The unfinished IGLF case – Manila bulletin
There used to be a small fund, the Industrial Guarantee and Loan Fund (IGLF), which has quietly but consistently served the MSME sector for over 65 years. When the pandemic hit us, I wondered how the IGLF could have been used as an instrument to meet the needs of our struggling small businesses. Sadly, some people in the upper echelons of government decided in 2018 that the IGLF had finished its course. At that time, this writer opposed its dissolution, but his voice was drowned out by the powers that be.
A few years after World War II, during the trying period of rehabilitation, the Philippines signed an Economic and Technical Cooperation Agreement (ETCA) with the United States of America (USA). The IGLF was created by a counterpart project agreement entered into by and between the Philippine Council for United States Assistance and the Mutual Security Agreement.
It was established with the aim of providing assistance to local businesses engaged in export-oriented activities such as mining and manufacturing. More specifically, the objective of the IGLF was: “to encourage and assist in the creation, expansion and refinancing of small and medium-sized enterprises, but with an emphasis on small industries. “
The administration of the IGLF was a function of the former Central Bank of the Philippines and was transferred to the Development Bank of the Philippines as of August 1990. The IGLF under the DBP encouraged lending to MSMEs in the countryside, favored the dispersion of industry and encouraged greater added value. companies. In addition, it aligned with the development plans of MSMEs in the country. It created the IGLF Research and Promotion Grant to support the technical assistance, development, promotion and capacity building needs of MSMEs.
IGLF has also been a major contributor to the Credit Surety Fund, a credit enhancement program conceptualized by the Bangko Sentral ng Pilipinas (BSP) that aims to improve the bankability and solvency of micro, small and medium-sized entrepreneurs strapped for capital. The aim is to open up loan opportunities to entrepreneurs deemed unbankable due to a lack of collateral. In fact, while BSP won a governance award for its CSF initiatives, IGLF was instrumental in making this happen not only on the funding side, but also on its strategic training and training needs.
In 2017, the Fund celebrated its sixty-fifth (65e) year of existence because it has built a solid experience in helping Filipino entrepreneurs.
Quick review of transactions
IGLF performance continued to indicate favorable management of resources. He paid all of his foreign obligations to the World Bank and only the Asian Development Bank had a balance of 305 million pesos at that time. The IGLF increased the government’s initial investment from 803 million pesos to 6.8 billion pesos by 2018. The five-year average net income of 110 million pesos translated into an average return on total assets of approximately 2.0%.
The loan portfolio also continued to grow. The outstanding balance in 2014 increased by 68% from 1.97 billion pesos to 3.31 billion pesos and in 2015 it again increased by 36% to 1.17 billion pesos. In 2016, the loan portfolio grew by 25%, registering significant growth to 5.59 billion pesos from 4.49 billion pesos in 2015. This rate continued for at least a year until ax decision be made.
This solid performance demonstrated the IGLF’s desire to push even further its commitment to support micro, small and medium-sized enterprises in their credit needs. As the IGLF assists MSMEs in their projects, they are able to increase livelihoods and economic opportunities and improve their lives in their respective communities. The historical record of the IGLF over the past six decades is an affirmation of its significant contribution to the development of SMEs.
An independent assessment
An evidence-based impact evaluation of the IGLF program by the World Bank has yielded encouraging results. “First, loans to small and medium-sized industries (SMIs) were an inexpensive way to support the creation of new jobs, although with little direct poverty reduction effect. SMI loans should be seen as part of a social safety net in the broadest sense. Second, SMI loans through financial intermediaries have supported the strength of the banking sector and almost certainly helped the economy weather the shocks suffered by its neighbors. Third, the credit risk of the commercial banking sector was reduced because the repayment rate of assisted SMIs was considerably better than that of large corporations. Fourth, SMIs already face higher real borrowing costs because they have higher transaction costs and could use more flexible financial products.
The IGLF is a rare government program that has grown and stood the test of time. It’s a success the administration could have built on, especially when COVID-19 hit. Unfortunately, its funds were transferred in 2019 to another agency before the outbreak. I can only assume what he could have done to deal with the challenges that the pandemic currently places on small business people in our country.
(Benel Dela Paz Lagua was previously Executive Vice President and Director of Development at the Development Bank of the Philippines. He is an active member of FINEX and an advocate for risk-based lending for SMEs. The views expressed here are his own. and do not necessarily reflect the opinion of its office or that of FINEX.)
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