What is an MSME, and why does it matter so much to the future of local economies? In the Philippines, Micro, Small, and Medium Enterprises (MSMEs) make up over 99.5% of all registered businesses and employ more than 62% of the workforce.
MSMEs are crucial to economic development because they generate jobs, alleviate poverty, boost innovation, and promote inclusive growth. Yet, they often operate under challenging conditions and need targeted support to flourish.
In this article, we’ll break down everything you need to know about MSMEs in the Philippines, including how they’re classified, the key challenges they face, and the role of digital tools.
What are Micro, Small, and Medium Enterprises (MSMEs)?
MSMEs, or Micro, Small, and Medium Enterprises, represent a diverse range of business sizes and sectors, but they share one commonality: they are vital to economic resilience and local innovation. In the Philippines, MSMEs operate across various industries, including agriculture, manufacturing, trade, and services, ensuring that no community is left behind in the national economic agenda.
The government uses the following benchmarks for classification:
- Micro Enterprises: Operate with asset sizes up to ₱3 million and fewer than 10 employees. These are often home-based ventures, such as sari-sari stores, market stalls, or online sellers.
- Small Enterprises: Hold assets between ₱3 million and ₱15 million and employ 10 to 99 people. Think small logistics companies, local manufacturers, or service-based businesses.
- Medium Enterprises: Feature assets ranging from ₱15 million to ₱100 million and up to 199 employees. They often include regional agribusinesses, processing plants, or multi-location retail operations.
Understanding these distinctions enables entrepreneurs to recognize the type of support available to them and helps lenders and policymakers target their programs more effectively.
Importance of MSMEs
Micro, Small, and Medium Enterprises aren’t just business units; they’re the backbone of the Philippine economy. From creating jobs to reducing poverty and driving grassroots innovation, MSMEs fuel local growth in ways that large corporations often can’t.
Their importance goes beyond balance sheets, shaping the everyday lives of millions across urban centers and rural communities alike. Below, we explore why MSMEs are vital to inclusive and sustainable economic development.
- Contribution to Economic Development: MSMEs account for a significant portion of GDP by enabling local production, encouraging supply chain innovation, and supporting domestic trade. They enhance regional economic integration and reduce import reliance by sourcing goods locally and creating sustainable ecosystems.
- Role in Job Creation and Employment: MSMEs employ over 63% of the Filipino workforce, offering both skilled and unskilled labor opportunities. Many individuals find their first job in an MSME, which helps bridge the gap between education and employment.
- Support for Women, Youth, and Vulnerable Groups: Due to their accessibility and lower capital requirements, MSMEs serve as an entry point into economic participation for marginalized populations. They enable self-employment, offer flexible working conditions, and provide learning environments for first-time entrepreneurs.
Given this multifaceted influence, it becomes essential to understand how MSMEs are classified and how they operate.
Classification of MSMEs
Understanding how MSMEs are officially classified is essential for entrepreneurs, lenders, and policymakers alike. In the Philippines, the Department of Trade and Industry (DTI) uses two main benchmarks: total asset size (excluding land) and number of employees. These criteria help determine eligibility for government support programs, tax incentives, and specialized lending.
Here’s how MSMEs are categorized:
- Criteria for Micro Enterprises: These are typically small-scale operations with asset sizes not exceeding ₱3 million and employing fewer than 10 people. Examples include neighborhood sari-sari stores, street food vendors, or small tailoring units.
- Criteria for Small Enterprises: These businesses have assets ranging between ₱3 million and ₱15 million and employ 10 to 99 people. They might include small retail shops, home-based manufacturing units, or rural transport companies.
- Criteria for Medium Enterprises: With assets between ₱15 million and ₱100 million and a workforce of 100 to 199 employees, these businesses operate on a larger scale. They often include agribusinesses, regional logistics providers, and mid-sized manufacturers.
Proper classification is not just for statistical purposes. It directly impacts loan eligibility, regulatory compliance, and access to government support such as training, financing, and market linkage programs.
Also read: How to Identify and Avoid Illegal Loan Apps in the Philippines: A Guide for Borrowers.
Ownership and Management
Ownership patterns in MSMEs reveal a great deal about their resilience and structure. Many are started with minimal capital and run independently by owners who wear multiple hats.
Let's look at the typical ownership structures:
- Significant Portion Owned by Women: A growing number of MSMEs are led by women, particularly in sectors like food service, education, wellness, and small-scale retail. These enterprises often face unique challenges but play a vital role in community development.
