Measure mandates LBP, DBP to help MSMEs recover from pandemic, expand lending programs

A BILL principally authored by Leyte 1st district Rep. Martin G. Romualdez mandates two government financial institutions to expand lending programs to help small businesses throughout the country recover from the coronavirus disease 2019 (COVID-19) pandemic.

House Bill No. 1, entitled, “An Act providing for government financial institutions unified initiatives to distressed enterprises for economic recovery (GUIDE),” allocates P7.5 billion to the Land Bank of the Philippines (LBP) and P2.5 billion to the Development Bank of the Philippines (DBP) or a total of P10 billion to carry out their mandates.

Romualdez, House Majority Leader in the recently concluded 18th Congress, co-authors the measure with Representatives Yedda Marie K. Romualdez of party-list group Tingog, presidential son Ferdinand Alexander Marcos of Ilocos Norte and Jude Acidre, also of Tingog.

“The proposed legislative measure seeks to strengthen the capacity of the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) to provide the needed assistance to micro, small, and medium enterprises (MSMEs), and other strategically important companies,” the bill’s explanatory note stated.

“To this end, the government financial institutions are mandated to expand their credit programs in order to assist MSMEs to meet their liquidity needs. In particular, the LBP and DBP are mandated to expand their credit and rediscounting facilities to affected MSMEs in the agriculture, infrastructure, manufacturing, and service industries,” it said.

Under the bill, the term MSME “refers to any business activity or enterprise engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative, partnership or corporation whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, must have value falling under the following categories: micro, not more than P3 million; small, P3 million to P15 million; and medium, P15 million to P100 million.”

The GUIDE bill also increases DBP’s capital stock from P35 billion to P100 billion divided into one billion shares of P100 each to be fully subscribed by the national government.

The President may increase the bank’s capitalization upon recommendation of its board and the concurrence of the Secretary of Finance.

The LBP would be mandated to rediscount loans to eligible MSMEs.

The proposed law authorizes the two government banks to create a special holding company “to further reinvigorate” MSMEs and “strategically important industries” or SICs heavily affected by the COVID-19 pandemic.

SICs include companies in agriculture, construction, education, food production, health care, infrastructure, socialized housing, manufacturing, power and energy, product distribution, retailing, services, tourism and hospitality, transportation and logistics, and water and sanitation.

The LBP and DBP may invite the private sector to invest in the envisioned holding company.

However, to ensure that the policies and objectives under the proposed bill are effectively carried out, the two state banks would maintain majority ownership of the special firm until they have recovered their investment.

The special holding company (SHC) is intended to be a major player in the financial and capital markets by providing aid to strategically important companies with solvency/liquidity issues brought about by pandemic.

For this purpose, the special holding company shall be authorized to invest or place funds in equity, execute convertible loans or purchase convertible bonds and/or other securities, in SICs, as well as to incorporate subsidiaries.

To ensure that such investments are properly utilized and SICs are successfully rehabilitated, the bill imposes restrictions on a SIC receiving funds from SHC by requiring that the number of employees is not reduced beyond a certain level determined by SHC, limiting its ability to declare dividends, restricting the increase in salary, separation and retirement pay, and other benefits of the board and its senior officers, and ensuring that investments of LBP and DBP are not diluted and time-bound with a definite exit mechanism.

The planned holding company is to be governed by a board of directors headed by the secretary of finance as chairperson, with the president of Land Bank, DBP, SHC, two independent directors, and three directors representing private sector investors as members.

The bill grants certain tax exemptions to the two government banks and their holding company.

The measure creates a joint congressional oversight committee composed of five House members and five senators to oversee its implementation.

In the 18th Congress, the bill strengthening the three government financial institutions was filed by former Quirino Rep. Junie Cua. It was approved by the House, but failed to pass through the Senate.