QuestionsQuestions (Republic Act No. 6977)
RA 6977, titled the “Magna Carta for Small Enterprises,” aims to promote, develop, and assist small and medium enterprises (SMEs) through the creation of the SMED (Small and Medium Enterprise Development) Council, and the rationalization of government assistance programs and agencies concerned with SME development.
The State seeks to spur SME growth nationwide and attain countryside industrialization by, among others: ensuring support structures and mechanisms for technology access/transfer; expanding entrepreneurship and skills training; facilitating access to funds; ensuring fair government contract share and incentives; reducing stringent collateral requirements; safeguarding credit delivery stability; improving government efficiency at least cost; promoting linkages and common service facilities; partnering with the private sector; and establishing feedback/evaluation mechanisms for economic and environmental impacts.
SMEs are business activities in industry, agribusiness, and/or services (including various legal forms) whose total assets (inclusive of assets from loans but exclusive of land where the office/plant/equipment are situated) fall under: Micro (< ₱50,000), Cottage (₱50,001–₱500,000), Small (₱500,001–₱5,000,000), and Medium (₱5,000,001–₱20,000,000). In a generic sense, enterprises with total assets of ₱5,000,000 and below are called small enterprises.
Yes. The SMED Council may review and adjust the definitions/thresholds considering inflation and other economic factors.
It must be: (1) duly registered as provided by law (for micro enterprises, registration with the municipal/city treasurer suffices); (2) 100% owned and capitalized by Filipino citizens for single proprietorship/partnership, or at least 60% Filipino-owned capital/stock if a juridical entity; (3) primarily engaged in manufacturing/processing/production (excluding farm-level crop production); and (4) not a branch/subsidiary/division of a large enterprise and not controlled in policy by large enterprises or non-owner/non-employee persons.
No. The prohibition on being a branch/subsidiary/division or having policies determined by large enterprises does not preclude SMEs from accepting subcontracts from large enterprises or joining in cooperative activities with other SMEs.
Programs of the financing corporation under subsequent sections are exclusively targeted to small/cottage/micro-sized enterprises. Medium enterprises may access financing from PNB, DBP, LandBank, and other financial institutions, and medium enterprises are entitled to other incentives/programs/services under the Act.
The State pursues minimal rules and simplification of procedures to ensure stability of rules and encourage entrepreneurship. It also encourages private sector participation by policing ranks and participating in SME programs strictly in accordance with law, with encouragement for SME industry associations and cooperation at local and regional levels.
RA 6977 creates the SMED Council attached to the Department of Trade and Industry (DTI), to be constituted within 60 days after approval. It is the primary agency responsible for promoting and facilitating/closely coordinating national efforts for SME viability and growth, including assisting in tapping local and foreign funds and promoting existing guarantee programs.
The Chairman is the Secretary of Trade and Industry. Members include: Director General of NEDA; Secretary of Agriculture; Secretary of Labor and Employment; Secretary of Environment and Natural Resources; Secretary of Science and Technology; Chairman of the Small Business Finance and Guarantee Corporation; Chairman of the SME promotion body to be established by the President; and three private sector representatives (Filipino citizens) representing Luzon, Visayas, and Mindanao appointed by the President, with one coming from the banking industry.
Among others: establish an environment conducive to SME growth; recommend policy matters to the President and Congress; formulate a comprehensive SME development plan for integration into NEDA Development Plans; coordinate and integrate government and private activities; review SME-affecting policies and recommend simplifications/changes; monitor progress of agencies and SME development (especially cottage and micro firms); promulgate implementing guidelines; assist in tapping local/foreign funds; promote productivity and viability through training, technology, labor guidance, product development, marketing linkages, credit access systems/guarantees, concessional credit terms, bankruptcy preventive measures (mutual relief and disaster insurance), entrepreneurship education, tax incentive access, R&D support, and infrastructure/public utilities; submit yearly reports to the President and Congress; and assist in establishing modern industrial estates outside urban centers.
The Bureau of Small and Medium Business Development of the DTI acts as the Council Secretariat. Duties include preparing annual and medium-term SME development plans for Council approval; coordinating position papers/background materials for Council meetings; coordinating and monitoring SME policies and programs of all government agencies; collating inputs for the Council’s yearly status report; submitting periodic accomplishment reports; and performing ad hoc functions authorized by the Council.
Within 180 days of establishment, the SMED Council must recommend measures to rationalize and integrate all government programs for SME promotion/development under a unified institutional framework. The President may also establish an SME promotion body as principal non-financing agency attached to DTI, under SMED Council supervision, and it should receive not less than 50% of the assets and budget allocations of absorbed/dissolved agencies.
Section 11 creates the Small Business Guarantee and Finance Corporation (SBGFC). It provides/promotes alternative financing modes for small enterprises (e.g., direct and indirect project lending, venture capital, financial leasing, secondary mortgage/rediscounting of loan papers, and secondary/regional stock markets). It also guarantees loans for qualified small enterprises and related entities/organizations, may provide up to 100% guarantee coverage, and can offer second-level guarantees (re-insurance).
Crop production financing is not to be serviced by the SBGFC.
Lending institutions must set aside a portion of their total loan portfolio (based on balance sheets as of the end of the previous quarter) for small enterprise credit. The required minimum set-asides are: at least 5% by end of first year of effectivity; 10% by end of second year through end of fifth year; 5% by end of sixth year; and it may decrease to zero by end of seventh year. Central Bank will formulate implementing rules; purchases of certain government notes/securities (except those offered by SBGFC) do not count as compliance.
The Central Bank must impose administrative sanctions and other penalties. Additionally, the President, board members, and other officers of the erring lending institutions are individually liable to imprisonment of not less than six months and a fine of not less than ₱500,000 each.