Improving finance for SMEs: a highlight case history from the APEC SME Summit Plantersbank story.

• Author: Tambunting, Jesus R.
• Position: SME SUMMIT MELBOURNE - Company overview - Financial report

Good morning to everyone, and my heartfelt thanks to the APEC Business Advisory Council for this opportunity to speak on the topic, "Improving Finance for SMEs."

In the Philippines, small and medium enterprises or SMEs play an important role in our national economy. Accounting for 90 per cent of registered enterprises, they contribute to about 25 per cent to the gross national product and provide jobs to roughly half of our labour force.

Because of their significant contributions to income and employment generation, they are regarded as a lead sector in stimulating economic development, particularly in the countryside, and eventually helping in poverty alleviation.

It is an honour and pleasure to share with you our experience in assisting our country's SMEs, the core of Plantersbank's existence.

Start of our long journey

For more than three decades now, we have devoted our entire organisation and resources to serving SMEs. It was not by design, I must admit. As a career commercial banker, I bought Plantersbank which was then a very small development bank in a province north of Manila with the intention of growing and transforming it into a commercial bank catering to large corporate accounts.

Because of the bank's size and rural location, we were constrained to lend to the small business in the area. In time, we saw the significant difference we were making in the lives of our clients and in the community. With our help, our borrowers' net earnings almost immediately grew. Soon, they would start acquiring more goods and equipment, hire more people and expand their operations. Dealing with them made us realise that we were creating an impact where it counted the most--with the marginalised SMEs, particularly in the countryside.

Our experience with a farmers' cooperative is one example of how our assistance made a huge difference in the lives of our clients. What we did for the group served as a model that has been replicated over and over again in our dealings with SMEs.

It was a crisis year when these farmers first approached us for assistance. Their cooperative was having problems because local banks had stopped lending and they were running short of funds for a number of on-going projects. Seeing how important the completion of these projects was for the farmers, we arranged financing for them from our foreign partner, the Netherlands Development Finance Company or 'FMO'.

We also learned that these farmers took out crop loans from a government bank to finance their rice production expenses. They would then pay these loans by selling their unmilled rice upon harvest. The farmers complained that they hardly had any cash left after they paid for their crop loans.

This was because they were forced to sell their produce during harvest time when prices were low. To enable the farmers get better prices for their grain, we helped them qualify for a government loan facility using their harvested rice stocks as collateral. The farmers were able to pay their loans on time, hold on to their stocks while waiting for the right time to sell their products.

When we saw that these farmers finally accumulated enough profits, we advised them to set up their own rice mill. We taught them how to become bankable and then lent them the money for this project. With their own milling operations, the farmers improved their margins and very soon, they also began milling for others. In our mind, what we did for them was quite simple but it actually made a huge difference for these farmers. It helped them earn more and prosper.

Seeing the tremendous impact and significant difference our services were making on our SME clients and the local community, we abandoned our original plan to become a commercial bank and decided to remain a development bank focusing on SMEs.

Our journey with SMEs has not been easy. We ventured into an inherently risky and difficult area without a model to follow. We had to feel our way through...