAN Average
INSTITUTIONAL FRAMEWORK
SME definition 4.0 4.2
SME development strategy 3.5 3.8
Facilitation for a transition from informal to formal (registered) sector 2.0 2.7

ACCESS TO SUPPORT SERVICES

Government action plan on development of SME support services 3.5 3.7

CHEAPER AND FASTER START UP AND

BETTER LEGISLATION AND REGULATIONS
Number of administrative steps for obtaining the business registration certificate 4.0 4.6
Completion of the overall registration process and entry in operations 2.8 3.4
On-line registration 3.0 3.9
Progression to one-stop-shop (OSS) 4.0 4.1
Review and amendment of legislations and regulations 2.5 3.4
Use of Regulatory Impact Analysis (RIA) 1.5 3.3

ACCESS TO FINANCE
Cadastre (including land use right) 3.5 4.2
Creditor rights 3.0 3.9
Credit bureau/ registries (not limited to SME) 1.5 3.3
Microfinance Facilities (including Credit Unions) 4.0 4.1

TECHNOLOGY AND TECHNOLOGY TRANSFER

Promote Technology Dissemination 3.5 3.6
Information on innovation support services 1.0 2.9
Technology support in Universities, R&D Labs and Incubators with SMEs Linkages 3.5 3.6
Sciences / industrial parks, competitive clusters and facilities (agglomeration) 3.0 3.3
Financial Incentives 3.0 3.1

PROMOTION OF ENTREPRENEURIAL EDUCATION

Support of Entrepreneurial Learning in higher education 3.5 3.7

PHILIPPINE AVERAGE SCORE VERSUS ASEAN 3.8 3.7

PHILIPPINE AVERAGE SCORE VERSUS SINGAPORE, MALAYSIA, INDONESIA, AND THAILAND 3.8 4.5
Source: Economic Research Institute for ASEAN and East Asia (ERIA), OECD

24| M B C S p e c i a l P u b l i c a t i o n
To better appreciate the results of this review, Table 12 below presents the Philippine Ease of Doing Business
Performance vis-à-vis other countries’ performance. The Philippines fared poorly, including in the dimensions of
Starting a business, Getting credit, and Enforcing contracts.

Table 12. Comparative Performance of Countries on Ease of Doing Business (189 countries, 2016)
Germany Japan Malaysia South Korea Vietnam Philippines
Overall Ranking 15th 34th 18th 4th 90th 103rd
Starting a business 107 th
81 st
14 th
23 rd
119 th
165th
Number of procedures 9 8 3 3 10 16
Time required 10.5 days 10.5 days 4 days 4 days 20 days 29 days
Cost (% of income per capita) 1.8 7.5 6.7 14.5 4.9 16.1
Getting credit 28th 79th 28th 42nd 28th 109th
Depth of credit information index
8.0 6.0 7.0 8.0 7.0 5
(8 as highest)
Credit registry coverage (% of adults) 1.6% 0% 57% 0% 41.5% 0%
Credit bureau coverage (% of adults) 100% 100% 77.1% 100% 6.9% 14%
Getting credit 72nd 121st 31st 29th 168th 126th
Number of payments per year 9 14 13 12 30 36
Total tax rate (% of profit) 48.8% 51.3% 40% 33.2% 39.4% 42.9%
Trading across borders 35 th
52nd
49 th
31 st
99 th
95th
Time to export (border compliance) 36 hours 48 hours 20 hours 14 hours 57 hours 42 hours
Time to export (documentary compliance) 1 hour 3 hours 10 hours 1 hour 83 hours 72 hours
Time import (border compliance) 0 hour 48 hours 24 hours 6 hours 64 hours 72 hours
Time to import (documentary compliance) 1 hour 3 hours 10 hours 1 hour 106 hours 96 hours
Enforcing contracts 12 th
51 st
44 th
2 nd
74 th
140th
Time required 429 days 360 days 425 days 230 days 400 days 842 days
Cost (% of claim) 14.4 23.4 37.3 10.3 29 31
Source: Ease of Doing Business (2016)

Policy Brief on MSME and Entrepreneurship |25

 LESSONS FROM
OTHER ECONOMIES
TAIWAN The lead players in Taiwan’s SME Development
SMEs in Taiwan occupy an important part in are the “black-hand bosses.” They are owners
its economic story. Characterized as dynamic, of SMEs who used to be expert machinists or
diverse, innovative, and creative, Taiwan’s SMEs apprentices who left their jobs in the factories
play a crucial role in the industrial and services to start their own businesses. They would
sectors. They have also contributed largely to usually congregate in areas where there are
Taiwan’s foreign trade due to their strong export large concentrations of other black-hand
sales capability. entrepreneurs and sub-contract requirements
to one another, exchange production inputs, or
Reaching a record number of 1.33 million in sell raw materials to one another. This practice
2013 (representing 97.64% of total Taiwanese has led to the birth of production networks
enterprises), SMEs’ sales totaled NT$11,322 billion in Taiwan and helped boost SMEs’ export
or about 30% of total enterprise sales in the country. capability.
It employed 8.55 million people, accounting for
78.3% of the country’s total employment.
Two key developments in the business
SME Development Policy environment have also impacted the way SMEs
The growth of SMEs in Taiwan is a product of do business -- technology and innovation, as
decades long economic policy planning, cultural well as globalization and economic integration.
factors, technology, and economic integration.

The story of Taiwan’s economic development SMEs embraced innovation and R&D to ensure
is divided into seven periods: (1) Economic that they are able to access and maximize
Reconstruction, (2) Import Substitution, (3) Rapid the opportunities offered by globalization
Export Growth, (4) Second Import Substitution, and regional integration. Technology-based
(5) Emergence of Hi-tech Industries, (6) Changing infrastructure such as the Internet, e-commerce,
Industrial Structure, and (7) Innovation and R&D. and other information technology (IT )-enabled
Experts trace back efforts to build an enabling processes were employed to widen their markets.
environment for SMEs to Taiwan’s “Land to the
Tiller” program in the 1950s which made farmer- Institutional Support and Strategies
tenants owners of their fields, as well as the The SME Administration (SMEA) is responsible
compulsory education policy in 1968. for developing and implementing Taiwan’s
But a key milestone in Taiwan’s SMEs journey is the SME strategies and programs. It is headed by a
State’s issuance of the Statute for SME Development Director-General and supported by two deputies.
in the 1990s which has become the key basis It is an independently structured entity that is
of the government’s SME assistance program. under the control and supervision of the Ministry
Through this, it set-up an SME Development Fund of Economic Affairs.
amounting to US$358 million.
  Taiwan’s SME development strategies are focused
Taiwan’s recognition of the role of SMEs in the on four areas:
country has been made more evident when it
incorporated an SME Protection Clause in its • Improving financing services and boosting
Constitution. This move is seen to have helped investment in SME sector
create a culture of friendly environment for SMEs
in the country. It set the tone towards SMEs’ • Encouraging SMEs to upgrade and enhance
further development and growth. their R&D capabilities

26| M B C S p e c i a l P u b l i c a t i o n
 • Putting mechanism to support business Micro Start-up Phoenix Plan.
start-up and incubation This aims to boost labor participation of females and
encourage middle-aged individuals to start their own
• Promoting in-depth development of local enterprises. It provides participants with advisors and
industries assistance in securing loans.

Strategy 1: Improving financing services Strategy 4: Promoting in-depth development of

and boosting investment in SME sector local industries Building Regional Brands:
Young Entrepreneur “Bright Spots” and “Town Brands”.
Start-Up Financing Loans This program seeks to enhance a particular town’s
Launched in 2012, this program provides overall production value, improving the image of
loans to young entrepreneurs aged 26 to 45 at local specialty industries, and boost the products’
preferential interest rates to help them kick- international viability.
start their businesses.
Promoting Collaboration between Taiwan and
Strategy 2: Encouraging SMEs to upgrade and Japan SMEs
enhance their R&D capabilities This program facilitated cooperation discussions
Prom o t i n g Cloud Computing S er vice s between 164 Japanese SMEs and 495 Taiwanese SMEs
Th e SM E C loud Co mp ut in g which led to 50 strategic partnerships for business
Prom oti on S e r vice Center opportunity amounting to NT$5.1 billion. It has also
he l ps SMEs utilize clo ud implemented Taiwan-Japan Cooperation and Exchange
co mpu ti ng- based ser vices. Promotion Platform (see www.technomart.org.tw).

