COVID-19 Assistance to Restart Enterprises (CARES) Program

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COVID-19 Assistance to Restart Enterprises (CARES) Program (PAO-2021-01)

SB Corporation Assisted Thousands of MSMEs But Was Unable to Maximize Its Reach Primarily Due to Identified Challenges on the Loan Availment From the Tourism Sector Impacting the Full Utilization of Funds

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Date added: March 3, 2022

What COA Found

The SB Corp extended collateral free and 0% interest loans to thousands of MSMEs but it was unable to maximize its reach after utilizing only 45.04% of the funds made available under the Bayanihan laws as of June 30, 2021. Of the 11 billion allocation to the CARES Program, a total of 9.08 billion was released for its implementation. Of this amount, the SB Corp used 4.09 billion to extend loans to 28,222 MSMEs. Of the 28,222 MSMEs, a total of 23,687 are micro enterprises, 3,057 are small enterprises, 729 are medium enterprises and 749 are unidentified enterprises.

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A total of 4.99 billion or 54.96% of the released budget of the program remained unutilized as of end of Bayanihan 2. We identified several major challenges, which may have led to this scenario: the first major challenge is insufficiency of human resources. Prior to the pandemic, the SB Corp already implements this program but under a different name, which is Pondo sa Pagbabago at Pag-asenso (P3). It normally operates within the budget of 1.5 billion. So, when the Bayanihan 1 was enacted and the CARES program was created, SB Corp was able to utilize about 98.84% of the initial 1 billion budget, which covers the processing of 20,043 applications. The 10 billion allocation for CARES under Bayanihan 2 was beyond the normal capacity of the SB Corp to process and release to MSMEs within the effectivity of the Bayanihan 2. We checked whether there were significant administrative adjustments made by SB Corp in light of the massive infusion of funds. We found that the SB Corp adopted an automated system to process loans, however, there were no significant adjustments in human resources. Despite this challenge, the SB Corp utilized 4.09 billion, which is 273% higher than its usual budget of 1.5 billion for its regular program. The second major challenge is hesitancy of potential clients to avail the assistance. Of the 995,745 potential clients of SB Corp, only 48,010 MSMEs applied. That is an availment rate of only 4.82%. We noted, however, that the total budget allocated for the program will not be able to accommodate all MSMEs. In spite of the lower number of potential beneficiaries that can be served by the program, still the SB Corp was unable to serve them. One major reason for this is that the bulk of the budget is allocated for the tourism industry. Many tourism-based companies are hesitant to restart their business due to the multiple imposition of ECQ in the country.

We also found deficiencies and gaps in the administration of the program. Out of the 48,010 loan applications, a total of 4,378 or 9.12% borrowers cancelled their applications. Result of our survey revealed that some of the respondents cancelled their loan applications because of the long processing time, and non-communication of the status of their applications. We also noted the existence of fragmentation of functions among the stakeholders, which is primarily caused by lack of a policy, specifying the roles and responsibilities of the stakeholders. Lastly, the SB Corp has yet to develop a mechanism to check whether the loan proceeds were used for the intended purpose.

 

Why COA Did This Study

 

With the outbreak of COVID-19 in the Philippines in 2020, the government imposed Enhanced Community Quarantine (ECQ) over certain parts of the country to contain the spread of the virus. This measure included business closures, which affected Micro, Small, and Medium Enterprises (MSMEs). According to an Asian Development Bank (ADB) Survey, an average of 73.1% of MSMEs were forced to close their businesses during the ECQ. According to the Philippine Statistics Authority (PSA), there are a total of 995,745 MSMEs representing 99.5% of the total business establishments operating in the country.

To support the businesses affected by the economic impact of the pandemic, the Department of Trade and Industry (DTI) through its financing arm – the Small Business Corporation (SB Corp), rolled out the CARES Program to extend loans, initially, to all micro and small enterprises with at least one year continuous operation prior to March 2020, and whose businesses suffered drastic reduction in sales during the ensuing pandemic. Later on, the program also covered medium enterprises. A total of ₱11 billion was allocated to the CARES program through the Bayanihan 1 and 2 laws.

In view of the materiality and significance of the program, this Commission conducted this performance audit to determine the following: (1) the extent the CARES Program assisted MSMEs during the pandemic; (2) the challenges, if any, in implementing the program; and (3) the extent the DTI, the SB Corp and other concerned agencies administer the program in accordance with established policies and procedures.

In conducting the audit, COA reviewed the program documents and accomplishment reports; analyzed loans granted during the effectivity of Bayanihan laws; conducted survey of selected MSME beneficiaries; interviewed key management officials; and assessed the extent of coordination with other stakeholders in the implementation of the program.

 

What COA Recommends

 

In view of the ongoing implementation of the program, COA recommends that SB Corp: 

(1)  incorporate in its Performance Scorecard a set of metrics and performance indicators for program assessment;

(2) fast track the development of IT-enabled Account Monitoring Module;

(3) conduct monitoring visits and update relevant information of MSME borrowers; and

(4)  establish/integrate relevant MSME databases.

Moving forward for implementing similar program, there is a need for risk-assessment, among others, on capacity of the implementing agency, needs of the clients and type of funding (equity or subsidy). Stakeholder analysis should be conducted to pinpoint responsibilities through policy and agreement and avoid fragmentation.