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This page features the full text of
Republic Act No. 6977
"Magna
Carta for Small Enterprises"
AN
ACT TO PROMOTE, DEVELOP AND ASSIST SMALL AND MEDIUM SCALE ENTERPRISES
THROUGH
THE CREATION OF A SMALL AND MEDIUM ENTERPRISE DEVELOPMENT (SMED)
COUNCIL,
AND THE RATIONALIZATION OF GOVERNMENT ASSISTANCE PROGRAMS AND AGENCIES
CONCERNED WITH THE DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES, AND FOR
OTHER PURPOSES.
REPUBLIC
ACT NO. 6977AN
ACT TO PROMOTE, DEVELOP AND ASSIST SMALL AND MEDIUM SCALE ENTERPRISES
THROUGH
THE CREATION OF A SMALL AND MEDIUM ENTERPRISE DEVELOPMENT (SMED)
COUNCIL,
AND THE RATIONALIZATION OF GOVERNMENT ASSISTANCE PROGRAMS AND AGENCIES
CONCERNED WITH THE DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES, AND FOR
OTHER PURPOSES.
CHAPTER
I
Section
1. Title. — This Act shall be
known as the "Magna Carta for Small Enterprises."
chanrobles virtuallaw libraryred
Sec.
2. Declaration of Policy. — recognizing
that small and medium scale enterprises have the potential for more
employment
generation and economic growth and therefore can help provide a
self-sufficient
industrial foundation for the country, it is hereby declared the policy
of the State to promote, support, strengthen and encourage the growth
and
development of small and medium enterprises in all productive sectors
of
the economy particularly rural/agri-based enterprises. To this end, the
Senate shall undertake the spur the growth and development of small and
medium enterprises throughout the country and thereby attain
countryside
industrialization:
(a) by
assuring, through the establishment of adequate support structure, and
the creation and promotion of an environment conducive to the viability
of these enterprises, establishment of mechanisms, the access and
transfer
of appropriate technology needed by small and medium enterprises;chanrobles virtuallaw libraryred(b) by
intensifying and expanding programs for training in entrepreneurship
and
for skills, development for labor;
(c) by
facilitating their access to sources of funds;
(d) by
assuring to them access to a fair share of government contracts and
related
incentives and preferences;
(e) by
complementing and supplementing financing programs for small and medium
enterprises and doing away with stringent and burdensome collateral
requirements
that small entrepreneurs invariably find extreme difficulty complying
with;
(f) by
instituting safeguards for the protection and stability of the credit
delivery
system;
(g) by
raising government efficiency and effectiveness in providing assistance
to small and medium enterprises throughout the country, at the least
cost;
(j) by
promoting linkages between large and small enterprises, and by
encouraging
the establishment of common service facilities;
(k) by
making the private sector a partner in the task of building up small
and
medium enterprises through the promotion and participation of private
voluntary
organizations, viable industry associations, and cooperatives; and
(l) by
assuring a balanced and sustainable development through the
establishment
of a feedback and evaluation mechanism that will monitor the economic
contributions
as well as bottlenecks and environmental effects of the development of
small and medium scale enterprises.
Sec.
3. Small and Medium Enterprises
as Beneficiaries. — "Small and medium enterprise" shall be defined as
any
business activity or enterprise engaged in industry, agri-business
and/or
services, whether single proprietorship, cooperative, partnership or
corporation
whose total assets, inclusive of those arising from loans but exclusive
of the land on which the particular business entity's office, plant and
equipment are situated, must have value falling under the following
categories;
micro: less
than P50,000 cottage: P50,001 P500,000 chanrobles virtuallaw libraryred
small: P500,001 P5,000,000
medium: P5,000,001 P20,000,000
In
a generic sense, all enterprises with total assets of Five million
pesos
(P5,000,000) and below shall be called small enterprises.chanrobles virtual law library
The
above definitions shall be subject to review and adjustment by the said
Council as deemed necessary, taking into account inflation and other
economic
factors.