A + I nnovat i o n and R&D Pro gram Some of Taiwan’s more successful SME development
Th e gove r nment p rovides programs are:
s u bs i d y for SMEs to en gage
i n te c hnology R&D invest ment, wh ic h m ay “Hidden Champions”– 50 outstanding SMEs
b e hi gh- r i s k but is fo r ward-lo o k in g. are selected by MOEA and supported in terms of
branding, marketing, and technological capabilities.
Strategy 3: Putting mechanism to support The success of the SMEs is expected to result into
business start-up and incubation 10,000 quality jobs.
Taiwanese SME Incubation Centers
Latest data show there are a total of 131 incubation SME Incubation Centers – Taiwan’s incubation
centers in Taiwan. Of these, 76 receive subsidies centers had incubated 5,885 SMEs and 2,717 start-
from SMEA, while 5 are directly operated by the ups from 1997 to 2013. Through the help of the
agency: program, the firms were able to secure 3,469 patents
• Nankang Software Innovation Center and employed 128,990 people. Sixty-eight (68) of
(e-commerce, embedded systems, software, the incubated SMEs have secured stock market
network communications) listing.

• Nankang Biotech Incubation Center SME Credit

(pharmaceuticals, medical equipment, healthcare, Guarantee Program - As of 2014, the program
agricultural biotechnology) has benefited a total of 353,960 enterprises, with a
cumulative credit guarantee volume of NT$8,776.4
• Kaohsiung Software Incubation Center (digital billion loans. The loans have helped reduce the
content, software, technology services) negative impact of the global economic crisis on
SMEs in Taiwan.
• NCKU Incubation Center (biotechnology and
healthcare, green energy, environment, precision Support for Female-Owned SMEs – APEC has
machinery) likewise recognized Taiwan’s efforts in promoting
participation of females in SMEs. One of its key
• Hsinchu Biomedicine Industrial and Incubation programs toward this end is Micro Start-Up Phoenix
Center (biotech industry development chain) Plan.

Policy Brief on MSME and Entrepreneurship |27

Table 13. Taiwan’s Economic Development Policy in Retrospect

Pillars Germany

First Period: 1940s Post World War II, Taiwan’s priority was given to increasing agricultural and industrial production.
Economic Reconstruction
The government encouraged private enterprises to import raw materials and inputs to increase production of
Second Period: 1950s consumer goods that could replace imported products in the market. SMEs started to produce for the domestic
Import Substitution market.

Third Period: 1960s The implementation of Statute for the Encouragement of Investments and emergence of export processing
Rapid Export Growth zones saw rapid growth of exports. SMEs’ flexibility and cheap labor made it competitive in the export market.

The government launched Ten Major Construction Projects and strengthened infrastructure to promote capi-
Fourth Period: 1970s tal-intensive industries including machinery and manufacturing. Trade surplus grew. Many SMEs, particularly
Second Import Substitution exporters, used sub-contracting model to remain resilient amid oil crisis and protectionist trade policies.

Fifth Period: 1980s The Hsinchu Science-based Industrial Park facilitated the development of high-tech industries. A new breed of
Emergence of Hi-Tech Industries SMEs began to emerge as businesses invested in R&D, technology, and international competitiveness.

The government started to pay attention to SMEs through the following:

• Statute for the SME Development
• Statute for Upgrading industries
Sixth Period: 1990s • Six-Year National Development Plan
Changing Industrial Structure • SME Protection Clause in the Constitution
• Tax incentives for R&D
• SME manpower training

Government envisioned Taiwan as a Green Silicon Island. Its economic plan and policies gave priority to the
Seventh Period: 2000s to present promotion of innovation-oriented industrial policy, creation of R&D Centers by foreign corporations, and set-
Innovation and R&D ting up local innovation and incubation centers for SMEs. SMEs were encouraged to transform themselves into
businesses in a high-value added industrial era.

Figure 11. Organizational Structure of the MOEA-SMEA

Source: Taiwan MOEA SME Administration Website

28| M B C S p e c i a l P u b l i c a t i o n
 To ensure delivery of services and wider reach,
it also partners with a number of organizations
The SME sector is long viewed as such as the following:
a driving force for wealth creation
and serves the role of incubators • SCORE – a non-profit organization of volunteer
for innovation. business counselors

• Women’s Business Center – a network of 100

educational centers assisting women start their
own enterprises
UNITED STATES OF AMERICA
SMEs play a vital role in the economy of the United • US Export Assistance Center –provides export
States. They account for 50% of private sector assistance to SMEs expanding abroad. It is
employment, and generate 64% of new private sector manned by an SBA staff, a bank representative,
jobs. and staff from other public and private
organization.
SME Development Policy
The Small Business Act of the United States, as • Veteran Business Outreach Center – provides
amended, establishes the indispensable role entrepreneurial services for eligible veterans
of small businesses in the preservation and owning or wanting to start a business
expansion of free competition – a basic element
not only to the economic well-being but to the • Certified Development Companies –
security of the nation. As such, it is the policy of regulated by SBA to provide financing to SMEs
the US to encourage and develop the “actual and
potential capacity of small business.” • Regional Innovation Clusters – geographic
concentration of interconnected companies,
The Small Business Act provides that the suppliers, associations that have a specific
Government should aid, counsel, assist, and industry focus
protect, insofar as is possible, the interests
of small-business in order to preserve free • Scale-Up America Communities – SBA
competitive enterprise, to ensure “that a fair structured this community-focused initiative to
proportion of the total purchases and contracts help firms grow by leveraging on the resources
or subcontracts for property and services for they have in their areas.
the Government be placed with small business
enterprises to ensure that a fair proportion of the
total sales of Government property are made to The SBA adopted the following strategies for 2014-
such enterprises.” 2018:

The US also seeks to assist small businesses •Growing businesses and creating jobs –
to increase their ability to compete in the Under this strategy, SBA expands access
international market. to capital and opportunities for small
businesses; strengthens entrepreneurial
Institutional Support and Strategies education, counseling and training
The US SME assistance tradition dates way back resources to help create new businesses and
in 1953 when the government established the support the needs of existing businesses;
US Small Business Administration (SBA). SBA’s ensures quick deployment of SBA’s disaster
mission is to “help small businesses in the US start, assistance resources for businesses; drives
build, and grow their businesses.” innovation and job creation; and strengthens
outreach to underserved communities and
SBA provides Contracting Support, Counseling populations.
Services, Capital, and Disaster Assistance to SMEs.
• Meeting the needs of today’s and tomorrow’s
SBA operates 10 regional offices, 74 district offices, small businesses – Part of this strategy
and 7 disaster center offices across the country. includes strengthening SBA’s core programs

Policy Brief on MSME and Entrepreneurship |29

 and operations to ensure that they are high
performing, effective, and relevant to the
needs of the small business community;
investing in SBA employees; mitigating risks
to taxpayers and improve oversight across
SBA programs.

•Serving as the voice for small business –

Under this strategy, SBA collaborates with
other agencies to strengthen the delivery of
programs, resour- ces and services; fosters
small business-friendly environment by
encouraging Federal Agency awareness
about the impact of unfair regulatory
enforcement and compliance efforts,
reducing burdens on small business; and
promotes the availability, analysis, and
dissemination of the most current, accurate,
and detailed statistics possible on small
business.

Table 14. US SBA Programs for SMEs

US Small Business Administration

3C and D Program for SMEs
Advisory/
Contracting Finance Disaster Assistance
Counselling
SBA-guaranteed loans for:
Allocation of government • Working capital
contracting opportunities Hands-on training and
for SMEs mentoring programs • Replenishing seasonal
Low-interest, long-term disaster
inventory
assistance loans for physical and
Mentoring/ Protégée program Online-training courses
economic damage caused by
for government contracting • Building expansion /
disasters
Expert advice renovation
Match-making events
• Purchase of equipment

30| M B C S p e c i a l P u b l i c a t i o n
MALAYSIA
SME development has always been an integral part Figure 12. Distribution of SMEs by category
of Malaysia’s mid- and long-term development plans
such as the 15-year Third Industrial Master Plan (2006
– 2020). This underscores the great import placed
by the Malaysian government on SMEs as a driver for
economic growth.

Malaysia’s SMEs account for 97.3% or 645,136 of total

business establishments in 2010.

