Micro, small, and medium-sized enterprises (MSMEs) in the Philippines continue to face financing challenges despite their contribution to the country’s gross domestic product (GDP), the Asian Development Bank (ADB) said.

“MSMEs matter because they are where economic growth happens, and the economic growth becomes tangible,” ADB Director of the Private Sector Financial Institutions Division (PSFI) Suhail Khan said during his speech at BusinessWorld Insights on Wednesday.

“They are therefore indispensable to the country’s growth and the livelihoods of millions of families. Yet, financing reaching the sector remains disproportionately small,” he added, underscoring the sector’s more than one-third share of the country’s GDP.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that bank lending to MSMEs as of end-June reached P572.74 billion, or 4.48% of the local banking sector’s P12.8-trillion loan portfolio.

That was slightly lower than 4.53% a quarter earlier and well below the 10% requirement for banks under the Magna Carta for MSMEs.

Under the law, banks must allocate 8% of their loan portfolio to micro and small enterprises and 2% to medium-sized businesses.

“The national numbers therefore conceal a much deeper regional financing gap,” Mr. Khan said. “Much more important is this main conclusion. Too many viable enterprises remain unserved or underserved.”

He said 70% of firms reported expanding financing mainly through equity and retained earnings, as smaller firms often lack conventional collateral, audited accounts, long operating histories, and formal credit records.

Many enterprises also face short loan tenures that do not match their investment needs, which leaves their financing options less suited to the day-to-day realities of running and growing small businesses.

“Many smaller firms have limited cash buffers, less bargaining power and fewer financing options,” Mr. Khan said. “This is why supporting MSMEs is not a niche agenda.”

“It is central to inclusive growth, job creation, economic resilience, gender equality, food security and climate position,” he added.

To help address the gap, the ADB executive said the country needs more finance designed around the realities of MSMEs.

“This means longer tenures, revolving working capital, moveable asset lending and risk-sharing facilities,” he said. “It also means using guarantees in credit finance to encourage lenders to enter into new regions and market segments.”

He also said women entrepreneurs, who own approximately 66% of existing MSMEs, must be treated as a “distinct and wearable market.”

“Research indicates that women-led MSMEs are less likely than male-led firms to hold bank accounts and substantially less likely to receive loan approval,” he said. “This points to gaps not only in access, but also in product design, data outreach and the way risk is assessed.”

“The Philippine financing gap is not only about volume of credit. It is also about geography, tenure, collateral, data, product design and the persistent barriers faced by entrepreneurs, particularly women entrepreneurs,” he added.

In February, ADB signed a $30 million loan to Fuse Financing Inc. to expand access to financing for MSMEs through a digital lending platform and boost support for women-owned enterprises.

“This is a practical example of using a platform to reach and trust transaction data to serve farmers, market vendors, sari-sari store owners, and first-time borrowers who may not fit into a conventional bank model,” Mr. Khan said. — Almira Louise S. Martinez