- Initial Capital Requirements for Starting MSMEs: Most micro and small businesses begin with less than ₱500,000, often sourced from family savings, cooperative loans, or informal lending. This low capital threshold makes it easier for aspiring entrepreneurs to enter the market, though it can limit scalability.
- Characteristics of Owner-Managed Enterprises: Owner-managers are deeply involved in every aspect of the business, from inventory to marketing. These businesses typically have flat structures, rely on informal networks, and prioritize personal customer relationships over corporate processes.
Despite this personal touch, managing without formal structures or external support can lead to significant growth limitations.
Challenges Faced by MSMEs
MSMEs face a range of difficulties that hinder their development and sustainability. Many of these challenges stem from limited access to resources and institutional support.
Some of the pressing issues include:
- Financial Barriers and Access to Credit: Banks often require collateral and a strong credit history, which most micro or small businesses cannot provide. This makes it difficult for them to expand operations, invest in equipment, or increase staffing.
- High-Risk Perception by Financial Institutions: Financial institutions categorize MSMEs as high-risk borrowers due to a lack of formal documentation, unpredictable cash flows, and sectoral vulnerabilities. This perception leads to stringent loan terms or outright rejection.
- Survival Challenges in Export and Trade: Competing in international markets requires compliance with trade regulations, certifications, and logistical infrastructure. Many MSMEs face these barriers, which limit their global potential and opportunities.
At n90, we understand that financial roadblocks—like lack of collateral, delayed receivables, and rigid loan terms—can hold promising MSMEs back. That’s why our solutions are designed around how small businesses actually operate.
From bridge loans that keep your operations running to invoice financing that unlocks working capital, n90 helps you overcome funding obstacles and move forward with confidence even when traditional banks say no.
Gender Gaps in MSMEs
Women entrepreneurs contribute significantly to the MSME sector, yet they often face systemic disadvantages that slow their growth potential.
Here's how the gender divide happens in MSMEs:
- Comparison of Women-Led and Male-Led Enterprises: On average, women-led MSMEs report lower revenues and shorter business lifespans. They are often concentrated in sectors with lower profit margins and limited expansion opportunities.
- Challenges Faced by Women Entrepreneurs: These include difficulty obtaining loans, balancing work with caregiving responsibilities, and a lack of access to mentorship and networks. Social norms further restrict women’s freedom to manage or scale businesses independently.
- The Impact of Necessity-Driven Entrepreneurship: Many women start businesses due to a lack of formal employment opportunities rather than out of choice. This motivation, while noble, often leads to survival-based business models rather than growth-oriented ones.
Gender-sensitive policies and financing options, like those promoted by n90, can make a meaningful difference. Supporting women-led businesses is not just good economics, it’s essential for social progress.
Also read: Guide to DTI Loans for MSMEs in the Philippines.
E-Commerce and Technological Adoption
Digital transformation is rapidly changing how MSMEs interact with customers and manage their operations. However, the benefits of e-commerce and digital tools are not uniformly accessible.
Consider these digital shifts and struggles:
- Challenges in E-Commerce Adoption: Many MSMEs lack digital skills, website management knowledge, or access to affordable logistics. These barriers prevent them from fully participating in the growing online marketplace.
- Opportunities Brought by the COVID-19 Pandemic: Lockdowns forced many MSMEs to move online. Those that adapted saw increased reach, higher margins, and better inventory control, highlighting the value of digital readiness.
- Impact of Internet and Technology Issues: In rural areas, poor connectivity and limited access to digital tools hinder the full-scale adoption of these technologies. MSMEs in these regions often depend on social media platforms as a stopgap measure rather than operating dedicated e-commerce sites.
With the proper financial support, MSMEs can invest in digital tools and technologies that enhance their operations and improve efficiency. Short-term funding from services like n90 enables small businesses to launch websites, adopt payment gateways, and expand their reach to broader audiences.
MSMEs and Sustainable Development Goals (SDGs)
MSMEs are well-positioned to advance the United Nations Sustainable Development Goals (SDGs) at the grassroots level. Their localized operations and social reach make them ideal agents for change.
They support the following development areas:
- MSMEs' Role in Achieving SDGs: By promoting decent work and sustainable growth (SDG 8), MSMEs contribute directly to broader development targets. Many also promote responsible consumption (SDG 12) through local sourcing and low-waste production.
- Impact on Poverty Reduction and Economic Growth: Through job creation and self-employment, MSMEs help lift families out of poverty and stimulate local economies, particularly in rural or underserved areas.
- Contribution to Gender Equality and Food Production: Women-led MSMEs in agriculture, food processing, and services play a significant role in both achieving food security (SDG 2) and promoting gender equality (SDG 5).