SMEs are concentrated in the services sector, accounting

for 90% or 580,985 establishments; 6% (37,861) are
in the manufacturing sector; 3% in the construction
sector (19,283); 1% (6,708) in the agriculture sector;
and 0.1% in the mining and quarrying sector.

SMEs’ contribution to the Malaysian economy is

immense as shown by the figure below.

SME Development Policy Source: SME Corporation Malaysia

Malaysia’s SME Masterplan (2012-2020) charts the
policy direction of SME development until the year
Figure 13. Distribution of SMEs by category
2020.

Malaysia aims to increase SME contribution to GDP to

40% by 2020.

Source: SME Corporation Malaysia

Its primary goal is to accelerate the
growth of SMEs via innovation-driven
and productivity-led strategies for
Malaysia with the view to realizing a • Improve collaboration between ministries
high-income nation status by 2020. and government agencies and carry out
coordination work to ensure effective
implementation of SME development policies;
Institutional Support and Strategies
The National SME Development Council (NSDC) • Guide private sector to cooperate in
was established in 2004 and is chaired by the developing SMEs.
Prime Minister, underscoring Malaysia’s high level
commitment in promoting SMEs. It is headed by
a Chief Executive Officer.

The NSDC coordinates the efforts of various

Ministries and agencies that implement SME
related programs. The NSDC mandate includes:
• Formulation of policies and strategies to
develop SMEs across all sectors;

• Review of roles of ministries and government

agencies involved in SME development;

Policy Brief on MSME and Entrepreneurship |31

 The SME Corporation is dedicated solely to the mandate of promoting the
development and growth of SMEs and is being run like a private enterprise.
Its strategies are focused on:

• Innovation and technology adoption

• Market access
• Human capital development
• Legal and regulatory environment
• Access to financing
• Infrastructure

Figure 14. Organizational Structure of SME Corp Malaysia

Figure 15. Malaysia’s Six High Impact programs for SMEs

Source: SME Corporation Malaysia

32| M B C S p e c i a l P u b l i c a t i o n
GERMANY large companies – including Bayer, BASF, Daimler,
Eighty percent of the world’s medium sized market Volkswagen, and Siemens to name but a few – they
leaders are based in Germany or Scandinavia. make up Germany’s manufacturing industrial base.
(Economist, November 25, 2010)
SME Development Policy
Germany’s economic power is significantly shaped The number of SMEs and their unique
by SMEs. Around 99 percent of all companies in characteristics make the German economy less
Germany are classified as SMEs. These are family vulnerable to economic volatility. Their important
owned enterprises that are often passed on from role in the economy and their resilience put SMEs
one generation to another. They are able to adapt at the core of Germany’s economic development
to new markets and are capable of innovating new policy.
products and services.
Germany’s experience in MSME development is
Germany’s micro, small and medium enterprise unique in view of the mandated role of private
sector is summed up in one international brand – sector organizations in delivering services for
German “Mittelstand.” MSMEs.

There are 3.7 million German Mittelstand (GM)

companies in Germany, representing 99.6% of the Business chambers are agents of public interest
country’s total enterprises and accounting for 56.5% in Germany and as such, the law requires
of Germany’s total net added value. MSMEs employ that their opinions are solicited and
more than 15 million people or almost 60% of the considered by the government with regard to
entire employee population. any decision that could impact upon MSMEs.

In 2014 alone, GM firms created jobs for The unique characteristics that define the German
almost one million people; in contrast, large Mittelstand brand are as follows:
companies cut more than half a million jobs.
1. GM value their employees and their employees’
families
Ninety percent of Germany’s Mittelstand operate in
business-to-business markets and seventy percent are Employees of SMEs in Germany are generally satisfied
located in Germany’s countryside. with how they are treated in their jobs based on a
survey by the University of St. Gallen among 14,701
Germany defines “Mittelstand” as companies with SME emplotyees. Employees generally feel a sense of
less than 500 employees and/or those that possess community at work. (David B. Audretsch, 2016)
the Mittelstand mindset, characterized by the
entrepreneur’s sense of ownership of the business’ Taking into account their employees’ responsibilities
risks and liability, and a strong responsibility for the at home, GM companies extend policies allowing their
company’s success, staff, and the region or community people to spend time with their families. Seventy
in which it is a part of. percent (70%) of employees surveyed have flexible
working hours, 24% could work mobile, and 15% are
Almost all German businesses fall into the Mittelstand entitled to sabbaticals.
category, ranging from traditional artisan businesses to
small and high technology firms, to globally renowned 2. GM companies are global, modern, and
engineering and manufacturing companies. cosmopolitan

Exports are driven by Germany’s backbone of highly MSMEs in Germany are global market leaders in their
innovative small and medium-sized enterprises (SMEs). respective industries, producing specialized and
niche products and services. Called “hidden gems,”
These constitute 99.6 % of all companies, employing these companies number 1,300 -- far more than the
almost 80 percent of all employees in Germany. Many of number of companies that are in the same category
these SMEs are world market leaders in their respective in other countries – 366 in the United States, 220 in
niche segments. Together with internationally leading Japan, and 128 in Austria.

Policy Brief on MSME and Entrepreneurship |33

 4. GM companies do business for the long term
Figure 17. Hidden Gems by Country (2012)
MSMEs in Germany, especially those in the motor
industry, invest billions of euros to fuel corporate
growth and innovation. GM firms build financial
“buffers” to prepare for leaner years, and possible
financial or economic crises.

Most GM companies are financially stable and could

do business even at times of crisis.

A year after the 2009 economic crisis, the GM firms

immediately recovered; 47% of the companies were
even able to invest a total of 143 billion euros.

5. GM companies are socially responsible

MSMEs in Germany demonstrate strong sense of

Source: ADB, Sebastian Paust, The German Mittelstand: A Model for Emerging active citizenship and social commitment.
Asia’s Economies?
MSMEs put in large amount of money in projects for
children, young people, and those with cultural and
These global market leaders are based outside social objectives.
Germany ’s urban areas. Top areas producing
hidden gems are Hamburg, Munich, Nuremberg, Institutional Support and Strategies
and Heilbronn. The Federal Ministry of Economics and Technology
is responsible for developing and administering
Most of the German MSMEs are exporters, even Germany’s policies and programs for SMEs. Its
those that have only 50 to 100 employees. primary task is to reinvigorate the social market
These exporting companies sell 20% of what economy, promote innovation in the long term
they produce to overseas markets. Latest data and “strengthen the social fabric in Germany.” One
show 98% of exporting companies in Germany of its key objectives is that of supporting German
belong to the German Mittelstand category companies, particularly SMEs, with the view to
and only 2% are large companies. accessing international growth markets. There are
separate directorates for SME Policy, and Digital
3. GM companies are innovative and and Innovation Policy. Under the Ministry are six
technology-driven distinct authorities.

True to Germany ’s traditional taste for inventing, The Federal Office for Economic Affairs and Export
German MSMEs are driven by technology and Control (BAFA) is a higher federal authority that
are passionate about innovation. exercises federal responsibilities in the fields of
foreign trade and payments, business promotion
and energy. One of its core responsibilities is export
On a yearly basis, about 90% of patent control and economic development, under which
applications in Germany are programs for SMEs are developed and implemented.
said to come from GM firms.
The BAFA is headed by a President and is supported
by four directorates. It currently has a staff of 621.
The government supports the use of information
and communication technology (ICT ) in MSMEs The Federal Republic of Germany provides a number
to help ensure they remain competitive. At the of programs for SMEs, including financial support
firm level, employees are encouraged to take and advisory services.
part in innovation processes regardless of the
discipline area they work for – development, In Germany, promotional activities for micro-, small-
production, research, or sales and marketing. and medium sized enterprises can be structured

34| M B C S p e c i a l P u b l i c a t i o n
according to financing and implementing institutions, 1. Representation of SME interests
namely: Business chambers are tasked under German law
to represent the interests of MSMEs by advising
• Promotional activities and programs authorities and submitting proposals and
implemented by the Chambers: Chambers of expert opinions on matters relevant to MSMEs.
Industry and Commerce as well as the Chambers At municipal levels, local chambers must be
of Skilled Crafts; heard and consulted on regulations and policy
development initiatives, i.e., industrial zone
• Promotional activities and programs by planning.
Industrial Associations (i.e., the Bundesverband
der Deutschen Industrie, Federation of German 2. Vocational Training and Education
Industry) The business chambers are also responsible for the
vocational training of MSMEs. Their roles include
• Government programs as well as programs registration and approval of apprenticeship
offered by the European Union. training contracts, holding examinations,
supervision of in-company training, developing
The Federal Government implements a number and executing training regulations, and conduct
of programs for MSMEs -- financial support for of practical and advanced training.
business start-ups and already existing MSMEs;
consultancy services; financing R&D to support MSME 3. Offers of Information
internationalization; among others. BMOs offer relevant information to MSMEs
in various subjects and sector or industry-
specific themes. Information are cascaded
through events, computer-based information
There exists about 1,000 support sources such as databases, and online platforms
facilities for SMEs in Germany today. including websites and online help desks.

