Banks’ lending to micro, small and medium enterprises (MSMEs) grew 10.8 percent to P540.92 billion in the first six months of 2025 from P488.13 billion a year earlier, but still failed to comply with the required credit allocation to MSMEs mandated by law.
The latest data from the Bangko Sentral ng Pilipinas (BSP) showed that the end-June lending to MSMEs at P540.92 billion accounted for only 4.59 percent of the banking sector’s total loan portfolio during the period, falling short of the mandated 10 percent.
The Magna Carta law or Republic Act No. 9501 mandates all banks to set aside at least 8 percent of their total loan portfolio for micro and small enterprises, and at least 2 percent for medium enterprises.
The industry’s total loan portfolio as of end-June amounted to P11.78 trillion. Based on BSP data, MSME loans should be at least P1.18 trillion, of which P942.63 billion must go to micro and small enterprises and P235.66 billion to medium enterprises. The figures show actual lending to MSMEs was below requirement by about P639 billion.
As of end-June, loans to micro and small enterprises totaled P220.55 billion, up 12 percent year-on-year, but this accounted for only 1.87 percent of the total, against the required P942.63 billion.
As for lending to medium enterprises, banks released P320.37 billion, up 10 percent year-on-year, exceeding the quota of P235.66 billion.
MSME loans granted by big banks or the universal and commercial banks amounted to P152.43 billion for micro and small businesses, just 1.42 percent of their P10.74 trillion portfolio. Lending to medium firms totaled P259.58 billion, only 2.42 percent of the total loan book.
Thrift banks outperformed the big banks, releasing P34.17 billion in loans to micro and small firms, or 4 percent of their total loan book of P846.58 billion. These banks also released P40.41 billion to medium enterprises, or 4.77 percent.
The only bank category that complied with the law were the rural and cooperative banks. As of end-June, the smaller banks released P33.35 billion in lending to micro and small businesses, or 20.5 percent of their P163.06 billion portfolio, and P20.31 billion to medium firms, or 12.5 percent.
Digital banks, which only started operations in 2022 and 2023, have micro and small business loans of only P590 million, or 1.71 percent of their P34.74 billion loan book.
These online-only banks released P60 million loans for medium enterprises, equivalent to only 0.18 percent of their portfolio as of end-June, based on BSP data.
MSMEs are companies engaged in any business activity with total assets in the range of the following: not more than P3 million for micro businesses; more than P3 million to P15 million for small firms; and more than P15 million to P100 million for medium enterprises.
Big banks have historically struggled with compliance.
In contrast, rural and cooperative banks were the only category to fully comply with the law, lending out a combined 33 percent of their total loan portfolio to MSMEs.
The low compliance rate among major banks is often attributed to their preference for paying penalties to the BSP rather than lending to what they consider to be a higher-risk segment of borrowers.
To address this, the BSP introduced the Standard Business Loan Application Form (SBLAF), a “borrower-friendly” process designed to make it less intimidating for MSMEs to apply for loans. The central bank hopes this will encourage more MSMEs to borrow and help banks improve their risk assessment and loan processing efficiency.
