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.-, .r. TFOURTEENTH CONGRESS OF THE )REPUBLIC OF THE PHILIPPINES ) I ,>.. J 26, : : .First Regular Session )

S E N A T E

COMMITTEE REPORT NO.-Submitted by the Committee on Economic Affairs jointly with the Committeeson Banks, Financial Institutions and Currencies and Finance, on SEP 2 6 2007

RE : S.B.NO. 16 6 prepared by the CommitteesRecommending its approval in substitution of S.B .Nos. 108, 169, 703, 1380 and 1577Sponsor : Senator Loren B. Legarda

M R PRESIDENTThe Senate Committee on Economic Affairs jointly with the Committees onBanks, Financial Institutions and Currencies, and Finance, to which were referred:

Senate Bill No. 108, introduced by Senator Roxas, entitled:AN ACTTO PROMOTE ENTREPRENEURSHIP BY STRENGTHENINGDEVELOPMENT AND ASSISTANCE PROGRAMS TO MICRO, SMALL ANDMEDIUM SCALE ENTERPRISES, AMENDING FOR THE PURPOSEREPUBLIC ACT NO. 6977, AS AMENDED, OTHERWISEKNOWN AS THE MAGNA CARTA FOR SMALL ENTERPRISESAND FOR OTHER PURPOSES

Senate Bill No. 169, authored by Senator Revilla, Jr., entitzed:AN ACTTO PROMOTE ENTREPRENEURSHIP BY STRENGTHENINGDEVELOPMENT AND ASSISTANCE PROGRAMS TO MICRO, SMALL ANDMEDIUM SCALE ENTERPRISES, AMENDING FOR THE PURPOSEREPUBLIC ACT NO. 6977, AS AMENDED, OTHERWISE KNOWNAS THE MAGNA CARTA FOR SMALL ENTERPRISESAND FOR OTHER PURPOSES

Senate Bill No. 703, introduced by Senator Jinggoy Estrada, entitZe&AN ACT

TO FURTHER PROMOTE ENTREPRENEURSHIP AND SUPPORT THEDEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES,AMENDING FOR THE PURPOSE REPUBLIC ACT NO. 6977,AS AMENDED,OTHERWISE KNOWN AS THE MAGNACARTA FOR SMALL ENTERPRISES


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A

GRINGO B. HONASANice Chairmanon Economic AffairsMember, Committee on Finance

VJOKER P. ARROYOVice ChairmanCommittee on Finance

MIRIAM DEFENSOR SANTIAGOVice ChairpersonCommitteeon FinanceMember, Committee on Banks

MEMBERS:

ALAN PETER COMPANERO S. CAYETANOCommittees, On Economic Affairs, andBanks / Economic Affairs, Banks,and Finance

nomic Affairs andFinancec__

FRANCIS G. ESCUDEROCommittees on EconomicAffairs, and FinanceCommittee on Finance

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COMPARERA PIA S. CAYETANOComm ittee on Finance

I wi-v.'GREGORIO B. HONASAN IICommittee on Finance

" \i\p

ANTON IO F. TRILLANES,NCommittee on Finance

A

B E N I GN 0 . A UINOIIICom mittee dn EcdnomicAffairs

Comm ittee on Economic

C om mittees o d ~ a n k s ,and Finance

EX-OFFICIO M EMBERS

&UILINO Q. PIMENTEL, JR.. Minority Floor Leader

HON. MANNY VILLARSenate President

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7 5Ep 26 p '2 .>L '...OURTEENTH CONGRESS OF THE 1REPUBLIC OF THE PHILIPPINES )First Regular Session )~ ~ ~ ~ lP':....

S E N A T E

Prepared jointly by the Committees on EconomicAffairs, Banks, Financial Institutions and Currencies, andFinance, with Senators Roxas, Revilla, Jr., Estrada,Legarda and Villar as authors thereof.

AN ACTTO PROMOTE ENTREPRENEURSHIP BY STRENGTHENING DEVELOPMENTAND ASSISTANCE PROGRAMS TO MICRO, SMALL AND MEDIUM SCALEENTERPRISES, AMENDING FOR THE PURPOSE REPUBLIC ACT NO.6977, AS AMENDED, OTHERWISE KNOWN AS THE "MAGNA CARTA

FOR SMALL ENTERPRISES" AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives ofthe Philippines in Congress assembled:S e c t i o n 1. Republic Act No. 6977, as amended, Section 1,is further amended to read as follows:

"Section 1 Title.- This Act shall be known asthe Magna Carta for MICRO, Small AND MEDIUMEnterprises (MSME) "

SEC. 2. Section 2 of the same Act is hereby amended toread as follows:

"Section 2. Declaration of Policy. - Recognizingthat MICRO, small and medium scale enterprises (MSME)have the potential for more employment generation and

economic growth and therefore can help provide a self-Page 1


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sufficient industrial foundation for the country, itis hereby declared the policy of the State to promote,support, strengthen and encourage the growth anddevelopment of [small and medium enterprises] MSME! inall productive sectors of the economy particularlyrural/agri-based enterprises. To this end, the Stateshall undertake to [spur the growth and development ofsmall and medium enterprises throughout the country]PROMOTE ENTREPRENEURSHIP, SUPPORT ENTREPRENEURS,ENCOURAGE THE ESTABLISHMENTS OF MICRO, SMALL ANDMEDIUM ENTERPRISES AND ENSURE THEIR CONTINUINGVIABILITY AND GROWTH and thereby attain countrysideindustrialization BY:

\\ [a) By assuring, through the establishment ofadequate support structure, and the creation andpromotion of an environment conducive to the viabilityof these enterprises, establishment of mechanisms, theaccess and transfer of appropriate technology neededby small and medium enterprises;]

[bl A) [By] intensifying and expanding programsfor training in entrepreneurship and for skillsdevelopment for labor;

I C ] BI [By] facilitating their access tosources of funds;

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"[d] C ) [By] assuring to them access to a fairshare of government contracts and related incentivesand preferences;

"[el D) [By] complementing and supplementingfinancing programs for MICRO, small and mediumenterprises and doing away with stringent andburdensome collateral requirements that smallentrepreneurs invariably find extreme difficultycomplying with;

