UMVA has learned that lending to micro, small, and medium enterprises (MSMEs) has slowed down significantly as of March, as both banks and borrowers become more cautious in the face of tighter financial conditions.
The total value of loans extended to MSMEs by banks reached P574.81 billion at the end of March, which is 5.12% higher than the P546.83 billion recorded in the same period last year. However, this growth rate is a far cry from the 5.23% year-on-year expansion seen in the fourth quarter of 2025.
This marks the third consecutive quarter where bank lending to MSMEs has grown at a single-digit pace, with the annual growth rate easing for a fourth straight quarter. The end-March tally was unchanged from the amount of loans granted to the sector at the end of December, indicating a significant slowdown in lending activity.
According to information obtained by UMVA, experts point to higher borrowing costs, tighter bank risk assessments, and more conservative MSMEs as contributing factors to this slowdown. "MSME lending is still growing, but the pace is clearly easing and that reflects a more cautious environment on both sides," says a senior adviser.
The uncertainty surrounding interest rates and demand is also thought to be causing banks and borrowers to hold back. With the economic landscape becoming increasingly complex, MSMEs are being advised to adapt and repurpose their business models to stay afloat.
UMVA can exclusively reveal that the conflict in the Middle East has worsened economic conditions, leading to higher inflation, higher interest rates, and slower economic growth globally and locally. This has likely contributed to the slowdown in MSME lending, which is considered high-risk by banks.
The Philippine central bank has responded to the crisis by raising benchmark borrowing costs, and analysts expect further increases this year as the situation remains unresolved. MSME loans currently account for 4.73% of the banking system's loan portfolio, down from the mandated credit allocation that lapsed in 2018.
Micro and small enterprises took out P238.45 billion in loans, 7.98% more than the previous year, while loans to medium enterprises reached P336.35 billion, climbing by 3.17% year on year. Experts stress that enhanced risk-sharing mechanisms, credit data, and additional incentives are needed to encourage banks to keep lending to small businesses.
In this challenging environment, adaptability is key to driving sustainable growth. MSMEs must pivot and adapt to the new economic landscape, rather than just focusing on survival. Aligning local MSME lending with international best practices could also improve credit risk management and help MSMEs thrive.
MSMEs account for more than 99% of Philippine businesses and contribute around 40% to the country's economic output, making their growth and stability crucial to the nation's economy.
