By Krystal Anjela H. Gamboa and Mhicole A. Moral, Special Features and Content Writers
Bjorn Biel M. Beltran, Special Features and Content Assistant Editor

The role of small businesses in driving nationwide prosperity took center stage at the recent BusinessWorld Insights forum themed “Boosting the Philippine MSME Ecosystem,” held on Aug. 26 at Dusit Thani Manila.

Across Southeast Asia, micro, small, and medium enterprises (MSMEs) form the structural bedrock of economic life, driving commercial activity directly within local communities. As Suhail Khan, Director for Private Sector Financial Institutions at the Asian Development Bank, observed in his keynote address, “MSMEs matter because they are where economic growth happens and the economic growth becomes tangible. They turn ideas into businesses, create first jobs, supply essential goods and services, and bring economic opportunity into communities that larger firms may not reach.”

Yet, their small scale leaves them acutely exposed to sudden disruptions, where “a delayed payment, a typhoon, and abrupt rise in input costs or a loss of a major customer can quickly become a major threat.”

Because small enterprises routinely operate with thin cash reserves, limited market leverage, and restricted access to formal capital, Mr. Khan emphasized that “supporting MSMEs is not a niche agenda. It is central to inclusive growth, job creating, economic resilience, gender equality, food security, and climate transition.”

Suhail Khan, Director for Private Sector Financial Institutions at the Asian Development Bank

On MSME financing

In the Philippines, the gap between the macroeconomic importance of small businesses and their access to formal banking infrastructure remains particularly stark.

“The 99.5% of the registered business establishments, MSMEs employ over 60% of Filipino workers and contribute more than one-third of GDP,” Mr. Khan pointed out.

However, institutional financial support remains deeply disproportionate for MSMEs. “Despite their importance,” Mr. Khan explained, “this segment is represented only under 4% of total bank loans. Moreover, over 83% of the reported bank lending [is] concentrated in Metro Manila.”

This heavy geographic imbalance masks a deep regional credit deficit, with estimates of the Philippine financing gap ranging from P67 to 180 billion.

“Too many viable enterprises remain unserved or undeserved,” Mr. Khan emphasized.

Traditional credit underwriting frameworks — which require extensive operating histories, audited financial statements, and real estate collateral — routinely filter out small borrowers, leaving “around 70% of the firms reportedly finance expansion mainly through equity and retail earnings, limiting their true potential.”

Women entrepreneurs face even higher structure hurdles. “Women-led MSMEs are less likely than male-led firms to hold bank accounts and substantially less likely to receive loan approval,” Mr. Khan stated, pointing to systemic gaps in outreach, data collection, and credit evaluation.

Looking ahead, Mr. Khan highlighted critical priorities required to transform small-business financing, particularly as climate threats and economic disruptions intensify.

“Climate resilience and business solutions are therefore increasingly the same conversation,” he noted, highlighting the increasing needs for tailored credit structures, long-term capital, movable asset lending, and digital credit scoring.

Furthermore, strengthening agricultural value chains and equipping entrepreneurs with financial literacy and digital skills ensures that liquidity translates into sustainable growth.

“We should judge success not simply by how many loans are disbursed, but by whether more enterprises can start, survive, grow, create good jobs, withstand shocks, and participate fully in the economy,” Mr. Khan urged.

From survival to scale

But First, Coffee President Anna Isabelle Magalona-Go

The discussion soon shifted from an institutional lens to points of view from stakeholders comprising the MSME ecosystem.

The early stages of coffee chain But First, Coffee began from an investment of only P6,000. Without massive marketing budgets or even extensive social networks to rely on, President Anna Isabelle Magalona-Go described the experience of maximizing their funds to establish her dream home-based online café as a particularly notable experience.

“As a startup founder, you have to be more resourceful and you have to stay motivated to reach the goal. There was no big marketing budget and no endless resources or connections. And everything was just like firefighting your day-to-day operations,” she said during the forum’s panel discussion.

Now, her brand has grown into a chain of 240 franchised branches nationwide, but she says that her problems are far from settled. Rather, they’ve transformed into something completely new.

Growing a business, she said, brings bigger challenges that are more complicated than solving existing ones. Scaling up requires a shift in leadership, demanding strong financial discipline, cash flow management, and knowledge that business owners must keep learning about.