"[fl E) [By1 instituting safeguards for theprotection and stability of the credit deliverysystem;

" [gl F) [By] raising government efficiencyand effectiveness in providing assistance toMICRO, small and medium enterprises throughoutthe country, at the least cost;

"[hl G ) [By1 promoting linkages betweenlarge and small enterprises, and by encouragingthe establishment of common service facilities;

"[i] H) [By1 making the private sector apartner in the task of building up MICRO, smalland medium enterprises through the promotion andparticipation of private voluntary organizations,viable industry associations, and cooperatives;and

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[jl 1) [By] assuring a balanced andsustainable development through the establishmentof a feedback and evaluation mechanism that willmonitor the economic contributions as well asbottlenecks and environmental effects of thedevelopment of M I C R O , small and medium [scale]enterprises

S E C . 3 . Section 3 of the same Act, as amended, is herebyfurther amended to read as follows:

Section.3. MICRO, Small and Medium Enterpriseas Beneficiaries. - [ Small and medium enterprise]MSME shall be defined as any business activity orenterprise engaged in industry, agribusiness, and/orservices, whether single proprietorship, cooperative,partnership or corporation whose total assets,inclusive of those arising from loans but exclusive ofthe land on which the particular business entitysoffice, plant and equipment are situated, must havevalue falling under the following categories:Micro : [less than P 1,500,0001 NOT MORE

THAN P3,000,000Small [P 1,500,0011 P3,000,001 - P

15,000,000Medium : P 15,000,001 - [P 60,000,000] P

100,000,000

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"The above definitions shall be subject to reviewand adjustment [by the said Council1 m o t u p r o p r i o BYTHE MSMED C OU NCIL UNDER SE CT IO N 6 O F T H I S LAW or uponrecommendation of sectoral organizationis) CONCERNED,taking into account inflation and other economicindicators. The Council may use [as1 O T H E R variables[the] SUCH AS number of employees, equity capital andasset size.

"THE COUNCIL SHALL ENSURE THAT NOTWITHSTANDINGTH E PLANS AND PROGRAMS SE T FOR MSMEs AS A WHOLE, THERESHA LL BE S E T AND IMPLEMENTED O THER PLA NS AND PROGRAMSV A R I E D AND D I S T I N C T FR OM EA CH O T H E R , A C C O R D I N G TO T H ES P E C I F I C N E E D S O F EA CH S E C T O R , E N CO U RA G IN G MSME T OGRADUATE FROM ONE CATEGORY TO THE NEXT OR EVEN HIGHERCATEGORY. "

S E C . 4 . Section 4 of the same Act, as amended, is herebyfurther amended to read as follows:

"Section 4. E l i g i b i l i ty for GovernmentAss i s tance . - To qualify for assistance, counseling,incentives and promotion under this Act, businessesfalling under the above definition must be;

"a) duly registered with the appropriateagencies as presently provided by law: Provided,That in the case of micro enterprises as definedherein, as defined herein, registration with theoffice of the municipal or city treasurer shall

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be deemed sufficient compliance with thisrequirement

"b) one hundred percent (1008) owned [and],

capitalized by Filipino citizens, [if] WHETHERsingle proprietorship or partnership. If theenterprise is a juridical entity, at least sixtypercent (60%) of its capital or outstandingstocks must be owned by Filipino citizens.

"c) a business activity within the majorsectors of the economy, namely; industry,services, including the practice of one'sprofession, the operation of tourism-relatedestablishments, and agri-business, which forpurposes of this Act refers to any businessactivity involving the manufacturing, processing,and/or production of agricultural produce[,excluding farm level agriculturalfcropproduction]; and

"d) it must not be a branch, subsidiary ordivision of a large-scale enterprise [nor may itspolicies be determined by a large scaleenterprise or by persons who are not owners oremployees of the enterprise].

"However, this requirement shall notpreclude a [small and medium enterprise] MSMEfrom accepting subcontracts [from large

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enterprises or firms] AND ENTERING INTO FRANCHISEPARTNERSHIP WITH LARGE ENTERPRISES OR FROMjoining in cooperative activities with other[small and medium enterprises] MSME.

Programs of the [financing corporation]SMALL BUSINESS CORPORATION (SBC) as provided insubsequent [Sections PROVISIONS of this Actshall be exclusively [targeted] DELIVERED ANDDIRECTED to [medium, small, and micro-sizedenterprises] BONAFIDE MSMEs.

Registered MICRO, small AND MEDIUMenterprises shall be entitled to a share of atleast ten percent (10%) of total procurementvalue of goods and services supplied to theGovernment, its bureaus, offices and agenciesannually: P r o v i d e d , That prices and quality ofgoods offered by the registered small enterprisesare competitive.

THE DEPARTMENT OF BUDGET AND MANAGEMENTSHALL MONITOR THE COMPLIANCE OF GOVERNMENT

AGENCIES ON THE REQUIRED PROCUREMENT FOR MSME ANDSUBMIT ITS REPORT TO THE MSMED COUNCIL ON ASEMESTRAL BASIS AND TO THE CONGRESS OF THEPHILIPPINES, THROUGH ITS APPROPRIATE COMMITTEESON A YEARLY BASIS.

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SEC. 5. Section 5 of the same Act is hereby furtheramended to read as follows:

Section 5. Guiding Principles. - To set thepace for [small and medium enterprise] MSMEdevelopment, the State shall be guided by thefollowing principles:

x x xc) Coordination of government efforts.