4. Consultancy Services
In supporting SMEs, the European Union is beginning BMOs have a huge network of consultants
to play an increasingly important role. The relevant ready to assist companies, including MSMEs.
programs and initiatives of EU can be divided into The government’s support comes in the form of
three categories: financing the fees of commercial and technical
• Structural-political programs, with the aim of consultants and granting allowances for the
dismantling economic disparities between the BMOs’ operations.
various EU countries and regions;
The consultants offer MSMEs free ‘first
• Programs for developing economic networks consultation’ hours, which, on average, last 6.7
for the business communities within the EU, hours. They give MSMEs advice in the fields of
including networks of European and extra- business, internet and communication, public
European business; relations and advertising, international trade,
environment, taxation, and investment planning.
• Individual programs to support SMEs in
particular, with the general aim of increasing the BMOs also play an active role in the implementation
international competitiveness of the businesses of public support programs for SMEs.
- through support for R&D in the businesses,
participation in trade fairs etc.

• Financing programs for special purposes for

SMEs.

The Role Of Business Membership

Organizations In Strengthening German SMEs
The services offered by the business chambers and
BMOs, include the following (Sequa, 2013):

Policy Brief on MSME and Entrepreneurship |35

Table 15. German Government MSME and BMO MSME Programs
Government Level MSME Promotion Initiatives Role of BMOs
BMOs establish one stop shops which
serve as central point of contact for
‘Germany – country of business
business founders
start-ups’ campaign
Central • Advertising by potential
Government / BMOs process applications of poten-
entrepreneurs
Federal tial entrepreneurs for coaching
• Financing opportunities for
business start-ups
BMOs act as advisors to help SMEs
access financing
BMOs help through:
• Information sharing /
dissemination
Financing aids through credit • Advisory services
guarantees, subsidized loans, etc. • Seminars and training on
company financing
• Establishing own guarantee
facilities for their members
BMOs and state government work
German States Economic policy formulation together in developing policies for
MSME promotion
BMOs and Federal State come up
with shared look and visual identity
among participating companies
Foreign trade fairs from the state

BMOs assist in advertising the trade

fairs
Location marketing
Local business communities take
• Creation and expansion of
part in local site planning and
industrial sites
development
Regional Level • Development of industrial parks
and
Establishment of ‘non-profit compa-
technology
nies for economic promotion
• Infrastructure building

VIETNAM The Enterprise Law simplified company registration

Vietnam is one of the fastest rising economies in Asia, processes, abolished unnecessary requirements, and
growing at an average of 6.15 percent in the past 15 reduced business registration from 3 months to 2
years. The rising demand and the impact of free trade weeks.
agreements have contributed to the increase in the value
of its agricultural exports, while billions worth of foreign
direct investments pour into oil and gas, food processing,
textile and garments, and other manufacturing industries. The change significantly cut the
number of approving institutions for
Vietnam’s growth story could be traced back three decades business registration from 34 to 1.
ago when it adopted its Doi Moi (economic renovation)
policy. In 1986, Vietnam pursued a comprehensive and
radical reform to open up and stabilize its economy, thus It also resulted into lower costs of licensing and
“enhancing freedom of choice for economic units and permits from US$100 (minimum) to US$35.
competition.” (ERIA, 2007)
The Enterprise Law spurred the phenomenal
As Vietnam recognized the increasing role of private growth of the number of registered enterprises in
businesses in achieving growth, the government Vietnam. From 2000 to 2007, Vietnam saw 250,000
introduced a wide range of policies and legislation geared newly registered non-state enterprises, 5.5 times
towards supporting private businesses. higher compared to data from 1990 to 1999.

SME Development Policy Since then, Vietnam continued to exert efforts to

A major milestone in the development of Vietnam’s shore up its private sector success. Some of the
private sec tor, 97% of which are SMEs, is the key policies enacted from 2000 to 2015 are listed
enactment of the Enterprise Law in 2000. in Figure 19.

36| M B C S p e c i a l P u b l i c a t i o n
Figure 19. Timeline of Key Policies The 2011-2015 SME Development Plan of Vietnam
Adopted by Vietnam sought to increase the number of small and medium
enterprises in Vietnam from 250,000 to 600,000 by the
end of 2015. At the same time, the plan also aimed to
improve technology capacity, labor skills, information
systems and promote activities to help MSMEs.

Institutional Support and Strategies

Another turning point in Vietnam’s enterprise
development is the issuance of Government Decree
90 in 2001 which mandated the establishment of
favorable conditions for SMEs. It established the
SME Promotion Council as an advisory body on
SMEs and tasked the Agency for SME Development
(ASMED) to coordinate SME-related programs.

In 2009 Government Decree 56/2009 was issued

with the goal of strengthening the capacity of
agencies in-charge of implementing SME policies
and programs at the national and local levels.
ASMED was renamed the Enterprise Development
Agency (EDA). Housed under the Ministry of
Investment and Planning, EDA is the primary agency
responsible for SME policies and programs.

It has three primary roles: (1) business registration

process; (2) SME development support; and (3)
reform of state-owned enterprises.

Figure 20. Vietnam’s Institutional Mechanism

Policy Brief on MSME and Entrepreneurship |37

The Enterprise Development Agency (EDA) is headed Economy Experiences
by a Director- General. at a Glance
Different economies approach MSME development
Vietnam’s participation in free trade agreementshave with a range of policy options, strategies, and
facilitated the country’s trade- and market-related programs. This study generated the following
reforms. To comply with commitments made with conclusions with respect to the institutional and
bilateral / regional trade partners, Vietnam had to policy approaches of the economies studied:
implement new policies geared toward better export-
import environment, improved customs, reduced 1. There is a shared goal and objective that
tariff, more open investment regime, fair competition, guides policy and program action of government
among others. agencies. All the economies studied had a central
body with full authority to coordinate MSME-
These reforms created a level-playing field for related programs of government agencies. In some
domestic and foreign-owned enterprises, as well cases, national SME Councils were established to
as state-owned enterprises (SOEs) and private coordinate MSME efforts at the highest level of
companies. For example, Vietnam gradually reduced government. These Councils provided the platform
the subsidies for SOEs, thus creating the impetus for inter-agency/ministry coordination. Given
for these enterprises to improve their operational the very broad and diverse nature of the needs
efficiency and performance, while at the same time of MSMEs, it cannot be helped but have various
promoting a level playing field for SOEs and private agencies implementing intersecting programs for
enterprises. MSMEs. It is the National Councils’ responsibility to
ensure that these efforts supplement each other
Another key contributor to Vietnam’s SME and are all aligned towards the same goals for MSME
development is the active engagement of private and national development.
entrepreneurs, through organized business
organizations, in shaping the country’s SME policy 2. A central agency with clear and absolute
environment. mandate to help MSMEs is important; other
agencies should have clearly defined roles. All
economies had national MSME agencies that were
responsible for implementing programs for MSMEs –
Business organizations’ representation of SMEs spanning such areas as human capital development,
reinforces a new dialogue between the state technology development and acquisition, start-
and non-state business sector and enhances ups, financing, and even disaster assistance. These
the way policies are deliberated and rolled-out. agencies did not just serve as secretariat to the
national councils, but had their own program
portfolio, services, and funding programs for MSME.
SMEs in Vietnam generate more than half a million The MSME plan which it develops should serve
jobs and account for 50% of the labor force. SMEs as guide post for all agencies in developing and
also narrow the development gap between rural delivering programs for MSMEs.
and urban areas, stimulating development in the
countryside. 3. Political will to help MSMEs is made evident
through massive funding support to enable
Vietnamese SMEs however continue to face a government instrumentalities to deliver
number of challenges. For the years 2010, 2011, and outcomes. All of the MSME agencies were fully
2012, the number of newly established enterprises supported by the national government in terms
declined continuously from 83,600 to 77,500 of funding and resources. They were both policy-
and 69,800. In 2013, 60,700 SMEs discontinued formulating and operational in nature, delivering
operations, 11.9% higher than previous year’s programs and services through their vast national
record. networks.