“When you’re starting, it’s based on instinct; it’s based on need; and you have to be resourceful,” she explained. “But when you scale, it requires a different version of you as a leader. It requires more discipline. It requires more knowledge and of course financial literacy.”

This is a common story for many MSMEs across the country. Even as small businesses drive the majority of local job creation and economic activity across the Philippines, many remain stuck in survival mode rather than growth.

Alberto Pascual, president and CEO of Philippine Guarantee Corp. (PhilGuarantee)

Alberto Pascual, president and CEO of Philippine Guarantee Corp. (PhilGuarantee), explained that traditional banks often hesitate to lend to small businesses because they lack physical collateral, formal credit histories, or detailed financial records.

“We know that Philippine MSMEs are the engine of jobs, livelihoods, and local economic activity. But, many viable enterprises remain constrained because of the limited or no collateral,” he said, further noting that the main challenge is reducing credit risk for lenders so they feel confident offering loans.

PhilGuarantee, as the country’s main state credit guarantee agency, aims to help by sharing credit risk with banks, boosting overall lending capacity, targeting overlooked groups like women entrepreneurs, startups, and farmers, while encouraging private banks to step in.

“The objective is not for government to replace banks, but to catalyze greater private sector lending to MSMEs,” he said. “Ultimately, a guarantee is more than protection for the lender. It is a bridge that allows a viable enterprise to cross from potential to growth.”

However, financing is simply one part of the equation. Wally Don G. Calderon, vice-president of Small Business Corp. (SB Corp), pointed out that loan access expanded after the pandemic pushed companies to adopt digital tools.

Wally Don G. Calderon, vice-president of Small Business Corp. (SB Corp)

“Access to financing really grew very largely in the past three to five years post-pandemic. Why? Because everyone was forced to go digital,” he said. SB Corp., as a government financial institution in the Philippines that provides accessible funding, loans, and credit guarantees, also had to pivot at the time.

Microfinancing services offering payday loans or quick-loan processes, he said, were everywhere. However, Mr. Calderon warned that these offers often carry hidden traps, such as very high interest rates and aggressive collection tactics. He urged owners to choose carefully: “There is financing available. The question is: Is it the right type of financing and should our MSMEs in the country be availing of this?”

Financial literacy is a real bottleneck. Aian Guanzon, chief marketing officer at Global Dominion Financing Inc., highlighted that small business owners need more than just money — they need advice and experienced networks.

Aian Guanzon, chief marketing officer at Global Dominion Financing Inc.

“Through the years, we realized they also needed the help and support in other aspects. For example, it’s not just financing that they needed. They need help with the network. They need help with getting answers to questions that they can only get from someone who’s already experienced setting up a business and expanding businesses,” he said.

Mr. Guanzon noted how many entrepreneurs still view debt as an unnecessary risk because they did not understand how to leverage it properly. He explained that borrowing is a smart growth tool if the return on investment (ROI) from the capital is higher than the interest rate paid on the loan.

On the other side of things, he also commented on the reality of how traditional lenders exclude many small enterprises simply by demanding standard bank statements. Many businesses, women-led ones especially, have business transactions run through e-wallets, supplier purchase receipts, or accounts registered under a spouse’s name. Mr. Guanzon argues that lenders must evaluate these alternative cash-flow records to give underserved business owners a fair credit evaluation.

“We are identifying how much they need help and how we can support them outside financing, like financial literacy training and connecting them to other businesses,” he said.

Ms. Magalona-Go agreed, noting that while capital is a powerful driver of growth for small enterprises, allowing them to hire more people and execute better plans and strategies, speed and strong networks — including mentors, lenders, and tech partners — would also go a long way.

“Time is capital, the market doesn’t wait for us, the competitor doesn’t wait for us. The demands change, the behavior change. We also have to act fast as MSMEs,” she said. “So, by having a network, mentorship, financial institutions, access to data technology service providers, allows us to act fast. It saves us a lot of time. And of course, it would save us from very expensive lessons along the way.”

Bridging the ‘phygital’ divide

Royston A. Cabuñag, assistant vice-president and head of SM Communities at SM Supermalls

During the forum’s fireside chat, Royston A. Cabuñag, assistant vice-president and head of SM Communities at SM Supermalls, discussed how small entrepreneurs can move from testing their products to building businesses that can operate across physical and digital channels.

He noted that opportunities can build confidence among entrepreneurs, which can then help businesses grow. Such principle has guided SM approach to creating entry points for MSMEs that may not yet have the resources, experience, or requirements associated with taking a regular mall space.