Sec.
4. Eligibility for Government
Assistance. — To qualify for assistance, counseling, incentives and
promotions
under this Act, business falling under the above, definition must
be;
(a) duly
registered with the appropriate agencies as, presently provided by law:
Provided, That, in the case of micro enterprises as defined herein,
registration
with the office of the municipal or city treasurer shall be deemed
sufficient
compliance with this requirement; (b) one
hundred percent (100%) owned and capitalized by Filipino citizens if
single
proprietorship or partnership. If the enterprise is a juridical entity
at least 60% of its capital or outstanding stocks must be owned by
Filipino
citizens;
(c) primarily
engaged in manufacturing, processing, and/or production excluding farm
level agricultural/crop production; and
(d) it
must not be a branch, subsidiary or division of a large scale
enterprise
nor may its policies be determined by a large scale enterprise or by
persons
who are not owners or employees of the enterprise. chanrobles virtuallaw libraryred
However,
this requirement shall not preclude a small and medium enterprise from
accepting subcontracts from large enterprises or firms joining in
cooperative
activities with other small and medium enterprises.chanrobles virtual law library
Programs
of the financing corporation as provided in subsequent Sections of this
Act shall be exclusively targeted to small, cottage and micro-sized
enterprises.
Financing from the Philippine National Bank, Development Bank of the
Philippines,
Land Bank of the Philippines and other financial institutions shall be
made available to medium enterprises.
Medium
enterprises, however, shall be entitled to avail of the other
incentives,
programs and services as provided for in this Act.cralaw:red
Sec.
5. Guiding Principles. — To set
the pace for small and medium enterprise development, the State shall
be
guided by the following principles:
(a) Minimal
set of rules and simplification of procedures and requirements. All
government
agencies having to do with small enterprises shall pursue the
principles
of minimum regulation to ensure stability of rules and to encourage
entrepreneurial
spirit among the citizenry. The agencies shall see to it that
procedural
rules and requirements, within their respective offices and in
coordination
with other agencies, are minimized in the act of registration,
availment
of financing and accessing other government services and assistance.(b) Role
of the private sector. In order to hasten growth and expansion of small
and medium enterprises, the private sector throughout the country shall
be encouraged to assist in the effective implementation of this Act by
constantly policing their ranks; and by participating in government
programs
for small and medium enterprises strictly in accordance with law, and
consistent
with the attainment of the purposes hereof. The government shall
encourage
the organization and establishment of small and medium enterprise
industry
associations at the local and regional levels preferably unified under
a national federation/association.
(c) Coordination
of government efforts. Government efforts shall be coordinated to
achieve
coherence in objectives. All appropriate offices, particularly those
under
the Department of Trade and Industry, Finance, Budget and Management,
Agriculture,
Agrarian Reform, Environment and Natural Resources, Labor and
Employment,
Transportation and Communication, Public Works and Highways, Science
and
Technology, and Local Government as well as the National Economic and
Development
Authority and the Central Bank of the Philippines, through their
national,
regional and provincial offices, shall to the best of their effort and
in coordination with local government units, provide the necessary
support
and assistance to small and medium enterprises.
(d) Decentralization.
The State shall accelerate the decentralization process by establishing
regional and provincial offices in order to enhance and attain greater
efficiency in the provision of services to the countryside and the
implementation
of this Act, in coordination with local government units. To this end,
the Government Agencies shall effect a substantial delegation of
authority
their regional and provincial offices to make decisions, particularly
in
the registration of beneficiaries of this law, qualification for
availment
of benefits, accreditation of private voluntary organizations, industry
associations and cooperatives, and to resolve complaints for violation
of applicable laws.chanrobles virtuallaw libraryred
CHAPTER
II
Sec.
