MANILA, Philippines – In the Philippines, micro, small, and medium enterprises (MSMEs) make up almost all registered firms and employ most workers. But when you look at where formal credit actually goes, they hardly receive what they need to grow.

Depending on the dataset and year you cite, they account for about 99.5% to 99.6% of establishments, roughly around two-thirds of employment, and around 40% of output.

The Bangko Sentral ng Pilipinas’ (BSP) financial inclusion dashboard has repeatedly shown how small MSME lending is as a slice of the banking system, hovering around the low single digits in recent years. As of the latest data (Q3 2025), total MSME loans have reached P541 billion, which sounds substantial but really only makes up 6.53% of all business loans. That’s a pitifully small percentage for the sector that by far employs the most people and drives a big part of the national economy.

The number looks even more sobering when you hold it up against the old benchmark many reports still use: the Magna Carta for MSMEs credit allocation that once required banks to set aside 8% of their loan portfolio for micro and small enterprises and 2% for medium-sized firms. By end-September 2025, loans to micro and small enterprises were still only around 1.9%.

That gap is why fintech conferences keep harping on digital rails, embedded finance, open finance, and better data that can finally make small-business lending work. At Money20/20 Philippines, for example, Maya Bank president Angelo Madrid recently argued that digital banking helps financial inclusion for MSMEs, but only if the country also fixes the basics like business registration, documentation, and digitized records across government and finance.

“Digital banking plays an important role, but it works best when supported by the right national infrastructure — simpler processes, streamlined requirements and digitized systems that make it easier for businesses to operate and grow,” Madrid said at the conference. “Improving access to finance isn’t just about new products. It’s about making the overall experience simpler and more intuitive — from onboarding and verification to disbursement and daily use.”

It reads like a corporate feel-good line because it is. But it also points to real problems.

Why MSMEs struggle to get credit

MSMEs often have to clear two big hurdles: identity and evidence. The first sits under know-your-customer, where lenders need to confirm who the owner is, whether the enterprise is legitimate and properly registered, and whether the person signing today will still be traceable and accountable months from now. Sounds simple enough, but in practice it can mean coughing up multiple IDs that some may not have and getting through plenty of paperwork.

The second hurdle is harder. Banks want records that show how the business actually earns and spends, documents like sales histories, bank statements, invoices, tax filings, and anything that helps answer the basic question of repayment capacity.

Many MSMEs do have these signals, but not in a form banks can easily verify or standardize, like financial statements. That is exactly where many micro and small firms hit a wall, because they may have steady cash flow but no titled assets they can pledge.

This is also a cost problem. A P50,000 working capital loan can require nearly the same onboarding work as a loan that is 100 times larger. After all, both would require verification, checks, documentation, monitoring, and collections – with arguably even more effort needed for MSMEs that have less standardized accounting practices. For a traditional bank, small loans can be expensive to process relative to the interest they earn.

That is why so many MSMEs finance growth through family, suppliers, or informal and predatory lending. It is also why digital keeps getting pitched as the fix because digitized activity can more easily generate the kind of evidence lenders need at a lower cost.

How fintechs can use digital signals for credit assessments

A concrete local example is Maya. Maya’s public messaging around MSMEs has leaned on embedded credit, meaning financing offered inside the tools merchants already use for payments and money management, like their Maya app.

In its 2024 annual report, Maya Bank described “Maya Advance” as working capital loans delivered through the Maya Business app, positioned as quick and collateral-free for micro-merchants and independent sellers.

Credit decisions are informed by the merchant’s transaction footprint on the platform, such as sales activity, cash inflows, and usage of tools like QR payments. Disbursement and repayment are kept within the same app, with funds released quickly and without the borrower needing to step into a bank branch.

Of course, that kind of speed can also hide risk. When lending becomes easier to access, it becomes easier to overuse, especially for small firms that are already juggling thin margins. If the lender’s models misread a seasonal slowdown, or if the merchant’s sales fall because of factors outside the business, the same frictionless system that disburses quickly also has to collect quickly.

This doesn’t seem to be too much of a problem for Maya. The bank does not publish delinquency figures specifically for MSME loans, but BSP data for the third quarter of 2025 shows its gross non-performing loan (NPL) ratio at 5.77%. On its own, that is not an unusual level for a lender doing a lot of small-ticket, unsecured, cash-flow-based credit, where NPLs tend to run higher than in collateral-heavy portfolios.

The bigger point is that a single fintech’s loan volumes do not solve the MSME financing gap. But they do show how collateral-first lending can be improved through cash-flow visibility, using ongoing data generated by a business’s everyday transactions on digital platforms. – Rappler.com

Lance Spencer Yu is a former business journalist for Rappler. He later worked as a private capital analyst at MSCI, working directly with sovereign wealth funds, pension funds, and family offices across the Asia-Pacific region. He now serves as an investment and strategy analyst at Dedale, producing in-depth, actionable research for private equity funds and institutional investors.

Finterest is Rappler’s series that demystifies the world of money and gives practical advice on managing your personal finances.