Common difficulties experienced by Vietnamese 4. Private sector is government’s partner in

SMEs include lack of capital financing, technology delivering services and promoting a strong MSME
deficiencies, and low quality of human resources sector. Strong private sector support was evident
especially at the management level. in the economies studied. In the case of Germany,

38| M B C S p e c i a l P u b l i c a t i o n
businesses are obliged to be part of a business to boost R&D and Innovation in MSMEs. They have
chamber, which, as corporations under public law, fully developed quality standards and promote these
are mandated to take on responsibilities as directed through resource centers funded and supported by
by the government. Businesses become members of the government and the private sector.
the Chamber of Commerce and Industry and/or the
Chamber of Skilled Crafts which help deliver support 7. Programs to provide the needed skills and
services to small businesses. knowledge for the 21st century workforce are needed.
The identification of HRD requirements in specific
5. Big business helping small business is necessary industries and the provision of programs and facilities
in the drive for MSME internationalization and GVCs. for continuing skills training are carried out by
Strong and mutually beneficial linkages between governments in partnership with the private sector.
MSMEs and large firms have helped promote supply This is undertaken to ensure that entrepreneurs will
chain development and have allowed MSMEs to have a steady and qualified supply of manpower to
access regional and international markets. In the case meet their growing demands.
of Taiwan and Germany, big international brands sub-
contract many of their production requirements to 8. Governments encourage the establishment of
MSMEs. new enterprises by creating the conditions that will
facilitate their growth. Funding and resource support
6. Innovation is an integral part of the economies’ to start-ups and incubators were made available by the
MSME development blueprint. Taiwan, Malaysia, economies studied. Private sector support was also
Germany, and the United States implement strategies encouraged and facilitated by the governments.

Table 16. Economy Experiences at a Glance

Agency Support
Strategies / Start-
Agency Areas of Support
Approaches Funding Private Sector ups/ R&D/ Innovation
Incubator
Taiwan SME • National • Creating a Small Business Fosters Yes Service Industry
Administration SME Plan healthy environ- Innovation Research specialized Innovation Re-
ment for the (subsidy of bet. trading entities search (SIIR)
(Headed by a • Production develop-ment of NT1million to as part of an
Director- technology SMEs NT10mil) SME parts
General) and compo-
• Capacity •Building a Taiwan SME nents supply
Independently Building platform for Innovation Award, system that
structured enterprise NT300,000 can become
•Management start-up and part of the
Under Ministry Assistance incubation SME Innovation Devt internation-al
of Economic Project Loan, NT10- supply chains
Affairs •Financing •Enhancing SMEs’ 50 million of producers
information
Develops and •Coordination technology Cultural Creativity Large firms
implements with banks capabilities Industry Special play key role in
programs Loan, NT30- develop-ment
•IT support •Strengthen-ing 100million of production
SME mange- systems,
• One-stop ment guidance Small Enterprise provision of
Service Center functions Loan, NT5 million supplies to
for funding SMEs, and
•Integrating National interme-diary
•Start-up Loan SME finance Development Fund source of
mechanisms. Startup Angel Project capital
•SME Credit
Guarantee Fund Service Industry
Innovation Research
(SIIR)

Industry Level-up
Startup Platform
Guidance Project

SME National
Development Fund
Investment

Taipei City Industry

Incentive Subsidy
Project

Policy Brief on MSME and Entrepreneurship |39

 Agency Support
Strategies /
Agency Areas of Support Start-ups/
Approaches Funding Private Sector R&D/ Innovation
Incubator
United US Small Busi- • Financial and • Growing Small business loans Tech Coalitions Yes Regional
States ness federal contract businesses and Innovation
Administration procurement creating jobs Microloans Resource Clusters
assistance Partners
(Headed by an • Building an SBA Disaster loans Small Business
Administrator) • Management that meets the Investment Innovation
assistance needs of today’s Real estate and equip- Funds Research
Independently and tomorrow’s ment loans Program
structured • Specialized out- small businesses
reach to women, Home loans
Provides Con- minorities and • Serving as the Export Loan
tracting Support, armed forces voice for small
Counseling veterans business R&D Financing
Services, Capital,
and Disaster • Loans to Loans from 2011-2014
Assistance to victims of in the amount of $74
SMEs natural disasters billion

• Specialized
advice and
assistance in inter-
national trade

Malaysia SME • Single • Outcome based 2016 budget includes: Associations, Yes Support for
Corporation registration point approach through •Additional RM1 billion chambers & innovation in the
Malaysia Monitoring and for the Shariah-com- NGOs help form of direct
• National network Evaluation pliant SME Financing develop SMEs financial grants
Independently or privately Scheme; and various tax
structured and managed plat- • Live plan ap- • RM107 million to Large firms incentives
operates like a form to promote proach that allows fund entities at various mentor SMEs
private enterprise innovation the SME master stages of business
plan to be relevant development; Provide inputs
Develops and • Customized to design &
implements assistance to new • Demand driven • RM60 million for the implementation
MSME exporters and programmes Entrepreneurs Acceler- of programs
programs SMEs ation Scheme, and SME
Capacity and Capability
venturing into • Strong public-pri- Enhancement Scheme Private service
National SME new markets vate partnership providers to
Dev’t Council • RM200 million SME serve SMEs
(NSDC) that is • Financing/ Early • Time bound Technology Transfor-
chaired by the stage financing pro-grammes to mation Fund under the
Prime Minister address market SME Bank to provide
• Market access imperfections soft loans at 4%
The Council coor- and information • RM18 million to ex-
dinates efforts of • Human capital asymmetry pand the Small Retailer
the various development Transformation Pro-
agencies and • Benchmarking gramme (TUKAR) and
Ministries related • Monitoring and against best Automotive Workshop
to MSMEs Evaluation practices Modernisation (ATOM)
projects
• Coordination
• RM235 million allocat-
ed to Malaysia External
• Access to Trade Devt Corp. for
reliable 1Malaysia Promotion
database and for Services Export
Fund and Export Pro-
• Effective motion Fund
business
services

40| M B C S p e c i a l P u b l i c a t i o n
 Agency Support
Strategies /
Agency Areas of Support Start-ups/
Approaches Funding Private Sector R&D/ Innovation
Incubator
Germany Federal Office • Technology • Developing key • Credit Guarantees Advisory Servic- Yes Innovation
of Economic Af- acquisition and technologies es are provided support scheme
fairs and Export innovation and promoting • Subsidized Loans by Business such as
Control (BAFA) investment Membership advisory
under the • Capacity Build- • Financial aid that sub- Organizations. services
Federal Ministry ing • Boosting market stitute private equity
of Economics opportunities for start-ups These are Consultancy
and Technol- • Management abroad funded by the for technology
ogy which is Assistance • Funding of consultan- Federal Govt and innovation
responsible for •Making better cy for SME subsidized by
developing and • Financing use of the pool of Financing Consultancy Govt, up to
administer-ing skilled labour programs 50% percent in
Germany’s • Start-up Loan • Subsidizing compa- financed by the the old federal
policies and • Supporting nies engaging commer- German Gov’t states and up to
programs for hand-overs and cial advisors and implement- 75% percent in
SMEs. start-ups of com- ed by Chambers the new federal
panies Granting or other BMOs. states
The BAFA is allowances for
headed by a • Facilitating operating a large
President and financing consultancy network
is supported by within the skilled crafts’
four directorates • Securing raw organization
and 621 staff. materials,
improving In 2011, 11% of the in-
energy and vestment was financed
materials via public-sector
efficiency assistance.

•Reduction of
bureaucratic
burdens.