6. Creation of a Small and Medium
Enterprise Development Council. — To effectively spur the growth and
development
of small and medium enterprises throughout the country, and to carry
out
the policy declared in this Act, a Small and Medium Enterprise
Development
(SMED) Council is hereby created. The Council shall be attached to the
Department of Trade and Industry and shall be duly constituted within
sixty
(60) days after the approval of this Act.chanrobles virtual law library
The
Council shall be the primary agency responsible for the promotion,
growth
and development of small and medium enterprises in the country by way
of
facilitating and closely coordinating national efforts to promote the
viability
and growth of small and medium enterprises, including assisting
relevant
agencies in the tapping of local and foreign funds for small and medium
enterprise development, as well as promoting the use of existing
guarantee
programs.chanrobles virtual law library
Sec.
7. Composition. — The Council
shall be headed by the Secretary of Trade and Industry as Chairman. The
members shall be the following:
(a) Director
General of the National Economic and Development Authority; (b) Secretary
of Agriculture;
(c) Secretary
of Labor and Employment;
(d) Secretary
of Environment and Natural Resources; chanrobles virtuallaw libraryred
(e) Secretary
of Science and Technology;
(f) Chairman
of Small Business Finance and Guarantee Corporation;
(g) Chairman
of the small ad medium enterprises promotion body which the President
shall
undertake to establish under this Act; and chanrobles virtuallaw libraryred
(h) Three
(3) representatives from the private sector, all Filipino citizens, to
represent Luzon, Visayas and Mindanao to be appointed by the President,
one of whom shall come from the banking industry.
Cabinet-rank
ex officio members of the Council shall designate an undersecretary or
assistant secretary as their permanent representative in case they fail
to attend meetings of the Council.chanrobles virtual law library
The
private sector members of the Council shall initially receive per diem
of One thousand pesos (P1,000.00) per meeting.
The
Department of Trade and Industry shall allocate Five million pesos
(P5,000,000.00)
out of its savings for the initial operating expenses of the Council,
after
which the Council's budget shall be included in the annual
appropriation
of the Department of Trade and Industry.
The
council may, from time to time, call upon the participation of any
government
agency or association of local government officials in its deliberation
especially when such agency is directly or indirectly concerned with
and/or
affecting the growth and development of small and medium enterprises in
any particular area or manner.cralaw:red
Sec.
8. Powers and Functions. — The
Small and Medium Enterprise Development (SMED) Council shall have the
following
powers, duties and functions:
(a) to
help establish the needed environment and opportunities conducive to
the
growth and development of the small and medium sector;(b) to
recommend to the President and the Congress all policy matters
affecting
small and medium sale enterprises;
(c) to
formulate a comprehensive small and medium enterprise development plan
to be integrated into the National Economic and Development Authority
Development
Plans;chanrobles virtuallaw libraryred
(d) to
coordinate and integrate various government and private sector
activities
relating to small and medium enterprise development;
(e) to
review existing policies of government agencies that would affect the
growth
and development of small and medium enterprises and recommend changes
to
the President and/or to the Congress whenever deemed necessary. This
shall
include efforts to simplify rules and regulations as well as procedural
and documentary requirements in the registration, financing, and other
activities relevant to small and medium enterprises;
(f) to
monitor and determine the progress of various agencies geared towards
the
development of the sector. This shall include overseeing, in
coordination
with local government units and the Department of Local Government as
well
as private sector groups/associations, the developments among small and
medium enterprises, particularly the cottage and micro-sized firms;
(g) to
promulgate implementing guidelines, programs, and operating principles
as may be deemed proper and necessary in the light of government
policies
and objectives of this Act;
(h) to
provide the appropriate policy and coordinative framework in assisting
relevant government agencies, in coordination with the National
Economic
and Development Authority and the Coordinating Council for the
Philippine
Assistance Program, as may be necessary, in the tapping of local and
foreign
funds for small and medium enterprise development;
(i) to
promote the productivity and viability of small and medium enterprises
