A Closer Look at Credit Access in the Philippines

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SEATTLE — According to a United States Agency for International Development study, credit access in the Philippines was the most restrictive out of all Association of Southeast Asian Nations countries in 2015. Since then, certain reforms have been made to improve access to credit in the Philippines, especially in rural areas.

In June 2017, PhilStar Global reported that the Philippines’ Department of Agriculture launched an easy access loan program to help farmers and fishermen/women get easier access to financing. Those looking for credit will be able to access the credit program through local cooperatives and rural banks.

Farmers will be able to get loans to grow cash crops like rice, vegetables, coffee, cacao and coconut. The program starts in the province of Surigao del Norte, but it is scheduled for nationwide implementation in 2018.

This past October, the World Trade Organization (WTO) advised the Philippines to remove barriers to credit access for smaller enterprises. According to the WTO, this will improve those businesses’ global competitiveness while allowing them to take advantage of technological change and disruption.

The Philippines seems ready to take that advice, with presidential advisor for entrepreneurship Jose Concepcion III championing support for smaller enterprises and micro-entrepreneurs, including letting them lend from banks without collateral, as is the standard in China and India.

Many other developing countries have seen success by improving access to credit for small and medium enterprises (SMEs). Increased credit access in the Philippines may bring those benefits as well.

The International Monetary Fund (IMF) has warned the Philippines that its recent strong credit growth may lead to the economy overheating. This happens when economic growth is so quick that productive capacity cannot keep up with demand.

The issue with the recent boom in credit growth is its high concentration in the real estate sector. Ironically, improving credit access to rural SMEs may diversify credit growth and reduce systemic risk. The IMF recommends capital market development to help large corporations diversify the sources of their funding.

If the Philippines can manage its growth in credit access responsibly, by diversifying the sources of credit and the sectors that benefit from credit, economic growth will likely continue and pull more citizens out of poverty.

– Chuck Hasenauer
Photo: Flickr

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About Author

Chuck Hasenauer

Chuck lives in Rochester, NY. When not writing for The Borgen Project, Chuck is an avid reader, writer, and aesthete.

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