“At SM, we see our role as helping connect entrepreneurs to these opportunities. We have to give them places to test, to learn, to meet customers and prepare for their next stage,” he explained.

Mr. Cabuñag also pointed to the experiences of entrepreneurs who started through SM’s MSME initiatives, including businesses that began with smaller spaces and eventually progressed to regular stores. Their paths differed, but Mr. Cabuñag said they shared the opportunity to begin.

In this context, the SM for MSMEs program emerged from a gap that became more apparent during the pandemic, when entrepreneurs needed a way to enter a mall environment without immediately having to meet all the requirements and costs associated with a retail space.

The program sought to make that first step easier.

Instead of requiring a small entrepreneur to navigate multiple departments and establish individual connections within the mall organization, SM simplified the application process into a single platform.

“What we did is we simplified the whole system. There were 12 or 13 departments that we crammed into one application to make it easier for MSMEs,” he shared.

Mr. Cabuñag described the stalls provided through the program as essentially “plug-and-play,” giving entrepreneurs a place where they can begin selling without immediately taking on the same requirements associated with becoming a regular tenant.

Applicants still need to submit basic requirements, including a Department of Trade and Industry permit and a tax identification number. From there, SM assesses the application and the products that the entrepreneur intends to sell.

“We try to make that experience for MSMEs efficient and convenient,” Mr. Cabuñag explained. “We are removing the friction for the MSMEs to be able to go inside a platform where all they want to do is really sell.”

He added that SM management provided an 80% discount for the spaces under the initiative, allowing entrepreneurs to occupy ground-floor areas at a substantially lower cost than a regular mall kiosk.

The objective, he said, gives smaller businesses an opportunity to present their products alongside established brands that already attract mall customers.

Meanwhile, the rise of digital commerce has changed how small businesses find customers. Many entrepreneurs began selling through digital platforms during the pandemic, using social media and other online channels to reach buyers without taking on the expenses associated with physical retail.

For some businesses, remaining online can make sense because it avoids the additional costs involved in maintaining a physical space. But physical spaces can provide something digital commerce cannot fully replicate, which is direct product experience.

Mr. Cabuñag explained that a customer may discover a business online, but eventually may want to see, touch, taste, or otherwise experience the product in person before making a purchase.

Such strategy creates a relationship between digital discovery and physical experience. He described this method as “phygital,” referring to the interaction between physical and digital channels.

The distinction, he said, should not simply be framed as online versus offline, as customers move between channels based on convenience.

“Digital can really help an entrepreneur get discovered, while physical experiences can help them earn belief. Together, when these two are combined, we create trust,” Mr. Cabuñag noted.

He also stressed that entrepreneurs do not operate alone. MSME growth is dependent on an ecosystem that includes technology, retail access, government, banking and finance, logistics, suppliers, and communities. As such, each component addresses a different part of running a business.

Ultimately, Mr. Cabuñag encouraged MSMEs to work on the idea of resilience, especially as markets change, and entrepreneurs face disruptions. Those pressures can expose weaknesses in staffing, financing, logistics, and systems.

“MSMEs need to build the capacity to operate through change,” he noted.

The capacity, according to Mr. Cabuñag, starts with access to opportunities but develops through experience. Entrepreneurs learn by putting products in front of customers, listening to feedback, improving presentation, developing operating procedures, and addressing gaps as they arise.

While there are programs that provide an entry point into that process, entrepreneurs have to build the business themselves. He explained that sustained growth requires consistency and the willingness to build systems around the enterprise.

“Resilience under pressure is not a response to difficult times. It is how we have always moved forward,” he concluded.

The path forward for Philippine MSMEs hinges on converting potential into sustainable economic scale. Achieving this requires bridging the regional credit gap, lowering retail entry barriers, and fostering strong networks between entrepreneurs, leaders, and tech partners.

This BusinessWorld Insights forum was presented by BusinessWorld Publishing Corp. and was sponsored by SM Supermalls, with the support of partners Asian Consulting Group, Asia Society of the Philippines, British Chamber of Commerce of the Philippines, French Chamber of Commerce and Industry in the Philippines, Management Association of the Philippines, Philippine Chamber of Commerce and Industry, Philippine Franchise Association, and Philippine Retailers Association; and official media partner The Philippine STAR.