Loans to micro, small and medium enterprises fell to 4.48 percent of the local banking sector's total portfolio in the second quarter, down from 4.53 percent in the prior quarter, according to data from the Bangko Sentral ng Pilipinas reported by Inquirer Business. The share remains far below a former 10 percent target and a mandated 8 percent allocation for micro and small firms that expired in 2018.

In peso terms, P572.74 billion of the banking sector's P12.8-trillion loan portfolio went to MSMEs, slightly below the P573.82 billion in the first quarter. Banks have cited structural constraints: MSMEs lack acceptable collateral, have unstable cash flows and limited credit histories, pushing many to borrow from informal sources at high rates.

"The story here is not a lack of liquidity but a lack of bankable borrowers," said Jonathan Ravelas, senior adviser at Reyes Tacandong & Co. "Until constraints on credit information, collateral and financial records are addressed, MSME lending will continue to lag overall loan growth."

MSMEs make up 99 percent of Philippine business establishments and provide around 63 percent of employment, Inquirer business (PH) reports.