As the Philippine economy delivers another robust performance and - PDF document

AgriBiz MS ME s ver 18 May S erving Agribusiness mS IVIE s Ambassador Jesus P. Tambunting 19 May 2015 Good morning. It is a pleasure to be invited to speak on a topic that is close to my heart, and indeed, crucial to nation-building and improving people's lives. As the Philippine economy delivers another robust performance and prepares for integration with the ASEAN Economic Community, the clamor for inclusive economic growth becomes more pressing. In order to sustain growth and ensure that all Filipinos have a fair share of the benefits of development, our nation must work towards a strong, vibrant and competitive Micro, Small and Medium Enterprise sector, especially in the countryside, where development is needed most. The Plantersbank S tory My initial experiences working with SMEs started back in 1971. After working for one the country's largest commercial banks as a corporate lender, I decided to strike out on my own and apply my ideas about how a bank should be run. 1

AgriBiz IV IS IV IE s ver 18 IVlay I bought a small thrift bank in Malolos, Bulacan, which eventually became Planters Development Bank. My plan then was to convert the institution into a commercial bank and transfer to Makati, the country's financial center, where we would cater to large corporate accounts. Because of the bank's small size and the provincial location of its first offices, we had no choice but to cater to the small farmers and traders in the region. But what started as work bom out of necessity soon turned into meaningful and gratifying work. handholding, meaning, we spent Working with SMEs required a lot of zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA more time and effort with the borrowers to ensure or protect the viability of their projects. Handholding involves serving as "informal" advisers to clients, providing them with financial and managerial advice and marketing linkages. For more than half of our corporate history, majority of borrowers who benefited from our handholding approach were in agribusiness—rice and feed millers; pig, poultry and fish farm operators; traders of agricultural produce; and suppliers of feed, fertilizers and pesticides. Dealing with the small farmers and traders in the countryside opened my eyes to the wonderful realization that we were making an impact where it mattered most—with the marginalized sectors and the small entrepreneurs in the countryside. And we felt good about it.

AgriBiz IV IS IV IE s ver 18 May Working with Uganayang IVIags as aka Our experience with the Ugnayang Magsasaka cooperative in San Simon, Pampanga is one example of how our handholding and assistance made a huge difference in the lives of our clients. The Ugnayang Magsasaka came to us for help in the early 1980s. Local banks had stopped lending and their cooperative was running short of funds for important projects. At that time, the farmers were using crop loans from a government bank to cover the palay production expenses and repaying the loans at harvest time. They complained that there was hardly any cash left after settling their crop loans, because they were forced to sell their produce immediately upon harvest when prices were low. To enable the farmers to benefit from better palay prices, we helped Ugnayan secure a loan from the Quedan Guarantee Finance Board, using the rice stock as collateral. This allowed the farmers to settle their obligations on time and hold on to their rice stock until prices improved. When we saw that these Ugnayan Magsasaka cooperative members had accumulated enough profits, we advised them to put up their own rice mill. Plantersbank helped professionalize their record-keeping, and when the cooperative qualified as bankable, we financed the project.

AgriBiz MS ME s ver 18 May Having their own a rice mill provided the cooperative with another source of income. It was not long after that the project generated additional income by milling palay of non-members. Our role in Ugnayan seemed minimal to me at the time, yet it made such an impact on the lives of these farmers and their families. Our zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA handholding approach helped this community earn more and prosper, and this experience served as a model that has been replicated over and over again in our dealings with SMEs. At this point, we had reached a critical crossroad in our journey, and we chose the road less taken. Our plan changed, from converting the bank to a commercial bank—a more profitable and prestigious undertaking then—to being a bank focused on SMEs and proving that it was a viable business proposition. We wove corporate social responsibility into the way we did business. And we vowed no matter how big our bank became, we would always stay committed to SMEs. There were no models to follow at the time. We had to learn by trial and error and to improvise along the way. We have never regretted our decision ever since.

