Philippines: RCBC, Acudeen and FinTechs launch opportunity fund

Wednesday 18 December 2019

MANILA, PHILIPPINES. With the passage of Personal Property Security Act (RA 11057) and the recent issuance of its implementing rules and regulations, RCBC took the lead in launching ASEAN’s first mSME Opportunity Fund to jump start the banking and fintech industry in creating markets and encouraging the private sector to utilize movable assets as collateral.

Access to finance has been among the challenges faced by mSMEs and the agriculture sector because banks require hard collateral, which these borrowers do not have. Now, PPSA allows the use of movable collaterals, such as account receivables, crops, farm equipment, warehouse receipts, bank accounts, and even future harvest.  

“This pioneering initiative promotes innovation by giving all stakeholders the opportunity to offer creative solutions to sustainability challenges, especially in empowering our entrepreneurs in exponentially growing our mSME sector,” RCBC President and CEO Eugene Acevedo said.

The open-ended Fund will provide alternative funding for capital and operational requirements of mSMEs through the sale and purchase of invoice receivables and other movable assets registered by invoice receipts, certificates, or contracts as defined by the Act.

The Fund will be covered by a sovereign guarantee through PhilGuarantee to ensure the quality of underwriting and receivables assets. A review of underwriting tools will be done and preference may be for shorter duration for loans/receivables including due diligence on the company providing long historical data.

“We recognize the immense potential and unique challenges of mSMEs and BSP is set on strengthening the country's financial infrastructure, supporting innovation, and bridging the information gap. To build the foundation for a robust financial infrastructure, we work in close coordination with government agencies and partners in development,” Bangko Sentral ng Pilipinas Govenor Benjamin Diokno said.

The pilot will initially cover Acudeen Technologies Inc., a receivable factoring exchange that facilitates the buying and selling of SME invoices through its platform. Recently, two multi-billion dollar factoring banks, Deutsche Factoring Bank and Taishin Bank, have signed agreements with Acudeen to provide guarantees on export related receivables in the exchange. The deal made it possible for the tech firm to attract more financial institutions like RCBC to look into the opportunity in the movable asset space.

“The next immediate step is clear: To get the collateral registry operational as soon as possible. Then, quickly build up a real movable asset finance market with a diversified range of products and with as many players as possible from both banks and non-banks. A substantive movables finance market will mean, for example, that at least 30% of all commercial lending in the Philippines involve movable assets,” RCBC Executive Vice President and Chief Innovation and Inclusion Officer Lito Villanueva said.

This undertaking is being supported by Department of Finance Undersecretary Gil Beltran, Bangko Sentral ng Pilipinas’ Learning and Inclusion Advocacy Managing Director Pia Roman-Tayag, Department of Trade and Industry's Director for the Bureau of SMEs Jerry Clavesillas, Fintech Alliance Executive Director and Financial Inclusion Advocate Griselda Santos, Philguarantee President and CEO Albert Pascual, and Securities and Exchange Commission Commissioner Javey Paul Francisco.

“The entry of RCBC proves that we have put to life a bank-grade machinery that is instrumental in putting PPSA at work, and in really helping out our entrepreneurs in the country. We are expecting two more major banks to participate in the first half of 2020,” Acudeen Founder Magellan Fetalino said.

Agriculture and mSME sectors form the backbone of the Philippine economy.  mSMEs account for 99.6% (911,768) of the country's enterprises and generate 61.6% of employment. 

“We really need to leverage technology to help our businesses, including mSMEs, thrive, compete, and grow while implementing regulations that reduce financial risks and boost confidence for mSME finance,” Finance Undersecretary and Chief Economist Gil Beltran said.

Despite having considerable growth prospects and being a source of livelihood for millions of Filipinos, the mSME sector has not realized its potential. mSMEs only account for 3.32% of the country's gross domestic product (GDP), while their gross value added (GVA) sits at 35.7%.  Capital investment remains low, with mSME loans in the banking system accounting for only 6.2% and 9.2% share in total business loans.

On the supply side, issues include the prevalent perception that mSMEs-compared to the corporate and consumer markets-are low-profit and high-risk. This aggravates the lack of understanding of the mSME segment. It results in the scarcity of appropriate financing products and inability of banks to cater effectively to mSMEs.

On the demand side, mSMEs are reluctant to approach banks due to the lack of collateral and credit history needed for loan application. They have limited business capacity and financial management skills to capably meet loan requirements. In addition, the have limited knowledge of alternative modes of financing.

“With this Fund, the local Fintech companies are expected to grow its operations within the next few years, making its promise of liquidity for domestic and export invoice sellers who are mostly SMEs,” FinTech Alliance executive director Gay Santos said.

This initiative hopes to address the mSME funding gap in the Philippines worth US$2.0B as of 2017 per IFC Enterprise Finance Group. Global trade finance gap amounts to US$1.5 trillion, 40% of which is from Asia Pacific region. According to the Business and Sustainable Development Commission, sustainable business models could open economic opportunities worth $12 trillion and create 380 million jobs by 2030 globally.

The signing of the Memorandum of Understanding and the launching of the Fund was held at the recent 7th Financial Infrastructure Development Network (FIND) Forum. FIDN is a multi-sectoral platform for promoting initiatives to make financial services in the region more accessible, especially for micro, small and medium enterprises  (MSMEs).  FIDN is a collaborative effort among APEC member economies, APEC Business Advisory Council, International Finance Corporation/World Bank Group, SME Finance Forum, and the Organization for Economic Cooperation and Development.