Exec sees constraints to SME growth

TO enable small and medium-sized enterprises in the country to grow rapidly, financial institutions should focus on removing capital constraints and charging zero interest to Filipino entrepreneurs, an official of a financial technology (fintech) company said.

Speaking at the recent Davao City Chamber of Commerce and Industry Inc.’s 6th General Membership Meeting dubbed “Boundless Opportunities Through Foreign Linkages,” Marcus Erlano, head of Customer Success and Support at First Circle Growth Finance Corp., identified some of the major challenges that slow down the growth of SMEs in the Philippines. Among these are high-interest financing, limited access to financing and transactional deals with no long-term partnership.

Marcus Erlano, head of Customer Success and Support

Marcus Erlano, head of Customer Success and Support

He stressed that financial institutions should work together to address these issues and focus on implementing programs that will promote the growth of SMEs and what they can bring into the Philippine economy.

This is what First Circle has been doing, Erlano noted. “[We] acknowledge that the next generation of businesses will come from the network of SMEs in this country. “

First Circle has been financing SME growth since 2016. It has partnered with the Department of Trade and Industry (DTI), Security Exchange Commission and local governments units like Quezon City to finance SMEs and promote financial literacy.

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“There are a good number of business people in the Philippines who are very keen and eager to grow their businesses. However, they do not have access to financing that enables them to take more projects or to expand their operations,” Erlano pointed out.

“We found out that there is growth but businesses are not growing fast enough,” he added.

Role of SMEs

SMEs play an integral role in generating employment in the country. According to DTI, Filipino micro, small and medium enterprises (MSMEs) comprise 99.5 percent of the national economy and provide employment to 62.4 percent or 5.5 million Filipinos.

Loans to SMEs are a special type of loans that are provided to startups, small business owners, women entrepreneurs and medium-sized businesses. According to Erlano, providing secured loans among businessmen and entrepreneurs in the country is a crucial part of driving SMEs growth.

“We all know that financial products here in the Philippines are quite expensive … Financial institutions are transactional versus being a real partner to business people. Projects are generic and most of them do not really fit the needs of SMEs. Another thing is that you would normally find yourself interacting with bureaucrats behind counters and desks, ”Erlano explained.

For instance, First Circle boasts providing the lowest priced and biggest amount of credit with the most flexible terms among non-banking financial institutions that provide short-term financing, said Erlano. “We can say that we are already doing well in that area but we want to do more for MSMEs. We think that there is a bigger opportunity for us to solve,” he added.

To do this, “first we eliminate growth constraints by removing high interest financing and by not limiting the amount available for financing,” said Elano.

First Circle implements its Growth Partners Program, which offers a zero-interest capital facility. Also, there is zero transaction fee. The facility is 10 percent of the company’s annual sales.

“We are introducing right now a partnership program for fast-growing businesses in the Philippines that we believe will shape the future of the economy, a true partnership with a reliable special partner, the Growth Partners Program … There is no catch here. First Circle just really wants to build a long-term partnership with the business, ”Erlano explained.

“First Circle, as a growth partner, will only ask one thing. We will be asking the business to allow us to be a partner by purchasing 5 percent of stocks at the end of each of the next five years up until we have 25- percent stake or stocks from the business. First Circle also do not wish to have any operational control on the business. We just want to be a silent partner in the background cheering you on for your success. We’re not interested in controlling your business , “he added.

For many years, Filipino business people are usually taken aback with the prospect of having investors come in, Erlano noted.

“The company sacrifices its short-term interest revenue to participate in the long-term success of the businesses,” he said, noting that this is what financial institutions should do in order to ensure rapid growth among SMEs across the Philippines.


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