Philippine banks extended more credit to small businesses in 2025, a positive shift reflected in a 5.23% increase in lending – reaching P574.8 billion. Yet, beneath this growth lies a stark reality: these vital engines of the Philippine economy remain significantly underfunded.
Despite the increase, loans to micro, small, and medium enterprises (MSMEs) represent a mere 4.73% of the total P12.143-trillion loan portfolio held by banks. Experts emphasize this proportion is dramatically low, considering MSMEs fuel the vast majority of jobs and economic growth within the nation.
The core issue isn’t a lack of willingness to lend, but a perceived higher risk. Banks grapple with limited data on MSMEs, often lacking the collateral and formal financial histories required for larger loans. This creates a challenging cycle, hindering the scaling of crucial small business operations.
Economic headwinds also played a role. Rising prices, unpredictable weather patterns, and increased competition from larger companies and online retailers presented significant hurdles for MSMEs throughout the year, potentially slowing their growth and impacting loan repayment confidence.
While a previous law mandated specific credit allocations for MSMEs – 8% for micro and small, 2% for medium – that requirement expired in 2018. The central bank continues to monitor lending trends, recognizing the sector’s importance, but without the force of legal obligation.
Looking closer at the numbers, loans to the smallest businesses – micro and small enterprises – reached P238.45 billion, a nearly 10% jump from the previous year. Medium-sized businesses saw a more modest 2.2% increase, totaling P336.35 billion.
A surprising surge came from thrift banks, increasing their MSME lending by almost 30% to P49.01 billion. This demonstrates a willingness to take on more risk within that sector, representing 3.88% of their overall loan portfolio.
Digital banks also showed significant growth, with a 68.18% leap in loans to micro and small enterprises, though from a smaller base of P74 million. This highlights the potential of fintech to reach underserved businesses.
However, rural and cooperative banks experienced a decline in lending to micro and small businesses, decreasing by 12.61%. This suggests unique challenges faced by these institutions in supporting the smallest enterprises.
Experts believe unlocking greater access to credit requires a multi-faceted approach. Improved credit data collection, the adoption of digital lending tools, and the development of risk-sharing mechanisms are crucial steps. These changes would empower banks to lend with greater confidence.
The goal is ambitious – to reach a 10% allocation of bank loans to MSMEs. Achieving this would not only stimulate economic growth but also empower the businesses that form the backbone of the Philippine economy, representing over 99% of all companies and contributing around 40% of the nation’s output.