Government efforts shall be coordinated toachieve coherence in objectives. All appropriateoffices, particularly those under the Departmentsof Trade and Industry, Finance, Budget andManagement Agriculture, Agrarian Reform,Environment and Natural Resources, Labor andEmployment, Transportation and Communications,Public Works and Highways, Science andTechnology, I N T E R I O R AN D Local Government andTourism as well as the National Economic andDevelopment Authority, P H I L I P P I N E I N F O R M A T I O NAGENCY and the Bangko Sentral ng Pilipinas,through their national, regional and provincialoffices, shall to the best of their effort and incoordination with local government units, providethe necessary support and assistance to [smalland medium enterprises] M S M E s .x x x

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S E C . 6 . A new section, numbered Section 6 is herebyinserted after Section 5 of the same Act, to read asfollows:

"Section 6. M I C R O , S M A L L A N D L W ~ D I V ME N T E X P R I S E SD E V E L O P M E N T PLAN ( M S M E D P ) . - T H E P R E S I D E N T S H A L LA P P R O V E A THREE-YEAR MIC RO , SMALL AND MEDIUME N T E R P R I S E S D E V EL O PM E NT P LA N P R E P A R E D BY THE MICRO,SMALL AND MEDIUM EN TE RP RI SE CO UN CIL THROUGH THEDEPARTMENT O F TRADE AND INDU STRY WHICH SH AL L FORM PARTO F T HE M E DIU M T ER M P H I L I P P I N E D EV E LO P ME N T PL A N ( M T D P ) .I T S H A L L B E F OR MU LA TE D I N C O N S U L T A T IO N W I T H T HEP R I V A T E S EC T O R , V A L I D A T ED AND UPDATED SEMESTRALLY. "

S E C . 7 . Section 6 of the same Act is hereby renumbered asSection 7 and further amended to read as follows:

"Section 7 [ 6 1 . [Creation of A Small andMedium Enterprise Development Council] M I C R O , S M A L LA N D M ED IU M E N T E R P R I S E D EW CL OP ME NT C O U N C I L . - TH EE X I S T I N G SMALL AND MEDIUM ENTERPRISE DEVELOPMENTC O U N C I L , W H IC H WAS C R EA T ED B Y R E P U B L I C A C T N O . 6977,AS AMENDED BY R E P U B L I C A C T N O . 8289, SHALL BESTRENGTHENED [ T l t o effectively spur the growth anddevelopment of [small and medium enterprises] MSMEsthroughout the country, and to carry out the policydeclared on this Act, [a Small and Medium EnterpriseDevelopment (SMED) Council is hereby created. ANDSHALL NOW BE KNOWN A S THE M IC RO , SMALL AND MEDIUM

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E N T E R P R I S E D E V E L O P M E N T C O U N C I L . The Council shall beattached to the Department of Trade and Industry andshall be constituted within sixty (60) days after theapproval of this Act.

x x xS E C . 8 . Section 7 of the same Act, as amended, ishereby renumbered as Section7-A, and further amended to read as follows:

"Section 7-A [ 7 ] . Composition. - The Councilshall be headed by the Secretary of Trade and Industryas Chairman, and may elect from among themselves aVice-chairman to preside over the Council meetings inthe absence of the Chairman. The members shall be thefollowing:

"a) Director General of the National Economicand Development Authority;

"b) Secretary of Agriculture;"c) Secretary of Labor and Employment;"d) Secretary of Environment and Natural

Resources;" E ) S E CR E TA R Y O F TH E I N T E R I O R AN D LOCAL

GOVERNMENT;"F SECRETARY OF THE DEPARTMENT OF F I N A N C E :\\ [ e ) G ) Secretary o f Science and

Technology;" [ f ) ] H ) Secretary of Tourism;

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" [ g ) 1 I ) The Chairman of the Monetary'Board;

" [h) J) Chairman of [Small BusinessGuarantee and Finance Corporation] SMALL B U S I N E S SC O R P O R A T I O N ;

"[i)] K) Chairman of the M I C R O , small andmedium enterprises promotion body which thePresident shall undertake to establish underthis Act; [and]" [j)] L) Three ( 3 ) representatives from theprivate sector at large, all Filipinocitizens, to represent Luzon, Visayas andMindanao, ONE REPRESENTATIVE FROM THE LABORSE CT OR , TO BE NOMINATED BY ACCREDITED LABORGROUPS and one representative from theM I C R O , small and medium enterprise sector,to be appointed by the President; and"[k] M) One (1) representative EACH from theprivate banking sector [to servealternately among] the Chamber of ThriftBanks; the Rural Bankers' Association of thePhilippines (RBAP) and the Bankers'Association of the Philippines (BAP);"ALL MEMBERS O F THE COUNCIL S O A P P O I N T E D , E X C E P T

FOR THE EX-OFFICIO MEMBERS, SHALL SERVE FOR A TERM OFTHREE (3 ) YEA RS. THE PERSON SO A P P O I N T E D T O R E P L A C E A

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MEMBER WHO HAS RESIGNED, DIED, OR BEEN REMOVED FORCAUSE SHALL SERVE ONLY FOR THE UNEXPIRED PORTION OFTHE TERM.

"EXCEPT THE SECRETARY OF THE DEPARTMENT OF TRADEAND INDUSTRY, [Clcabinet-rank e x - o f f i c i o members ofthe Council shall designate an undersecretary orassistant secretary, and the chairman of the MonetaryBoard or his representative as their permanentrepresentative in case they fail to attend meetings ofthe Council.

"The private sector members of theCouncil shall [initially] receive p e r d i em of[One] TWO thousand pesos (P[1]2,000) per meeting, fora maximum of twenty-four (24) meetings per year,which [ p e r d i e m may be adjusted] AMOUNT SHALL BEDETERMINED by the Council: P r o v i d e d , That THE AMOUNTAND any such adjustment shall take effect uponapproval of the [ President.] MSMED COUNCIL.

" [The Department of Trade and Industry shallallocate Five million pesos (P5,000,000.00) out of itssavings for the initial operating expenses of theCouncil, after which the Council's budget shall beincluded in the annual appropriation of the Departmentof Trade and Industry.]

"THE COUNCIL SHALL HAVE A SEPARATE ANNUALAPPROPRIATION WHICH SHALL BE PROVIDED IN THE GENERAL

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APROPRIATIONS ACT STARTING IN THE FISCAL YEARIMMEDIATELY FOLLOWING THE APPROVAL OF THIS ACT FOR ITSACTIVITIES AND OPERATIONAL EXPENSES.

"The Council may [ , from time to time, call uponthe participation of any NATIONAL OR LOCAL governmentagency [or], association of local government officialsOR PRIVATE SECTOR ORGANIZATION in its deliberationsespecially when such agency OR PRIVATE SECTORORGANIZATION is directly or indirectly concerned withand/or affecting the growth and development of [smalland medium enterprises] M S M E s in any particular areaor manner.