AgriBiz MS ME s ver 18 May What sustained us all throughout was our deep faith in the SMEs, our dogged determination to make an impact, and the success stories of many SMEs that we assisted. Developmental agencies, local and foreign, saw and appreciated the value of what we were doing. Soon foreign financial institutions, namely the Netherlands Development Finance Company or FMO, Asian Development Bank (ADB) and the World Bank's International Finance Corporation (IFC) became our partners and shareholders. From the 500,000 Pesos we started with, we became a 54 Billion Peso business, the 18* largest bank in the country, among 38 commercial banks, 100 thrift banks and 800 rural banks. Plantersbank had become the successful model of privately-managed, market-driven and profitable SME ^ finance. It was this model that the World Bank and FMO invited Plantersbank to teach partner banks in countries including Vietnam, Cambodia, Pakistan and Micronesia. More than anything else, the experience of Planters Development Bank I consider as proof of the largely untapped potential of the SME sector. 5

» AgriBiz IV IS IV IE s ver 18 May SM Es: A S trategic Sector When we in Plantersbank stumbled into SMEs some 45 years ago, SMEs then were not much talked about. But now SMEs are in the spotlight. In many progressive countries, SMEs form the backbone of the economy, generating employment and livelihood mainly for the middle-income segment of the population, including tax revenues for government. Support for SMEs is now a global phenomenon. At a recent APEC briefing to which I was invited, for example, the SME sector was at the top of the agenda. Let me cite some statistics about Micro, Small and Medium Enterprises in the Philippines: • 96% of all registered businesses belong to the Micro and Small and > Medium Enterprises (mSME) Sector. • 65% of the country's labor force are employed by the MSME sector. Significantly, agriculture directly employs 30%) of our workforce. • The contribution of mSMEs to the country's Gross National Product is 40%. 6

AgriBiz IV IS IV IE s ver 18 May A report cited by PhilExim in 2014 shows that only 13 % of Philippine SMEs used banks to fund their investment and working capital requirements. In Thailand, the figure is 60 %, Malaysia at 47%, Sri Lanka The Philippines is at the bottom, ahead of only three %. zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA and Nepal at 23 zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA countries—Afghanistan, Pakistan and Bangladesh. Capital formation figures from the same report indicate that SMEs in the Philippines almost entirely rely on their own internal sources. This is validated by direct experience of Small Business Corporation with mSME clients in areas of Eastern Visayas that were hardest hit by typhoon Yolanda. We learned that 80%) of mSME borrowers under the SBCorp program were accessing formal credit for the first time, despite their having been in business for several years before the disaster. A Bangko Sentral report shows that only about 4 % o of the banking systems loan portfolio went to Small and Micro Enterprises, versus the mandated 8 % ) share for mSMEs in the banking systems lending portfolio. While estimates put the contribution of the SME sector to the economy at about 40%) of GDP, the BSP reported that the mSME sector share in credit from the banking systems portfolio in the first quarter of 2013 was only about 10%. 7

AgriBiz MS ME s ver 18 May S mall Business C orporation Which brings me to where I am today: as Chairman of the government agency called Small Business Corporation or SBCorp, whose mandate derives from Republic Act 9501, better known as the Magna Carta for SMEs. Our agency mandate is not merely develop and implement financing services for mSMEs, but also to draw up a comprehensive program to develop SMEs, including capacity building, technology support and linkages to promote a robust mSME sector. I was appointed by the President to this post early this year, after over 50 years in banking. My previous government post was Ambassador to London during the administration of President Fidel V. Ramos. Our team in London was successful in increasing trade, investment and tourism from the United Kingdom. During my time in the United Kingdom I had opportunity to observe the important role the government can play to create the conditions and provide the services that will strengthen Small and Medium Enterprises and uplift the countryside. In advanced economies like the United Kingdom and Japan, development support measures are comprehensive and involve both creation of opportunities for business growth as well as providing SMEs the financial services needed to exploit these opportunities.