Vietnam Enterprise • Access to • Improve the Part of Vietnam’s 2011- Policy consul- Yes Promotes tech-
Development Finance legal framework for 2015 strategy is the tations with nology applica-
entry, operation and establishment of an SME
Agency withdrawal from the Support Fund. The fund is the business tion innovation
• Access to pro- market of SMEs established at the central community. program
Operates under duction premises level. focusing on
the Ministry of • Support finance Dialogues held high-tech
and credit access and • Established the SME
Investment and • Human capital improve efficiencies Devt Fund in 2013, VND 2 at least 10 times development
Planning and devt trillions a year at the to create new
is the primary • Support technolog- national level; products
agency respon- • Technology ical innovation and • Credit programs - In- local consulta- and modern
application of new vestment credit of VND
sible for SME support technologies in SMEs 19 trillions; Export credit tions also done equipment/
policies and of VND 17 trillions over machineries
programs. • Market access • Develop human 2006-2011 Formation of
resources for SMEs, association clus-
focusing on improv- • Credit program in poor
SME • Advisory services ing management areas -- More than VND 0.3 ters, industry
Promotion capacities trillions as of 2012. clusters to
Council serves • Creation of support SME
as advisory enterprise • Promote the forma- • Credit Guarantee Fund devt
tion of association -- 12 funds in operation, 7
body on SMEs clusters and clusters, industry in formation process as of
and coordinates provide clusters and improve 2014. Total capital of VND
SME-related incubators pro- land access for SMEs. 512 billion. Guaranteed
programs grams amount nearly VND 3
• Provide information trillions over 2002-2012.
to support SMEs and
promote market • Guaranteed amount by
expansion for these Vietnam Development
firms. Bank, Guaranteed amount
of VND 11 trillion.
• Build organization • Interest rates, credit
systems to help allocation, tax exemption
develop SMEs. during the economic
slowdown
• Manage the imple-
ment-ation of the • Special credit funds for
SMEs develop-ment Development Investment,
plan Promotion of Industry,
Agriculture, Environment,
Science and Technology

Policy Brief on MSME and Entrepreneurship |41

 of local and foreign funds for small and medium
RECOMMENDATIONS enterprise development” (RA 9501). The Council is
MSMEs are important drivers for job creation attached to the Department of Trade and Industry,
and economic growth. With greater and deeper while the Bureau of Small and Medium Enterprises
economic integration arising from the ASEAN serves as its Secretariat.
Economic Community, the country needs to move
towards the development of high-growth SMEs that The Council has the authority to review existing
are ready to compete in an integrated market. policies of government agencies that affect the
growth and development of MSMEs and recommend
Guided by the findings from the benchmarking changes to the President and Congress.
exercise undertaken through this study,
the following recommendations are hereby The Magna Carta for MSMEs also provide that the
submitted for consideration. Council will “direct or assist relevant government
agencies and institutions at the national, regional
Adopt a “Whole-of-Government” Approach for and provincial levels,” to promote the productivity
MSMEs and viability of MSMEs.
The countries covered by this study highlight the
importance of having a more integrated and well-
coordinated institutional support systems for MSMEs.
Efforts of the government to promote MSME
Malaysia, Germany, United States, Taiwan, and even development need to adhere to a “Whole-
Vietnam have all put up institutional structures and of-Government” approach to ensure that
support mechanism for a centralized, but widely the distinct efforts of various agencies all
dispersed and well coordinated administration of contribute to a general, shared objective
their MSME policies and programs. that builds on our strengths and advantages.

Specific recommendations include the following:

The distinct characteristic of their institutional
mechanism rests in the fact that institutions 1. The Council is a catalyst of government and
set up to administer and coordinate SME private sector efforts to support MSMEs. Its
policies are rooted in strong political will role is to bring various sectors and stakeholders
and commitment toward small businesses. together, with the aim of finding solutions on
issues that affect the MSMEs. As such, it has to
have representations from the highest levels of
Such political will and commitment is actualized government and the agencies that implement
through the level of funding and support programs for MSMEs. All agencies with mandates
appropriated by their governments to meet the related to the MSME sector needs to come
massive requirements of the MSME sector. together and implement programs as a team –
guided by a shared goal and commitment to help
The Philippines has a preponderance of laws that MSMEs develop their potential and sharpen their
seek to promote MSME development. The Magna value adding capabilities in our areas of greatest
Carta for MSMEs, enacted in 1991 and amended strength.
in 1997 and in 2008, is geared towards the
development of the Filipino entrepreneurial spirit 2. The Council has a twin duty to promote
by providing a business environment conducive for entrepreneurial culture and to advance MSME
MSMEs. It created the MSME Council as the primary development. A parallel effort of promoting a culture
agency responsible for the promotion, growth and that encourages entrepreneurial pursuits needs
development of small and medium enterprises in to be led by the Council, working with the private
the country. sector and the relevant agencies of the government.
The Council needs to pursue an initiative that will
Its role is one of facilitating and coordinating positively influence the entrepreneurial mind-set of
national efforts to promote MSME development, the youth, professionals, and other groups, as well
“including assisting relevant agencies in the tapping

42| M B C S p e c i a l P u b l i c a t i o n
as promote education and professional upgrading duplicative, if not redundant, with the mandates of
of potential business founders. other government departments such as the DTI and
the DOST.
3. The Council needs to assume a more active and
direct role in coordinating government efforts to In view of this, the following recommendations are
promote MSME development. Their primary role hereby submitted:
should be that of a facilitator – one that facilitates
SMEs’ access to finance, internationalization, 1. Strengthen the institutional infrastructure by
innovation, public procurement, e-commerce, giving one government agency the full and clear
internet and digital technology, as well as reducing mandate to implement SME policies, with sufficient
administrative burdens that affect them and authority to coordinate both horizontally (i.e., among
improving the ease of doing business. departments and agencies) and vertically (among
different policy levels at city/municipality, provincial,
4. The Council plays a major role in influencing regional, and national level). This agency should not
various government agencies toward placing only have the mandate, but more importantly, the
innovation at the center of the MSME agenda. resources to carry out its responsibilities. In pursuing
Philippine M S M E s n e e d t o b e e n c o u - this, the Magna Carta for MSMEs may be amended to
raged to develop new products and services in bestow upon the BMSMED or the SBC (but not to both)
areas that they clearly have a distinct advantage or the powers and functions as the central coordinating
strength. As such, related efforts by the DOST, the and primary implementing agency for MSME policies
DA, and other agencies of the government need to and programs, to be put under the direct supervision
be aligned on specific high growth areas towards of the Department of Trade and Industry.
which resources will be directed.
This proposal, in effect, will result to institutional
Strengthen the Institutional restructuring and reorganization, and will integrate
Structure that Supports MSMEs program implementation, including those pertaining
Given the wide-ranging nature of MSME needs, to funding, under the operational control of one
other government agencies and local government agency.
units have their respective mandates that are
relevant to the MSME agenda. Many of these 2. A clear rationale for the SME support policies
initiatives, however, are independently undertaken will have to be established, defining the concerned
with minimal coordination among agencies, thus agencies’ scope of work and responsibilities (i.e., Trade
resulting to inefficiencies and resource wastage. and Industry, Agriculture, Science and Technology,
Interior and Local Government, etc.).
The present institutional set-up, therefore, provides
an illusory coordinating mechanism and structure for 3. Political will and commitment to MSME growth
effective horizontal coordination and harmonization will have to be achieved at the national and local
of MSME policies. levels. This will help facilitate the improvement of the
business environment in support of MSME growth
What is interesting to note is that the Magna Carta and development.
for MSMEs, which vested the MSME Council with
such broad mandate, also vested upon the Small 4. Sufficient funds and resources that reflect the
Business Corporation (formerly Small Business policy commitment enunciated under the laws will
Guarantee and Finance Corporation) the primary need to be appropriated for MSME development.
responsibility of “implementing comprehensive Such funding should be sufficient to provide the
policies and programs to assist MSMEs in all areas, requirements of the Negosyo Centers and the
including but not limited to finance and information financing requirements of the sector.
services, training and marketing.”
Simplify Business Processes
Under RA 9501, the SBC is also mandated to “source The Philippines ranks fifth among ASEAN countries
and adopt development initiatives for globally in the OECD ASEAN SME Policy Index. It achieved
competitive MSMEs in finance and business the highest score in effective representation of SMEs
technologies, and to extend all forms of financial (4.7) and the lowest in Cheaper, faster start-up, and
assistance to eligible MSMEs.” This mandate is better legislation and regulation for SMEs (2.96).