"The Council may create an Executive Committeeof five (5) members elected by the Council from amongthemselves or their designated permanentrepresentatives, with at least two (2) membersrepresenting the private sector, and with authority toact for and on behalf of the Council during intervalsof council meetings, and within the specific authoritygranted by the Council."

SEC. 9. Section 8 of the same Act, as amended, ishereby renumbered as Section7-B and further amended to read as follows:

"SECTION 7-B [81. Powers and Funct ions . -25 The [Small and Medium Enterprise Development (SMED)]

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MSMED Council shall have the following powers, dutiesand functions:

a) To help establish the needed environment andopportunities conducive to the growth anddevelopment of the [small and medium enterprises]MSME sector;

b) To recommend to the President and theCongress a l l policy matters affecting [small andmedium scale enterprises] MSMEs;

c) To formulate a comprehensive [small andmedium enterprises] MSME development plan to beintegrated into the National Economic and DevelopmentAuthority (NEDA) Development Plans;

d) To coordinate and integrate variousgovernment and private sector activities relating to[small and medium enterprises] MSME development;

e) To review existing policies of governmentagencies that would affect the growth and developmentof [small and medium enterprises] MSMEs andrecommend changes to the President and [/or to the]Congress THROUGH THE COMMITTEE ON ECONOMIC AFFAIRS O FTHE SENAT E AND THE S P E C IA L COMMI T TE E ONEN TR EP REN EU R S I P D EVELOP M EN T, O R ANY A P P RO P RI A TECOMMITTEE O F THE HOUSE OF R E P R E S E N T A T I V E S , wheneverdeemed necessary. This shall include efforts tosimplify rules and regulations, as well as procedural

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and documentary requirements in the registration,financing, and other activities relevant to [small andmedium enterprises] MSMEs;

"f) To monitor and determine the progress ofvarious agencies geared towards the development of thesector. This shall include overseeing, incoordination with local government units and theDepartment of THE I N T E R I O R AND Local Government aswell as private sector groups/associations, thedevelopments among [small and medium enterprises]MSME s [particularly the cottage and micro-sizedfirms]

"9) To promulgate implementing guidelines,programs, and operating principles as may be deemedproper and necessary in the light of governmentpolicies and objectives of this Act;

"h) To provide the appropriate policy andcoordinative framework in assisting relevantgovernment agencies, in coordination with [ theNational Economic and Development Authority] NEDA and

the Coordinating Council for the Philippine AssistanceProgram, as may be necessary, in the tapping of localand foreign funds for [small and medium enterprises]MSME development;

"i) To promote the productivity andviability of [small and medium enterprises] M S M E s by

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way of directing and/or assisting relevant governmentagencies and institutions at the national, regionaland provincial levels towards the:

"1) Provision of business training courses,technical training for technicians and skilledlaborers and continuing skills upgradingprograms;"2) Provision of labor-management guidance,assistance and improvement of the workingconditions of employees in [small and medium-sized firms] MSMEs;"3) Provision of guidance and assistanceregarding product quality/product developmentand product diversification;"4) Provision of guidance and assistance forthe adoption of improved production techniquesand commercialization of appropriatetechnologies for the product development andfor increased utilization of indigenous rawmaterials;"5) Provision of assistance in marketing anddistribution of products of [small andmedium enterprises] MSMEs through localsupply-demand information, industry andprovincial profiles, overseas marketingpromotion, domestic market linkaging and the

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establishment of common service facilities suchas common and/or cooperative bonded warehouse,grains storage, agro-processing and dryingfacilities, ice plants, refrigerated storage,cooperative trucking facilities, etc;" 6 ) Intensification of assistance and guidanceto enable greater access to credit through asimplified multi-agency financing program: toencourage development of other modes offinancing such as leasing and venture capitalactivities; to provide effective creditguarantee systems, and encourage theformation of credit guarantee associations,including setting up of credit records andinformation systems and to decentralize loanapproval mechanisms:"7) Provision of concessional interest rates,lower financing fees, which may includeincentives for promptarrangements tying amortizcash flows, effectivegovernment guarantee coverborrower's lack of collatera

credit payments,tions to businesssubstitution ofon loans for the

"8) Provision of bankruptcy preventive measuresthrough the setting up of a mutual reliefsystem for distressed enterprises, and the

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establishment of measures such as insuranceagainst extraordinary disasters;"9 Intensification of informationdissemination campaigns and entrepreneurshipeducation activities;"10) Easier access to and availment of taxcredits and other tax and duty incentives asprovided by the Omnibus Investment Code andother laws;"11) Provision of support for productexperimentation and research and developmentactivities as well as access to information oncommercialized technologies; and

"12) Provision of more infrastructure facilitiesand public utilities to support operations of[small and medium enterprises] MSMEs;

13) ESTABLISH AN MSME ACADEMY WHICH SHALL PROVIDECOURSES AND DEVELOPMENT PROGRAMS, TRAINING,ADVICE, CONSULTATION ON BUSINESSCONCEPTUALIZATION AND FEASIBILITY, FINANCING,MANAGEMENT, CAPACITY BUILDING, HUMAN RESOURCES,MARI(ETING, AND SUCH OTHER SERVICES TO SUPPORTTHE NEEDS OF MSMES .

14) ESTABLISH, OPERATE, AND ADMINISTER A SMALLBUSINESS INCUBATION PROGRAM IN COORDINATION WITHACADEMIC INSTITUTIONS, DEPARTMENT OF SCIENCE AND

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TECHNOLOGY AND OTHER APPROPRIATE GOVERNMENTENTITIES THAT WILL PROVIDE SPACE FOR START-UPAND EXPANDING FIRMS, SHARED USE OF EQUIPMENT ANDWORK AREAS, DAILY MANAGEMENT SUPPORT SERVICESESSENTIAL TO HIGH-QUALITY COMMERCIAL OPERATIONS,TECHNICAL ASSISTANCE AND OTHER SERVICES TODEVELOP INNOVATIVE AND DESERVING MSMES.

