THE PHILIPPINES’ Ease of Doing Business ranking could rise by as many as 100 spots into the top 50 when the Secured Transaction Systems bill is enacted, according to the Department of Finance (DoF).
The proposal, filed as House Bill No. 3682, seeks to establish a legal framework for the use of non-traditional collateral for loans, such as accounts receivable, inventory, and intellectual property, among others.
The measure is expected to “encourage more lending to MSMEs and agriculture” since it would also allow the use of crops, livestock and other equipment as loan security.
“The passage of this bill will strengthen the Philippines’ position in the “Getting credit” indicator in the Ease of Doing Business and boost it by about 100 notches—from rank 142 among 190 countries to 42,” the DoF said.
Currently, most banks only accept real estate as loan collateral.
The DoF said that about 31% of production by Philippine family household businesses and 65% of household businesses have no ability to borrow for their expansion needs.
It added that in countries that carried out the reform, lending to micro, medium and small enterprises (MSMEs) grew by 50-100%.
The DoF noted that China’s acceptance of movable collateral released $3.58 trillion worth of lending for MSMEs over four years.
Movable collateral accounts for 45% of commercial lending in China and 30% in Vietnam, according to the DoF.
The DoF said that of the 10 members of the Association of Southeast Asian Nations (ASEAN), seven have secured transactions laws, while five have a universal collateral registries.
The bill is currently up for third and final reading in the House of Representatives, and its counterpart bill in the Senate is set for second reading.
Aside from the legal framework, the bill would also establish a regulated warehousing industry which issues receipts that can be used as collateral by lenders and can be traded by investors and industry players; develop an automated movable collateral registry wherein information on transfers and pledges of collateral can be made and accessed by participants.
The Finance department said that this will “develop the backbone of an efficient commodities market that will stabilize prices and expand transactions.”
Even with the bill pending for approval by Congress, the Land Registration Authority (LRA) has established an automated collateral registry.
The Securities and Exchange Commission is also currently drafting regulations on audit systems to check compliance with regulations. — Elijah Joseph C. Tubayan