Policy Brief on MSME and Entrepreneurship |43

The World Bank’s Ease of Doing Business 2016
Report cited improvements in the performance
of the Philippines with respect to simplifying post Unless monitoring and evaluation of policies and
registration procedures such as tax registration, programs are carried out, there is no way by which
social security registration, licensing, among critical constraints to the growth and development
others. However, it still ranked 165th out of 189 of the MSME sector can be addressed.
countries in the Starting a Business criterion – a
key consideration for MSMEs that are just starting.
The Philippines also ranked poorly in registering Furthermore, the government needs to be able
property (112), getting credit (109), enforcing to monitor the extent by which MSMEs in the
contracts (140), trading across borders (95) – all of informal sector are able to transition into the
these are vital to MSME development and growth. formal sector. This is vital in order to see if existing
legislations and policies (such as the Barangay
Micro Business Enterprises) are able to facilitate
and contribute to the process of conversion and
The country needs to introduce significant assimilation of informal MSMEs into the formal
improvements in simplifying registration economy.
and post-registration processes.
A mechanism for review, evaluation, monitoring,
and revision strategy should be formulated and
It takes 16 procedures over a period of 29 days, effectively implemented.
accounting for 16.1% of the business’ income
per capita to start a business in the country. Promote and Develop E-Commerce Capacities
among MSMEs
The SME Policy Index 2014 also cited that it Government policies are in place to foster
takes “6 days to obtain a business permit, 7 e-commerce. RA 8792 (E-Commerce Act) was
days to print receipts and invoices at the print legislated in June 2000, setting government
shops, 7 days to register with the Social Security policies on electronic transactions and the
System, and 3 days to register the company with legal framework for the country’s participation
the SEC and receive pre-registered taxpayer in e-commerce. The Philippines was the third
identification number ( TIN).” country in Southeast Asia that passed a legislation
to promote and protect electronic transactions.
These processes need to be simplified for the
government’s MSME strategy to gain traction The Philippine Statistics Authority reported that
and deliver results. in 2012, e-commerce sales reached only Php79
Billion, accounting for only 0.6% of total income
Monitor and Evaluate the Impact of during the period. Fifteen years after the adoption
Government MSME Policies and Services of the legal framework, “local e-commerce sales
Monitoring and evaluation of policy and program still comprise less than one percent of the total
implementation needs to be diligently carried local retail market. The issue is both cultural and
out to identify ways to improve and strengthen habitual, we are still uncomfortable as a people
existing support policies and mechanisms for on the lack of guarantees of an online purchase.”
MSMEs. This will also help ensure alignment (Madrid, 2012)
of policies and programs across government
agencies. The APEC Business Advisory Council (ABAC) in
2015, commissioned the USC Marshall School
The BMSMED assists the MSME Council in to undertake a study that would capture the
coordinating and monitoring SME policies business leaders’ views and experiences on the
and programs and activities of all government challenges and opportunities of cross-border
agencies affecting SMEs. While the mandate e-commerce for MSMEs in APEC economies. The
is given, the monitoring and evaluation study concluded that “MSMEs face an environment
mechanism for MSME policies and programs that is unnecessarily complex, biased in favor of
being implemented by the different agencies is larger firms, and lacks a coherent cross-border
weak. e-commerce trade framework.” Some of its key

44| M B C S p e c i a l P u b l i c a t i o n
findings that are relevant to this paper include Recommendations to this effect include the
the following: (USC Marshall School) following:

• “Cross-border e-services offer both the greatest • Ensure that e-Commerce plans and programs of
growth potential and the easiest entry into the various agencies of the government are harmonized
global value chain for MSMEs. However, much more and aligned. The DTI, under RA 8792, is mandated
effort is needed to develop MSME capacity in cross- to supervise the promotion and development of
border e-services. electronic commerce in the country; while the
• ‘MSMEs’ capacity and reach must be improved. The Department of Information and Communications
single most critical limiting factor observed was the Technology (DICT), under RA 10844, is responsible
lack of readiness and capability of MSMEs to engage for harmonizing and coordinating “all national ICT
in e-commerce. Problems of awareness, technical plans and initiatives.” The DTI and the DICT have
ability, access to talent, and financing all limit the to work in tandem to ensure that programs and
potential of MSMEs. services to promote e-Commerce are effectively
and efficiently carried out;
• ‘There is a disturbing lack of awareness among
most APEC governments, and among most • The government has to address internet
MSMEs, of the potential opportunities in cross- infrastructure issues if it wants e-Commerce to
border e-commerce, and of the developments and flourish;
innovations in cross-border e-commerce in other
economies. • Government has to come up with a simplified
tax registration, filing, payment, reporting and
• ‘Cross-border e-commerce flourishes best in strong correction system that is less bureaucratic to lessen
domestic e-commerce environments. Developing issue on non-compliance among MSMEs in the
strong domestic supporting institutions and e-Commerce arena. Simplifying tax processes will
players is critical to creating globally competitive serve as an incentive for MSMEs to comply with
cross-border e-commerce firms. In turn, globally regulations;
competitive cross-border e-commerce firms
enhance the competitiveness of domestic • Confidence building, education, and capacity
e-commerce.” building among MSMEs and the public-at-large,
will need to be addressed. DTI and DICT, which
The Philippines, as Chair of APEC in 2015, initiated both have mandates to address this, will need to
what is now referred to as the APEC MSME Market work as a team in delivering this service;
Place -- as a “one-stop portal to facilitate access
to information related to doing business in the • e-Commerce plans and programs will have to take
region and to inform on projects and activities that into consideration the need to develop parallel
promote MSMEs’ integration to international trade.” services such as distribution, payment, logistics,
(The APEC Iloilo Initiative: Growing Global MSMEs technology, security, just to name a few. Promoting
for Inclusive Development) e-commerce, without addressing these other
equally important concerns will be self-defeating.
The benefits of the APEC MSME Market Place
need to be felt by local MSMEs. It can do so by Create Innovative Options to MSME Finance
promoting internet and digital access of MSMEs The World Bank reports that more than 50% of SMEs
and capacitating them in using e-commerce as a lack access to finance, thus hindering their growth.
platform for widening their market reach. In the Philippines, it is reported that “total SME loan
volume from banks stood at only $9 billion in 2014,
compared to Thailand’s $171 billion –the highest
in the region.” (Deloitte Southeast Asia Ltd , 2015)
The government needs to ensure that the Personal funds continue to be the main source of
Philippine e-Commerce Roadmap goal of enabling enterprise funding by Philippine MSMEs.
100,000 MSMEs to conduct e-commerce is realized.
The Magna Carta for MSMEs mandates all banks to
allocate 2% of their total loan portfolio to medium
firms, and 8% to micro and small firms.

Policy Brief on MSME and Entrepreneurship |45

 in 2013. There is a need to assess the impact
of the lending program of the Small Business
The ADB study in 2015 showed, however, Corporation. Critical to this assessment is a
that MSME lending is generally on a decline determination if government intervention in the
as a ratio of banks’total loan portfolio. area is able to actualize the objectives for which
these have been established.

The outstanding amount lent by all lending • The government needs to consider broadening
institutions to MSMEs increased modestly from its financing interventions for start-ups. The
P248.2 billion in 1990 to P308.5 billion in 2010. The government may assess the impact of financing
growth rate in lending during those 12 years, was structures offered by private entities and
roughly 24.3% or 2.32% per year growth. (Asian supplement this, as may be needed.
Development Bank, 2015)
• The government needs to develop and
The study also revealed a decline in the Universal implement alternative funding schemes for
banks’ share in total loan provisions from 83.7% MSMEs, including business incubators and start-
in 1999 to 72.9% in 2010. Even thrift and rural ups. A voucher system, grants, or loans with
cooperative banks, which are supposed to be the favorable terms may be implemented by the
ones absorbing the MSME credit demand, have government to accelerate MSME deve- lopment
likewise reduced their lending ratios to the MSMEs in high growth sectors. All these programs,
quite significantly from 2004 to 2010. (Asian however, need to be complemented by an
Development Bank) effective monitoring and impact assessment
system to provide basis for planning and program
What is very telling in the study is that many universal development or revisions.
banks have wantonly violated the mandated 8%
lending ratio, opting to be penalized Php500,000 Promote a Culture Of Entrepreneurship
and earn more, rather than lend to MSMEs. and Innovation
The Philippines has a wide range of legislations
Access to finance continues to be a key challenge for and policies that seek to support the development
local SMEs, with most Philippine lenders requiring of MSMEs. This can only be achieved, however,
collateral before extending credit. This may be with a supportive and enabling environment.
attributed to a host of issues such as slow fund
disbursement due to “lack of credit information, lack National and local government units, the
of bank and government guidance on preparation business sector, edu- cational institutions, among
of compliance documents, and vulnerability of others, have a vital role in building a culture of
financial institutions that result to high-cost loans.” entrepreneurship and innovation.

