Question & AnswerQ&A (Republic Act No. 6977)
Republic Act No. 6977 is officially known as the "Magna Carta for Small Enterprises."
The State declares its policy to promote, support, strengthen, and encourage the growth and development of small and medium enterprises in all productive sectors of the economy, especially rural/agri-based enterprises, to spur economic growth, employment, and countryside industrialization.
The law defines enterprises according to total assets (excluding land): Micro - less than P50,000; Cottage - P50,001 to P500,000; Small - P500,001 to P5,000,000; Medium - P5,000,001 to P20,000,000. All enterprises with assets of five million pesos and below are considered small enterprises.
Eligible enterprises must be duly registered (micro enterprises registered with municipal or city treasurer offices suffice), 100% Filipino-owned if sole proprietorship or partnership, at least 60% Filipino ownership if juridical entity, mainly engaged in manufacturing, processing or production (excluding farm-level crop production), and not a branch or subsidiary of a large-scale enterprise with externally determined policies.
The SMED Council is the primary agency responsible for coordinating and promoting the growth and development of SMEs nationwide, facilitating national efforts, assisting in tapping funds, promoting guarantee programs, formulating SME development plans, reviewing policies, and submitting yearly reports to the President and Congress.
The Council is chaired by the Secretary of Trade and Industry and includes the Director General of NEDA, Secretaries of Agriculture, Labor and Employment, Environment and Natural Resources, Science and Technology, Chairmen of the Small Business Finance and Guarantee Corporation, a small/medium enterprises promotion body, and three private sector representatives (from Luzon, Visayas, Mindanao), one of whom must be from banking.
Its powers include establishing an enabling environment, recommending policies, formulating development plans, coordinating government and private activities, reviewing laws and policies affecting SMEs, monitoring progress, promulgating programs and guidelines, assisting government agencies in fund tapping, promoting productivity, and submitting annual reports.
The SBGFC provides, promotes and widens alternative financing modes for small enterprises, such as direct and indirect lending, venture capital, financial leasing, and loan guarantees, including second-level guarantees, while excluding crop production financing.
Lending institutions, public or private, must allocate a portion of their total loan portfolio for small enterprise credit as follows: at least 5% by the end of the first year, 10% by the end of the second year through the fifth year, 5% by the end of the sixth year, and can reduce to 0% by the seventh year.
The Central Bank will impose administrative sanctions and penalties; furthermore, the President, board members, and officers of the non-complying lending institutions may be subject to imprisonment of not less than six months and fines of not less than Five hundred thousand pesos (P500,000.00) each.