In its latest economic bulletin, the DOF said the approval of the Secured Transactions Systems Bill currently pending in Congress would boost the Philippines’ ranking in the ease of doing business by 100 notches to 42. Philstar.com/File Photo

MANILA, Philippines — The passage of a bill, which seeks the use of alternative collateral in applying for loans, is seen to improve the ease of doing business in the country, the Department of Finance (DOF) said.

In its latest economic bulletin, the DOF said the approval of the Secured Transactions Systems Bill currently pending in Congress would boost the Philippines’ ranking in the ease of doing business by 100 notches to 42.

According to the Department of Finance, the passage of the bill will encourage lending to micro, small and medium enterprises (MSMEs), and the agriculture sector since it offers entrepreneurs an opportunity to use movable collateral to back up loan applications.

The proposed measure seeks to establish a legal framework for the use of non-traditional collateral, such as accounts receivables, inventory, crops, livestock, equipment, in applying for loans in financial institutions.

It is currently on second reading in the Senate and scheduled for third reading in the House of Representatives.

Currently, banks and other lending institutions accept only real estate properties as collateral for loans.

The DOF said the current system limits access to credit, which then puts constraints in the production of household businesses.

The bill also aims to develop a professional, regulated warehousing industry, which issues receipts that can be used as collateral by lenders and can be traded by investors and industry players.

Apart from this, it seeks to establish an automated movable collateral registry wherein information on transfers and pledges of collateral can be accessed by participants, the DOF said.

The proposed measure will also enable the government to “develop the backbone of an efficient commodities market that will stabilize prices and expand transactions.”

In other countries which implemented the same reform, lending to MSMEs increased by 50 percent to 100 percent, DOF said.

According to the DOF, $3.58 trillion worth of loans was generated in China four years after the reform was implemented. Movable collaterals now account for 45 percent of commercial lending in China, it added.

The Land Registration Authority has already established the automated collateral registry, which is now ready to accept information and be accessed by borrowers and lenders.

The Securities and Exchange Commission is also drafting regulations regarding the operation of warehouses which are interested to join the secured transactions system.

This article first appeared on www.PhilStar.com