15) CONDUCT A NATIONWIDE INFORMATION CAMPAIGNWITH THE PHILIPPINE INFORMATION AGENCY THATSHALL INFORM THE PUBLIC OF ALL PROGRAMS ANDSERVICES, GOVERNMENT AND NON-GOVERNMENT,AVAILABLE TO MSMEs.16) PROVIDE LOCAL AND INTERNATIONAL NETWORK ANDLINKAGES FOR MSME DEVELOPMENT:

17) COMPILE AND INTEGRATE STATISTICAL DATABANK ONPHILIPPINE MSMEs :

18) SET-UP NEW MSME CENTERS AND REVITALIZEALREADY ESTABLISHED MSME CENTERS TO PROVIDEMSMEs IN THE REGIONS EASIER ACCESS TO SERVICESSUCH AS, BUT NOT LIMITED TO, THE FOLLOWING:

i. ACCEPT AND ACT ON ALL REGISTRATIONAPPLICATIONS OF MSME;

ii. STREAMLINE REGISTRATION PROCESS ANDFACILITATE SPEEDY REGISTRATION FOR THEESTABLISHMENT OF BUSINESS ENTERPRISESIN THE COUNTRY;

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iii

iv

PROVIDE ALL INFORMATION AND REFERRALSERVICES IT SHALL DEEM NECESSARY ORESSENTIAL TO THE DEVELOPMENT ANDPROMOTION OF MSME;CONDUCT OTHER PROGRAMS OR PROJECTS FORENTREPRENEURIAL DEVELOPMENT IN THEIRRESPECTIVE AREAS.

'j) To submit to the President and the CongressTHROUGH THE SENATE COMMITTEE ON ECONOMIC AFFAIRS ANDTHE SPECIAL COMMITTEE ON ENTREPRENEURSHIP DEVELOPMENT,OR ANY APPROPRIATE COMMITTEE OF THE HOUSE OFREPRESENTATIVES, a yearly report on the status of[small and medium enterprises] MSMEs in the country,including the progress and impact of all relevantgovernment policies, programs and legislation as wellas private sector activities;

" k ) To assist in the establishment of modernindustrial estates outside urban centers; [and]

"1) Generally, to exercise all powers andfunctions necessary for the objectives and purposes ofthis Act . ] AND

"M) TO APPROVE THE MSMEDP, COORDINATE, MONITORAND ASSESS THE IMPLEMENTATION THEREOF, AND WHENNECESSARY, INSTITUTE APPROPRIATE ADJUSTMENTS THEREONIN THE LIGHT OF CHANGING CONDITIONS IN BOTH DOMESTICAND INTERNATIONAL ENVIRONMENT. "

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the policy, program and administrative supervision ofthe SMED Council. The said office shall receive noless than fifty percent (50%) of the assets, andbudgetary allocations of the agencies for promotion,development and financing of small and mediumenterprises that may be henceforth dissolved and/orabolished and absorbed, incorporated and integratedinto the SMED Council.]

9 SEC. 12. Section 11 of the same Act, as amended, is hereby10 further amended t o read as follows:11 Section 11. Creation of [Small Business12 Guarantee and Finance Corpora tion] SMALL BUSINESS13 CORPORATION. - There is hereby created a body14 corporate to be known as the Small Business Guarantee15 and Finance Corporation, hereinafter referred to as16 the [SBGFC, SMALL BUSINESS CORPORATION (SBC) , which17 shall [source and adopt development initiatives for18 globally competitive small and medium enterprises in19 terms of finance, technology, production, management20 and business linkages, and provide, promote, develop21 and widen in both scope and service reach various22 alternative modes of financing for small and medium23 enterprises, including but not limited to, direct and24 indirect project lending, venture capital, financial25 leasing, secondary mortgage and/or rediscounting of

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loan papers to small businesses, secondary/regionalstock markets: Provided, That crop productionfinancing shall not be serviced by the Corporation.]BE CHARGED WITH THE PRIMARY RESPONSIBILITY OFIMPLEMENTING COMPREHENSIVE POLICIES AND PROGRAMS TOASSIST MICRO, SMALL AND MEDIUM ENTERPRISES IN ALLAREAS, INCLUDING BUT NOT LIMITED TO FINANCE ANDINFORMATION SERVICES.

[The Corporation shall guarantee loans obtainedby qualified small and medium enterprises, localand/or regional associations' small enterprises andindustries, private voluntary organizations and/orcooperatives, under such terms and conditions adoptedby its Board. It may guarantee loans up to one hundredpercent (100%). It may also provide second levelguarantee (i.e., reinsurance) on the credit and/orinvestment guarantees made by credit guaranteeassociations and other institutions in support ofsmall entrepreneurs.]

"[The Corporation shall become liable under itsguarantees upon proof that the loan has become pastdue under such terms and guidelines adopted by itsBoard and printed on the contract of guarantee.]

" [The Small Business Guar nt FinanceCorporation shall:]

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"[a) be attached to the Department of Tradeand Industry and shall be under the policy,program and administrative supervision of theSMED Counci1;l

"[b) have its principal place of business inMetro Manila and endeavor to have one or morebranch offices in every province of the country;]

"[c) exercise all the general powersconferred by law upon corporations under theCorporation Code as are incidental or conduciveto the attainment of the objectives of this Act;]

'[d) have a board of directors upon whichthe powers of the Corporation shall be vested, tobe composed of nine (9) members including:]

"1) three (3) members from the privatesector appointed by the President uponrecommendation of the SMED Council and from amongwhom the Chairman of the Board shall be appointedby the President to serve on a full-time basis;]

''12) the Secretary of Trade and Industry orhis Undersecretary; and]

" 1 3 ) a representative from each of the five(5) government financial institutions mandated inthis Act to provide the initial capital of theCorporation, who shall be designated, under

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guidelines agreed upon by the Board Chairmen ofsaid institutions;]

[e) notwithstanding the provisions ofRepublic Act No. 6758, and Compensation CircularNo. 10, series of 1989 issued by the Departmentof Budget and Management, the Board of Directorsof SBGFC shall have the authority to extend tothe employees and personnel thereof the allowanceand fringe benefits similar to those extended toand currently enjoyed by the employees andpersonnel of other government financialinstitutions.