The following recommendations may be considered Taiwan, the United States, Germany, and
in the light of these findings: Malaysia exhibit a long-established tradition
of entrepreneurship, heavily supported by the
• Review SEC. 15 of the Magna Carta for MSMEs on the government and the private sector.
Mandatory Allocation of Credit Resources to Micro,
Small and Medium Enterprises since the mandated
bank lending ratio will expire in 2018. Amendments
to the law should be able to address the observation One way of promoting entrepreneurship
regarding the wanton violation of this provision by and innovation is through programs
banks as they find it even more profitable to just pay that assist individual innovators.
the fine and lend to bigger firms or projects.

• The Small Business Corporation has released Government agencies, such as the DOST, have
a total P42.2 billion in loans to micro, small and programs that promote innovation, but better
medium enterprises as of end-2014. In 2014, the coordination with other agencies is required to
amount of loans released was at P2.1 billion, lower ensure that we focus on areas that build on our
by 36% compared to P3.3 billion loan released areas of strengths.

46| M B C S p e c i a l P u b l i c a t i o n
These efforts also need to be anchored on sound Strengthen the Role of Private Sector and Business
planning with the view to identifying and projecting Chambers in MSME Development
what the market needs today and in the future. MSMEs need support in many facets of their
business and operations – from accessing
Assist MSMEs to Expand Into Innovative and markets, acquiring technologies, innovating
Value Adding Activities In Order to Grow new products and services, developing product
G ove r nme nt has a vit al ro le in hel ping potential, accessing financing, just to name a few.
ex is ti ng M SMEs t ran sit io n into in novative
a nd value a d din g ac t ivit ies. Experiences of other economies have shown
the valuable role of business chambers and
G rowth c an be disrupt ive to MSMEs du e to associations in supporting MSMEs. They deliver
at te nda nt pre ssures t h at t h is br in g in ter m s concrete support in the form of capacity building
o f adde d ma nager ial, f in an cial, man power, programs, networking opportunities, market
a nd logi s ti c a l reso urces required fo r their expansion, among others.
ex pa nde d operat io n s.

M any fi r m s, af raid o f t h e un intended

co ns e q u e nce s (i. e. , t ax at io n , l abo r Under a more integrated regional economy
re gulati ons, etc. ) t h at enter pr ise grow th under the ASEAN Economic Community, a
m i ght br i ng, elec t to ado p t t h e st at us q u o. more pronounced and direct participation
of business chambers and associations
I m pli c ati ons of MSME growt h in clude hav ing in MSME development is essential.
to comply wi t h mo re st r in gent p o li c ies o r
re qu i re m e nts cover in g such areas as l abo r,
t a xati on, amo n g o t h ers. B ecause o f this, They can provide market data and other information
p o li c i e s that i ncent ivize t h e growt h o f M S M E s on market opportunities and obstacles to better
ne ed to be e st ablish ed. Such po licie s have prepare MSMEs which will help them direct their
to addre s s the fo llowin g (OECD, 2010 ): efforts on areas and markets with the greatest
potential for growth.
• Addre s s disin cent ives to grow th.
Ad m i ni s trati ve o b st acles an d imped im ents Business chambers and associations can also
ne ed to be removed to f acilit ate the serve as effective mouthpieces and thus fulfill
t rans i ti on of MSMEs into larger enter pr is es. an advocacy role for MSMEs to better improve
G rowth of MSMEs sh o uld be in cent ivi zed. the regulatory environment. They can also help
MSMEs comply with standards and other legal
• Promote growt h amb it io n s in n ew and frameworks such as tax systems, intellectual
ex is ti ng bu s in esses. MSMEs n eed to property rights, marketing, and other regional
u nd e r s ta nd th at in n ovat io n will st re ng then trading frameworks.
t he i r growth p o tent ial an d o p en new
o p por tu ni ti e s fo r t h em. Po licies need to The development of SMEs’ linkages with larger
b ro a d e n i ns ti t ut io n al supp o r t to p ro m o te enterprises will also need to be harnessed as these
i n n ovati on i n MSMEs. can play a significant role in promoting global
value chains and in developing local production
• As s i s t MSM Es to develo p an d adopt the and growth clusters.
ne ce s s ar y organ izat io n al an d managing
s k i lls to he lp th em co pe wit h t h e at tendant Many companies have also been internationalizing
p res s u re s on man power, lo gist ica l, and their subcontracting networks over the years. The
fi n a nc i al re s ources. government, in turn, needs to ensure a reliable and
efficient value chain and subcontracting system
• S uppor t MSMEs t ran sit io n in g into l arg er to ensure the long-term viability of MSMEs.
e nte r pr i s e s by en ab lin g t h em to acces s
fi n a nc i ng for t h eir growt h . Po licies to enabl e A legal framework that will incentivize private
t he u s e of movable co llaterals by M S M E s sector / business chamber support to MSME
s hou ld be put in p lace. growth and development is needed.

Policy Brief on MSME and Entrepreneurship |47

 Finally, developing MSMEs does not mean neglecting
CONCLUSION big business. The country’s enterprise landscape
The growth and development of MSMEs that leads is dominated by MSMEs, accounting for 99.6% of
to a more pronounced and recognized role in the the total enterprises. Their success and failure will
country’s inclusive growth requires a commitment have a tremendous impact on our economy as they
to institutional and structural reforms. Simply put, account 62% of employment in our country, with
the way we do things to support MSME development 30% accounted for by microenterprise enterprises.
needs to change.
A supportive ecosystem of inter-related factors –
Critical measures include developing sound from financial access to fair and efficient regulatory
regulatory frameworks, promoting the ease of doing environment – is needed to enable MSMEs to thrive.
business, putting innovation at the center of the Institutions define the policies, interventions, and
country’s development agenda, promote business their outcomes, and as such, this paper seeks to put
activities in science and technology, harnessing a spot light on institutional and structural issues
business networks and linkages in support of MSME that require government attention.
internationalization, developing infrastructure,
developing human capital, improving government
procurement policies that will enable MSMEs to
access this market, improving access to finance, The field of vision for the country’s MSME
among others. agenda is wide. It is important that focus
is given on key priorities that can deliver
All these underscore the importance of a broad- the most outcomes for our country.
based strategy to meet the country’s ambitions for Government instrumentalities also need to
MSMEs. be aligned on these priorities and proceed
under a whole-of-government approach.
Given this, a “whole-of-government” approach is a
“must.” No agency can claim a monopoly of mandate
to serve the MSMEs. Finally, building a competitive entrepreneurship
ecosystem requires private sector support. Policies
and programs are better shaped and delivered with
the help of vital sectors, including that of business.
Given the cross-cutting, and at times, The aim is to create an ecosystem wherein businesses
intersecting needs of the MSMEs, the operate on a level playing field, and where MSMEs
instrumentalities of government, in can come together and work with big business and
tandem with policy makers, will need the government to help achieve inclusive growth.
to deliver a “team solution” rather than
fragmented and unrelated efforts that We can no longer just focus on a few elements of
seldom add up to meaningful outcomes. the entrepreneurship ecosystem that are the easiest
to implement. Interventions need to go beyond
helping individuals. Policy measures that strengthen
The government also needs to provide the institutional and structural support are needed to
institutional space for the private sector, including address the most fundamental underlying factors
the MSMEs, to participate in the planning and that stifle entrepreneurship in the country.
review of policies and programs. The private sector
is an invaluable partner in implementing plans and
programs for MSMEs.

Business chambers and associations, as the

experiences of other countries demonstrate,
have a vital role in shaping a positive outcome for
MSME development. They do not only provide the
linkages and networks, but can also help provide the
foundational skills needed to run an enterprise. A
mechanism for this is needed.

48| M B C S p e c i a l P u b l i c a t i o n
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