by way of directing and/or assisting relevant government agencies and
institutions
at the national, regional and provincial levels towards the;
(1) provision
of business training courses, technical training for technicians and
skilled
laborers and continuing skills upgrading programs; (2) provision
of labor-management guidance, assistance and improvement of the working
conditions of employees in small and medium-sized firms; chanrobles virtuallaw libraryred
(3) provision
of guidance and assistance regarding product quality/product
development
and product diversification;
(4) provision
of guidance and assistance for the adoption of improved production
techniques
and commercialization of appropriate technologies for the product
development
and for increased utilization of indigenous raw materials;
(5) provision
of assistance in marketing and distribution of products of small and
medium
scale enterprises through local supply-demand information, industry and
provincial profiles, overseas marketing promotion, domestic market
linkaging
and the establishment of common service facilities such as common
and/or
cooperative bonded warehouse, grains storage, agro-processing and
drying
facilities, ice plants, refrigerated storage, cooperative trucking
facilities,
etc.;
(6) intensification
of assistance and guidance to enable greater access to credit through a
simplified multiagency financing program; to encourage development of
other
models of financing such as leasing and venture capital activities; to
provide effective credit guarantee systems, and encourage for formation
of credit guarantee associations, including setting up of credit
records
and information systems and to decentralize loan approval
mechanisms;
(7) provision
of concessional interest rates, lower financing fees, which may include
incentives for prompt credit payments, arrangements tying amortizations
to business cash flows, effective substitution of government guarantee
cover on loans for the borrower's lack of collateral;
(8) provision
of bankruptcy preventive measures through the setting up of a mutual
relief
system for distressed enterprises, and the establishment of measures
such
as insurance against extraordinary disaster;
(9) intensification
of information dissemination campaigns and entrepreneurship education
activities;
(10) easier
access to and availment of tax credits and other tax and duty
incentives
as provided by the Omnibus investment Code and other laws; chanrobles virtuallaw libraryred
(11) provision
of support for product experimentation and research and development
activities
as well as access to information on commercialized technologies; and
(12) provision
of more infrastructure facilities and public utilities to support
operations
of small and medium enterprises;
(j) to
submit to the President and the Congress a yearly report on the status
of small and medium enterprises in the country, including the progress
and impact of all relevant government policies, programs and
legislation
as well as private sectors activities; (k) to
assist in the establishment of modern industrial estates outside urban
centers; and
(l) generally,
to exercise all powers and functions necessary for the objectives and
purposes
of this Act.
Sec.
9. Designation of the Bureau
of Small and Medium Business Development as Council Secretariat. — The
Bureau of Small and Medium Business Development of the Department of
Trade
and Industry, in addition to its current activities and functions, is
hereby
designated to act as the Council Secretariat. The Secretariat shall
have
the following duties and functions:
(1) to
prepare, in coordination with local government units and/or
associations
of local government officials, and recommend annual as well as
medium-term
small and medium enterprise development plans for approval of the
Council; (2) to
coordinate the preparation of position papers and background materials
for discussion or approval during Council meetings;
(3) to
assist the Council in coordinating and monitoring small and medium
enterprise
policies and programs and activities of all government agencies with
respect
to small and medium enterprises;
(4) to
repair, collate and integrate all inputs to the Council's yearly report
on the status of small and medium enterprises in the country;
(5) to
submit periodic reports to the Council on the progress and
accomplishment
of its work programs; and
(6) to
perform ad hoc functions as authorized by the Council. chanrobles virtuallaw libraryred
CHAPTER
III
Sec.
10. Rationalization of Existing
Small and Medium Enterprise Programs and Agencies. — The Small and
Medium
Enterprise Development Council shall within one hundred eighty (180)
days
from its establishment, recommend to the President, measure/s to
rationalize
and integrate under a unified Institutional frameworks all government
programs
for the promotion and development of small and medium enterprises.