S E C . 13. A new sub-section is inserted after section 11of the same Act, as amended, to read as follows:

S E C T I O N 11-A. C O M P O S I T I O N O F THE BOARD OFD I R E C T O R S A N D ITS POWERS - THE SB C CORPORATE POWERSS H A LL BE V ES TED O N A BOARD OF DIRECTORS COMPOSED O FELEV EN (11) MEMBERS WHICH SHA LL INCLUDE THE FOLLO WING:

A) THE SECRETARY O F TRADE AND INDUSTRYB) THE SECRETARY OF F I N A N C E

C ) A P R I V A T E S E C T O R R E P R E S E N T A T I V E T O B EAP PO INT ED BY THE PRE SID EN T UPON THE RECOMMENDATION O FTH E MSMED C O U N C I L ;

D ) S EV EN (7) R E P R E S E N T A T I V E S O F THE SBC COMMONSTOCK SHAREHOLDERS WHO SHA LL BE ELE CTE D BASED ON

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PROPORTIONAL DISTRIBUTION, IN ACCORDANCE WITH SECTION24 OF THE CORPORATION CODE; AND

E) THE PRESIDENT OF THE SBC AS EX-OFFICIOMEMBER AND TO SERVE AS VICE CHAIRMAN OF THE BOARD.

THE PRESIDENT SHALL APPOINT THE CHAIRMAN OF THEBOARD FROM AMONG ITS MEMBERS.

ALL MEMBERS OF THE BOARD SO APPOINTED, EXCEPTFOR THE EX-OFFICIO MEMBERS, SHALL SERVE FOR A TERM OFTHREE (3) YEARS WITHOUT REAPPOINTMENT. THE PERSON SOAPPOINTED TO REPLACE A MEMBER WHO HAS RESIGNED, DIED,OR BEEN REMOVED FOR CAUSE SHALL SERVE ONLY FOR THEUNEXPIRED PORTION OF THE TERM.

THE BOARD OF DIRECTORS SHALL HAVE, AMONG OTHERSTHE FOLLOWING SPECIFIC POWERS AND AUTHORITIES:

A) FORMULATE POLICIES NECESSARY TO CARRY OUTEFFECTIVELY THE PROVISIONS OF THIS CHARTER AND TOPRESCRIBE, AMEND AND REPEAL BY-LAWS, RULES ANDREGULATIONS FOR THE EFFECTIVE OPERATIONS OF THE SMALLBUSINESS CORPORATION;

B) ESTABLISH SUCH BRANCHES, AGENCIES ANDSUBSIDIARIES AS MAY BE DEEMED NECESSARY ANDCONVENIENT;

C) COMPROMISE OR RELEASE, IN WHOLE OR IN PART,ANY CLAIM OR LIABILITY WHATSOEVER FOR OR AGAINST THESBC, INCLUDING INTEREST, PENALTIES, FEES AND/OR OTHER

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CHARGES IN ACCORDANCE TO ITS OWN BY-LAWS AND BANGKOSENTRAL NG P I L I P I N A S RULES;

'D) FIX THE FEATURES OF NON-VOTING PREFERREDSHARES WHICH SHALL BE PRINTED ON THE STOCKCERTIFICATES EVIDENCING THE SAME;

"E) EXERCISE ALL SUCH OTHER POWERS AS MAY BENECESSARY OR INCIDENT= TO CARRY OUT THE SMALLBUSINESS CORPORATION PURPOSES;

"F) NOTWITHSTANDING THE PROVISIONS OF REPUBLICACT NO. 6758 AND COMPENSATION CIRCULAR NO. 10, SERIESOF 1989 ISSUED BY THE DEPARTMENT OF BUDGET ANDMANAGEMENT, THE BOARD SHALL HAVE THE AUTHORITY TOPROVIDE FOR THE ORGANIZATIONAL STRUCTURE AND STAFFINGPATTERN OF SBC AND TO EXTEND TO THE EMPLOYEES ANDPERSONNEL THEREOF SALARIES, ALLOWANCE AND FRINGEBENEFITS SIMILAR TO THOSE EXTENDED TO AND CURRENTLYENJOYED BY EMPLOYEES AND PERSONNEL OF OTHER GOVERNMENTFINANCIAL INSTITUTIONS.

SEC. 14. A new sub-section is hereby inserted afterSection 11 of the same Act, as amended, to read as follows:

"SECTION 11-B. CORPORATE STRUCTURE AND POWERS. -THE SBC SHALL :

(A) BE ADMINISTRATIVELY ATTACHED TO THEDEPARTMENT OF TRADE AND INDUSTRY AND SHALL BEUNDER THE POLICY AND PROGRAM SUPERVISIOW OF THEMSMED COUNCIL.

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1 (B) HAVE ITS PRINCIPAL OFFICES IN METRO MANILA2 AND WHENEVER NECESSARY, ESTABLISH BRANCH OFFICE3 IN THE PROVINCES.4 0 EXERCISE ALL THE GENERAL POWERS EXPRESSLY5 CONFERRED BY LAW UPON CORPORATIONS UNDER THE6 CORPORATION CODE, INCLUDING THOSE POWERS THAT ARE7 INCIDENTAL OR NECESSARY TO THE ATTAINMENT OF THE8 OBJECTIVE OF THIS ACT.9 FOR THIS PURPOSE, THE SBC MAY AMONG OTHERS, SERVE THE10 FOLLOWING FUNCTIONS AND DUTIES:11 (A) SOURCE AND ADOPT DEVELOPMENT INITIATIVES FOR12 GLOBALLY COMPETITIVE MSME IN FINANCE AND BUSINESS13 TECHNOLOGIES14 (B) TO EXTEND ALL FORMS OF FINANCIAL ASSISTANCE15 TO QUALIFIED AND REGISTERED MSME. SBC MAY ALSO16 ENGAGE IN WHOLESALE LENDING. THE SBC SHALL BE17 GIVEN TWO (2) YEARS FROM THE EFFECTIVITY OF THIS18 ACT TO COMPLY WITH THIS REQUIREMENT.19 0 GUARANTEE LOANS OBTAINED BY QUALIFIED MSME20 UNDER SUCH TERMS AND CONDITIONS ADOPTED BY THE

21 SBC BOARD OF DIRECTORS;22 (D) HOLD, PURCHASE, LEASE OR OTHERWISE ACQUIRE23 AND OWN REAL AND PERSONAL PROPERTY, INTRODUCE24 NECESSARY IMPROVEMENTS THEREON AND TO SELL,25 MORTGAGE, ENCUMBER OR OTHERWISE DISPOSE OF THE