Supporting these goals requires consistent access to working capital, stable policy frameworks, and ongoing technical training.
Also read: Small Business Ideas to Start with PHP 50k Capital in the Philippines.
Empowering MSMEs: How n90 Makes a Difference
MSMEs are the backbone of the Philippine economy, but many are still underserved by traditional lenders that demand rigid documentation, impose hidden charges, or offer little flexibility. At n90, we take a different approach.
Our mission is to empower entrepreneurs by providing transparent, fast, and flexible financing built for the realities of MSMEs. Whether you're a sari-sari store owner or scaling a regional enterprise, n90 offers support without the red tape, so you can focus on growing your business, not handling financial hurdles.
Here’s how n90 supports MSMEs with responsible lending practices:
- Tailored Financing Solutions: We don’t offer one-size-fits-all loans. Our financial products are tailored to your business's unique revenue patterns, cash flow needs, and growth objectives, whether you're expanding operations, bridging seasonal gaps, or addressing urgent expenses.
- Complete Transparency, Always: Every fee, from interest rates to repayment schedules, is communicated upfront. There are no hidden charges or surprise costs, just straightforward terms that help you make informed financial decisions.
- Minimal Collateral Requirements: Most of our loan offerings are unsecured, making it easier for newer or smaller businesses to access capital without having to pledge valuable assets they can’t afford to lose.
- Fast and Simple Application Process: We understand that MSME owners are time-strapped. Our streamlined digital application minimizes paperwork and approval delays, so you can focus on running your business, not chasing documents.
- Financial Education and Guidance: First-time borrowers often feel overwhelmed by financial jargon. n90 offers accessible, non-judgmental support to help you understand your loan terms and make well-informed choices.
- Relationship-Focused Lending: We see our clients as partners, not just loan applicants. Our goal is to build long-term relationships founded on mutual trust and shared success, not fleeting gains.
Responsible lending isn’t just a policy; it’s a commitment to empowering MSMEs with the resources they need to suceed. At n90, we’re proud to be a financing partner that prioritizes ethics, empathy, and enterprise growth.
Conclusion
So, what is MSME? It is more than a category of business. It represents the entrepreneurial pulse of the nation. MSMEs create employment opportunities, boost community resilience, empower marginalized groups, and drive sustainable economic growth and transformation. Supporting them is not optional; it is essential for inclusive growth.
To ensure these enterprises thrive, financial services must align with their unique needs. That’s where n90 comes in. Through thoughtful loan products like bridge financing, invoice factoring, and business credit solutions, n90 helps MSMEs grow without overwhelming them with rigid terms or bureaucratic processes.
Interested in seeing how your enterprise could benefit? Apply with n90 today and discover financing made for your business. Call us at +63 962 663 1393 or apply online through our website.
FAQs
1. What is the difference between MSME and SME?
A: SME refers to Small and Medium Enterprises, while MSME encompasses Micro, Small, and Medium Enterprises, including micro businesses. The "M" in MSME emphasizes even the smallest players in the economy.
2. How can a business qualify as an MSME in the Philippines?
A: MSME classification is based on asset size and employee count. You must also be registered with the BIR, DTI, or SEC.
3. Why do MSMEs struggle with financing?
A: Common issues include lack of collateral, limited credit history, and a perception of high risk by financial institutions.
4. Are women-owned MSMEs eligible for exceptional support?
A: While there are no exclusive schemes, women-led businesses can benefit from MSME-friendly loans, coaching, and mentoring programs.
5. How do MSMEs contribute to the SDGs?
A: MSMEs contribute to achieving several Sustainable Development Goals (SDGs) by creating jobs, promoting gender equality, reducing poverty, and enhancing food production capacity.
6. What role does technology play in MSME competitiveness?
A: Technology improves operational efficiency, customer outreach, and financial tracking. MSMEs using digital tools are better equipped to scale and compete.
7. How can MSMEs reduce dependence on informal lending?
A: By building formal credit profiles, seeking assistance from accredited lending institutions, and accessing government-backed financial programs.
8. What are some examples of high-growth MSME sectors in the Philippines?
A: Food processing, e-commerce, health and wellness, logistics, and digital services are among the most rapidly growing sectors among MSMEs.
9. Can MSMEs operate without business registration?
A: While some micro businesses operate informally, registration is necessary for accessing loans, legal protections, and government support.
10. What is invoice factoring, and how does it help MSMEs?
A: Invoice factoring enables MSMEs to obtain immediate cash by selling their outstanding invoices to a lender, thereby improving cash flow without incurring debt.
