LATEST data released by the Bangko Sentral ng Pilipinas (BSP) showed that while loans extended by banks to micro-sized, small-scale and medium-sized enterprises (MSMEs) posted growth in the first quarter, it remained flat, reflecting cautiousness by the lenders and borrowers.
Based on the data from the central bank, loans made available to MSMEs climbed to P574.8 billion as of end-March, up 5.12 percent from the P546.82 billion recorded in the same period last year.
The same amount was made available to small merchants in the previous quarter or in the last quarter of 2025, at P574.8 billion.
The industry’s total loan books jumped by 2.71 percent to P12.14 trillion as of end-March 2026 from P11.82 trillion in the same period last year.
Out of the loan portfolio extended by all banks, the percentage compliance by banks to MSMEs grew to 4.73 percent as of end-March 2026, from the 4.63 percent compliance in the same quarter a year ago.
Still, this is less than half the 10 percent required by the law.
Under the Magna Carta for MSMEs, all lending institutions, whether public or private, are required to set aside at least 8 percent for micro and small enterprises and at least 2 percent for medium enterprises of their total loan portfolio.
Broken down, data showed that loans extended to micro and small enterprises only amounted to P238.45 billion as of end-March. This is equivalent to only 1.96 percent of the industry’s loan books, way below the 8 percent required by the law to be earmarked for micro and small merchants.
For medium enterprises, banks were able to extend P336.35 billion. This is equivalent to 2.77 percent of the industry’s loan books, above the 2 percent required by the law for medium-sized businesses.
Ateneo De Manila University Professor of Economics Leonardo A. Lanzona Jr. said that despite economic recovery and expanding loan portfolios, banks continue to allocate less than half of the legally-intended share of credit to the MSME sector.
‘This suggests that banks still perceive MSMEs as relatively risky borrowers and that alternative lending channels, rather than traditional bank financing, may be increasingly serving the sector,’ Lanzona told the BusinessMirror. ‘Unless incentives are provided by the government this situation is unlikely to change.’
Jonathan L. Ravelas, senior adviser at Reyes Tacandong and Co. noted that while MSME lending is still growing, ‘the pace is clearly easing.’
‘That reflects a more cautious environment on both sides,’ Ravelas said.
He noted that higher borrowing costs, tighter bank risk assessments and more conservative MSMEs are all contributing to this slowdown.
Ravelas added that the flat quarter-on-quarter numbers indicate that both lenders and borrowers are in a ‘wait-and-see’ mode, looking for clearer signals on rates and demand.
Moving forward, he said there is a need to ‘unlock’ lending through better risk-sharing mechanisms, stronger credit data, and more incentives for banks to support the sector.
‘But the bigger message is this: MSMEs should not just focus on survival. They need to pivot, adapt, and repurpose their business models to fit the new economic landscape,’ Ravelas said.
‘In today’s environment, adaptability, not just access to credit, is what will drive sustainable growth,’ he added.