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Authors
Advisor(s)
Abstract(s)
We examine the effects of a mandated credit program to small and medium enterprises in the
Philippines (Magna Carta Law) using a panel dataset compiled from official data published by
the Bangko Sentral ng Pilipinas. The final sample of 109 financial institutions represented over
90% of total finance sector assets in the Philippines. We highlight three important findings.
First, although the total lending levels to micro, small, and medium enterprises (MSMEs) grew
slightly, the percentage shares of loans allocated to MSMEs declined drastically from a peak of
30% of total loans in 2002 to 16.4% in 2010. Second, following the upwards revision of the loan
target (from 6% to 8%) for smaller firms in 2008, there was a sharp increase in noncompliance
especially amongst universal and commercial banks. On the other hand, total loans to medium
enterprises were still more than threefold larger than the targeted 2%. Third, there is an
increased heterogeneity in optimal loan portfolio across banks. Most surprisingly, the absolute
level of MSME lending by rural and cooperative banks declined since 2008. Direct compliance
amongst universal and commercial banks decreased beginning in the late 2007, while that of
thrift banks increased to almost 100%. Abolishing the Magna Carta targets for medium-sized
enterprise loans would most likely yield little adverse effects. Meanwhile, efforts to improve
financial access to MSMEs should focus on alternative nondistortionary ways to increase
financing supply, such as improving institutional framework for informational availability and
development of equity and bond markets for MSMEs.
Description
Keywords
Financial Inclusion Financial Markets Financial Policy Philippines SME Targeted Lending
Pedagogical Context
Citation
Jacildo, R., Khor, N., Tacneng, R. (2016). Assessing Mandated Credit Programs: Case Study of the Magna Carta in the Philippines. Journal of Governance and Regulation, 5(3), 34-49
Publisher
Virtus Interpress