The Guarantee Fund for Small and Medium Enterprises
A Pillar for SMES

Philippine Banking Almanac III

       In Davao City now stands the country's first full service cooperative hospital - the Davao Medical Mission  Group Hospital. It started as a four-bed  affair manned by volunteers and equipped with borrowed equipment and the dream of a few young doctors who decided that things have to change and that they have in their hands the power to change things for the better.

Medical Mission Group (MMG) Hospitals and Health Cooperative has now become a nationwide undertaking with chapters in Tagum, North Cotabato, Lucena, Butuan, Iligan, Tacloban, Palawan, Cebu and Bohol among others.

In South Cotabato, about six hundred farmers participated in a pioneering venture for large scale growing of asparagus for export. Many of them have succeeded and dramatically improved their families' incomes. A significant number of them have failed. But all of them dared to try.

All of them, the doctors and cooperative members of MMG, the asparagus growers of South Cotabato, all of them are pioneers. They, and many others who dared as they did, are the quiet strength  of our  country's economy.

But they bear a special distinction of being among the more than 2,000 projects supported by the Guarantee Fund for small and Medium Enterprises, the country's first credit guarantee institution for SMEs. they are, in the sense, a product of GFSME's own daring and belief that what they are doing is right.

GFSME, whose conversion into a full-pledged corporation is pending in the halls of Congress, is one government entity which has been quietly spurring the growth of Filipino enterprises for nearly 14 years now.

The Original Guarantee Fund

GFSME is the original guarantee fund in the Philippines, established in 1983 and started operations in February 1984. this special Fund was born amidst a turbulent period in the nation's history. Political uncertainties, an unattractive investment climate and excessive interest rates characterized that period. the Guarantee Fund was created to encourage the financial institutions to begin being comfortable in lending to the small and medium enterprises. GFSME was envisioned to provide a financial system that will strengthen the small and medium enterprise sector - a sector erstwhile considered as unbankable by the banking community.

At the end of its first year, GFSME had 28 accredited banks, five of which originated loans amounting to P35.47 Million for 13 agricultural projects. In the next year (1985), 17 banks originated a total of P147 Million in loans. And through the next 12 years, GFSME posted a steady growth in loan originations. On its 10th year, GFSME guarantee approvals reached beyond the half billion mark as loan originations amounted to P562 Million. In 1995, the Fund posted a P1 Billion record as its loan guarantees stood at 1.089 Billion.

Over the P5-Billion Mark

Today, GFSME has attained cumulative loan guarantees worth P5.658 Billion for 2,341 accounts directly  benefiting over 200,000 entrepreneurs, farmers, fisherfolks and workers all over the country. The bulk of these accounts fall under the manufacturing sector with loans worth P2.496 Billion while accounts under the agriculture/fishery sectors amounted to P2.063 Billion. these entrepreneurs include the hog and poultry raisers from Bulacan, the prawn farmers of Negros, cutflower growers from Laguna and Davao, tomato growers from Ilocos, jewelry makers from Bulacan, shoemakers from Marikina, tricycle drivers from Rizal, rice farmers from Nueva Ecija, mango growers from Davao and South Cotabato, papaya growers from Misamis Oriental, furniture and handicraft manufacturers from Cebu, bus operators from Metro Manila and scores of thousands more Filipino entrepreneurs. For the period January to November 1997, GFSME approved 155 accounts with loans totaling P648.147 Million, representing 86 percent of its annual target. Compared to last year's figure of P895.63 Million for the same period, this year's originations posted a decrease reflecting the slowdown in the economy due to the regional currency crisis.

Of the Fund's loan guarantee approvals for this year, 46 accounts valued at P140.152 Million were availments of GFSME's Automatic Guarantee Line (AGL) facilities with selected banking institutions. Moreover, 149 accounts worth P513.147 Million were classified as small enterprises representing 79 percent of this year's originations.

A Self-Sustaining Entity

After nearly 14 years of credit guarantee operations, the Guarantee Fund takes pride in its accomplishments yet unrivaled in the industry and despite its organizational constraints. Starting with a seed fund of P300 Million given by the national government in 1983, GFSME has prudently its resources resulting in the Fund's growth to P858 Million without any additional infusion from the national government. Its asset base has growth to P868.312 Million.

Of greater significance is the fact that GFSME has now remitted P307.36 Million back to government through withdrawals made by its mother agency, the Livelihood corporation. Thus the GFSME becomes one of the few government organizations which have never depended on budgetary appropriations, and has in fact given back the original fund.

Guarantee calls, meanwhile, have been kept at a minimum. To date, calls on its guarantee have reach only P140 Million.

Reinventing GFSME

As the country moves towards greater participation in the world market, there is a need to "reinvent" GFSME. This entails the granting of its own corporate charter which shall ultimately result in its autonomy, flexibility, competitiveness and a clear mandate. Reinventing GFSME will allow the Fund a stronger positioning in the world of SMEs-translating to sustainable SME assistance in support of the development needs of the country.



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