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SAME AS MAY BE NECESSARY IN THE NORMAL COURSE OFBUSINESS;(E) FORMULATE MEANS AND METHODS OF ACCEPTINGALTERNATIVE COLLATERALS AND IMPLEMENTINGALTERNATIVE LOAN EVALUATION MODELS;(F) APPLY FOR, RECEIVE AND ACCEPT GRANTS ANDDONATIONS FROM SOURCES WITHIN AND OUTSIDE THECOUNTRY;(G) HOLD, OWN, PURCHASE, ACQUIRE, SELL, MORTGAGE,DISPOSE OR OTHERWISE INVEST OR RE-INVEST INSTOCKS, BONDS, TREASURY BILLS, DEBENTURES,SECURITIES AND SIMILAR FORMS OF INDEBTEDNESS OFTHE GOVERNMENT, ITS AGENCIES ANDINSTRUMENTALITIES OR ANY GOVERNMENT FINANCIALINSTITUTION;

SEC. 15. Section 12 of the same Act, as amended, is herebyfurther amended to read as follows:

"Section 12. Capitalization and Funding OF THESBC. - The [Small Business Guarantee and FinanceCorporation] SBC shall have an authorized capital

stock o f 1Five TEN billion pesos [ (P5,000,000,000.00) (P10,000,000,000.00). The initialcapital of One billion pesos (Pl, 00,000,000.00) shallbe established from a pool of funds to be contributedin the form of equity investments in common stock bythe Land Bank of the Philippines (LBP), [the

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Philippine National Bank (PNB) the Development Bankof the Philippines (DBP), in the amount of Two hundredmillion pesos (P200,000,000.00) each. The SocialSecurity System ( S S S ) and the Government ServiceInsurance System (GSIS) shall also set aside Twohundred million pesos (P200,000,000.00) each [to beplaced in preferred stocks of the SBGFC] FOR THE SBC.AUTHORIZED CAPITAL STOCK OF THE SMALL BUSINESSCORPORATION SHALL BE DIVIDED INTO 80,000,000 COMMONSHARES AND 20,000,000 PREFERRED SHARES WITH A PARVALUE OF ONE HUNDRED PESOS (P100.00) PER SHARE:P R O V I D E D , THAT THE COMMON SHAl?ES WHICH HAVE BEENISSUED, INCLUDING THOSE ISSUED AGAINST THE ASSETS OFTHE KKK GUARANTY FUND CONSOLIDATED UNDER THE SMALLBUSINESS CORPORATION BY VIRTUE OF EXECUTIVE ORDER NO.233, SERIES OF 2000 AND EXECUTIVE ORDER NO. 19, SERIESOF 2001 AND INCLUDING THOSE ALREADY SUBSCRIBED, SHALLFORM PART OF THE CAPITALIZATION OF THE CORPORATION:P R OV ID E D, F U R T m R , THAT HOLDERS OF PREFERRED SHARESISSUED UNDER REPUBLIC ACT 6977, AS AMENDED, SHALL HAVETHE OPTION TO CONVERT THE SAME INTO COMMON SHARES.Additional EQUITY funding shall come from trustplacements of excess and unused funds of existinggovernment agencies, bilateral and multilateralofficial development assistance funds, subscriptionsfrom government owned or controlled corporations, and

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investments of private financial institutions andcorporations . : P R O V I D E D , THAT ANY INVESTMENT FROMTHE PRIVATE SECTOR SHALL ONLY BE IN THE FORM OFPREFERRED SHARES.

"TO ALLOW FOR CAPITAL BUILD-UP, SBC SHALL BEGIVEN A FIVE (5) YEAR GRACE PERIOD ON DIVIDENDCOMMITMENTS BEGINNING ON THE DATE OF EFFECTIVITY OFTHIS AMENDMENT. THEREAFTER, IT MAY ONLY DECLARE ASDIVIDEND NOT MORE THAN 30% OF ITS NET INCOME AND THEREST WITHHELD AS RETAINED EARNINGS.

SEC. 16. New sections are hereby inserted after Section 12of the same Act, as amended, to read as follows:

"SECTION 13. L I M I T E D SOVEREIGN GUARANTEE FORS M A L L B U S I N E S S C O R P O R A TI O N. - MSME CREDIT GUARANTEEOBLIGATIONS CONTRACTED AND INCURRED BY SBC BY VIRTUEOF THE PROVISIONS OF THIS ACT, SHALL BE GUARANTEED BYTHE REPUBLIC OF THE PHILIPPINES, BOTH AS TO PRINCIPALSUMS AND INTEREST PAYMENT: P R O V I D E D , THAT SUCHGUARANTEE SHALL NOT EXCEED THREE HUNDRED PERCENT(300%) OF THE NET WORTH OF THE CORPORATION.

"THE REPUBLIC OF THE PHILIPPINES SHALL SUCCEED TOALL THE RIGHTS TO THE COLLATERALS, NOTES OR OTHERINSTRUMENTS TO THE EXTENT OF THE PAYMENTS MADE, UNLESSTHE SUMS SO PAID BY THE REPUBLIC OF THE PHILIPPINESSHALL BE REFUNDED BY THE CORPORATION WITHIN AREASONABLE TIME.

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"SECTION 14. GUARANTEE lWSERW3 FUND. - THE SMALLBUSINESS CORPORATION SHALL SET ASIDE FIVE PERCENT ( 5% )OF ITS ANNUAL NET OPERATING REVENUES BEFORE INTERESTAS RESERVE OR SINKING FUND TO ANSWER FOR GUARANTEECALLS. THIS FUND SHALL BE CALLED THE GUARANTEE RESERVEFUND (GRF).

"THE PRIMARY PURPOSE OF THE GRF IS TO ASSURE THELONG-TERM FINANCIAL VIABILITY OF THE GUARANTEE CALLS.THE AMOUNT SET ASIDE FOR THE RESERVE FUND SHALL BESUBJECT TO THE CONDUCT OF AN ACTUARIAL STUDY TODETERMINE THE APPROPRIATE REQUIREMENT, BUT IN NO CASESHALL IT BE LOWER THAN 5% OF THE ANNUAL NET OPERATINGREVENUE OF THE CORPORATION AS PRESCRIBED IN THE ACT.//

SEC. 17. Section 13 of the same Act, as amended, is herebyrenumbered as Section 15, and further amended to read asfollows

"Section 15 [13]. Mandatory Allocation of CreditResources to MICRO, Small and Medium Enterprises. -For the period of ten (10) years from the date of theeffectivity of this AMENDATORY Act, all lending

institutions as defined under Bangko Sentral ngPilipinas rules, whether public or private, shall setaside at least [six] TEN percent [61 (10%) FOR MICRO,[and at least two percent (2%) for] small and mediumenterprises [ , respectively,] of their total loanportfolio based on their balance sheet as of the end

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of the previous quarter, and make it available for[small and medium enterprise] MSME credit as hereincontemplated.

"COMPLIANCE OF THIS PROVISION SHALL BE:A) ACTUAL EXTENSION OF LOANS TO QUALIFIED AND

REGISTERED MICRO, SMALL AND MEDIUMENTERPRISES; OR

B) ACTUAL SUBSCRIPTION OF PREFERRED SHARES OFSTOCK OF SBC; OR

c) SUBSCRIBE/PURCHASE LIABILITY INSTRUMENTS ASMAY BE OFFERED BY SBC.

"The Bangko Sentral ng Pilipinas[, inconsultation with the Council, MAY PRESCRIBEALTERNATIVE FORMS OF COMPLIANCE SUBJECT TO THEAPPROVAL OF THE MSMED COUNCIL. FURTHER, THE E3ANGKOSENTRAL NG PILIPINAS shall formulate rules for theeffective implementation of this provision: Provided,That the purchase of government notes, securities andother negotiable instruments[, with the exception ofsuch instruments as may be offered by the SBGFC which

do not pay market rates,] shall not be deemedcompliance with the foregoing provisions: Provided,further, That the Bangko Sentral ng Pilipinas shallestablish an incentive program to encourage lending to[small and medium] MSME industries beyond themandatory credit allocation to said enterprises, such

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as possible reduction in banks reserverequirement.

The MSMED Council shall set up the appropriatesystems to monitor all loan applications of [small andmedium enterprises] MSMEs in order to account for theabsorptive capacity of the MICRO, small and mediumenterprise sector.

The Bangko Sentral ng Pilipinas shall [requirelending institutions covered by this Act to] furnishto the [Small and Medium Development Council] MSMEDCouncil on a quarterly basis [regular] COMPREHENSIVEreports [on their compliance with the aboveprovisions on the mandatory credit allocation forsmall and medium enterprises and expeditiously act onthe Councils reports of non-compliance therewith.] ONTHE BANKS COMPLIANCE, NON-COMPLIANCE AND PENALTIES OFTHE ABOVE PROVISIONS ON THE MANDATORY CREDITALLOCATION FOR MSME .

SEC. 18. New sections to be numbered as sections 16 and 17are hereby inserted after Section 13 of the same Act, asamended, to read as follows:

SECTION 16. MICRO, SMALL, A N D MEDIUM ENTERPRISEWEEK. - IN ORDER TO INSTITUTE CONTINUING AWARENESS OFTHE PRIMACY OF SMALL BUSINESS IN NATION-BUILDING ANDIN PEOPLE EMPOWERMENT, AND TO CELEBRATE AND ESPOUSETHE FIRM COMMITMENT OF THE STATE IN THE PROMOTION,

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GROWTH AND DEVELOPMENT OF SMALL BUSINESS, THE SECONDWEEK OF JULY OF EVERY YEAR SHALL BE DECLARED AS THE"MICRO, SMALL, AND MEDIUM ENTERPRISE DEVELOPMENTWEEK,'. THE MSMED COUNCIL, THE DEPARTMENT OF TRADE ANDINDUSTRY, AND THE SBC SHALL BE JOINTLY RESPONSIBLE INORGANIZING ACTIVITIES FOR THE EVENT."

"SECTION 17. P R E S I D E N T I A L A W AR D S F O R O U T S TA N D IN GMSME. - PRESIDENTIAL AWARDS FOR OUTSTANDING MSME,CONSISTING OF REWARDS IN CASH OR IN KIND SHALL BEGRANTED TO ONE HUNDRED PERCENT (100%) FILIPINO-OWNEDCOMPANIES DURING THE MSME DEVELOPMENT WEEK."

SEC. 19. Section 14 of the same Act, as amended, on PenalClause is hereby renumbered as Section 18.SEC. 20. A new section is hereby inserted after Section 14of the same Act, to read as follows:

"SECTION 19. I M P L m N T I N G R U LE S AN D RE G U L A TI ON S.- THE DEPARTMENT OF TRADE AND INDUSTRY, THROUGH THEBUREAU OF MICRO, SMALL AND MEDIUM BUSINESS DEVELOPMENTAND IN CONSULTATION WITH OTHER CONCERNED GOVERNMENTAGENCIES , NON-GOVERNMENT ORGANIZATIONS AND PRIVATESECTOR INVOLVED IN THE PROMOTION OF MICRO, SMALL ANDMEDIUM ENTERPRISES, SHALL FORMULATE THE IMPLEMENTINGRULES AND REGULATIONS (IRR) NECESSARY TO IMPLEMENT THEPROVISIONS OF THIS ACT WITHIN NINETY (90) DAYS FROMTHE APPROVAL OF THIS ACT. THE IRR ISSUED PURSUANT TOTHIS SECTION SHALL TAKE EFFECT THRITY (30) DAYS AFTER

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P U B L I C A T I O N I N A NATIONAL NEWSPAPER O F GENERALC I R C U L A T I O N . "

S E C . 21. Separability Clause. - The provisions of theAct are hereby declared to be separable. If any provisionof this Act shall be held unconstitutional, the remainderof the Act not otherwise affected shall remain in fullforce and effect.S E C . 22 . Repealing Clause. - All laws, executive orders,rules and regulations, or parts thereof, inconsistentherewith are hereby repealed or modified accordingly.SEC. 23. Effectivity Clause. - This Act shall takeeffect within fifteen (15) days from its publication in atleast two (2) national newspapers of general circulation.

Approved,

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