The
President is hereby also empowered to establish a small and medium
enterprise
promotion body which shall be the principal government agency that will
formulate, implement, coordinate and monitor all non-financing
government
programs, including fee-based services, to support and promote micro,
small
and medium enterprises. It shall be attached to the Department of Trade
and Industry and shall be under the policy, program and administrative
supervision of the SMED Council. The said offices shall receive no less
than fifty percent (50%) of the assets, and budgetary allocations of
the
agencies for promotion, development and financing of small and medium
enterprises
that may be henceforth dissolved and/or abolished and absorbed,
incorporated
and integrated into the SMED Council.
Sec.
11. Creation of Small Business
Guarantee and Finance Corporation. — There is hereby created a body
corporate
to be known as the Small Business Guarantee and Finance Corporation,
hereinafter
referred to as SBGFC, which shall provide, promote, develop and widen
in
both scope and service reach various alternative modes of financing for
small enterprises, including, but not limited to, direct and indirect
project
lending, venture capital, financial leasing, secondary mortgage and/or
rediscounting of loan papers to small businesses secondary/regional
stock
markets: Provided, that crop production financing shall not be serviced
by the Corporation.cralaw:red
The
Corporation shall guarantee loans obtained by qualified small
enterprises,
local and/or regional associations small enterprises and industries,
private
voluntary organizations and/or cooperatives, under such terms and
conditions
adopted by its Board. It may guarantee loans up to one hundred percent
(100%). It may also provided second level guarantee (i.e.,
re-insurance)
on the credit and/or investment guarantees made by credit guarantee
associations
and other institutions in support of small entrepreneurs.
The
Corporation shall become liable under its guarantees upon proof that
the
loan has become past due under such terms and guidelines adopted by its
Board and printed on the contract of guarantee.
The
Small Business Guarantee and Finance Corporation shall:
(a) be
attached to the Department of Trade and Industry and shall be under the
policy, program and administrative supervision of the SMED
Council; chanrobles virtuallaw libraryred(b) have
its principal place of business in Metro Manila and endeavor to have
one
or more branch offices in every province of the country;
(c) exercise
all the general powers conferred by law upon corporations under the
Corporation
Code as are incidental or conducive to the attainment of the objectives
of this Act; and
(d) have
a board of directors upon which the powers of the Corporation shall be
vested, to be composed of five (5) members including:
(1) three
(3) members from the private sector appointed by the President upon
recommendation
of the SMED Council and from among whom the Chairman of the Board shall
be appointed by the President to serve on a full-time basis; (2) the
Secretary of Trade and Industry or his Undersecretary; and
(3) a
representative of the five (5) government financial institutions
mandated
in this Act to provide the initial capital of the Corporation, who
shall
be designated, under guidelines agreed upon by the Board Chairman of
said
institutions.
Sec.
12. Capitalization and Funding.
— The Small Business Guarantee and Finance Corporation shall have an
authorized
capital stock of Five billion pesos (P5,000,000,000.00. The initial
capital
of One billion pesos (P1,000,000,000.00) shall be established from a
pool
of funds to be contributed in the form of equity investments in common
stock by the Land Bank of the Philippines (LBP), the Philippines
National
Bank (PNB), the Development Bank of the Philippines (DBP) in the amount
of Two hundred million pesos (P200,000,000.00) each. The Social
Security
System (SSS) and the Government Service Insurance System (GSIS) shall
also
set aside Two hundred million pesos (200,000,000.00) each to be placed
in preferred stocks of the SBGFC. Additional funding shall come from
trust
placements of excess and unused funds of existing government agencies,
bilateral and multilateral official development assistance funds,
subscription
from government-owned or controlled corporations, and investments of
private
financial institutions and corporations. chanrobles virtuallaw libraryred
Sec.
13. Mandatory Allocation of Credit
Resources to Small Enterprises. — All lending institutions as defined
under
Central Bank rules, whether public or private, shall, set aside a
portion
of their total loan portfolio based on their balance sheet as of the
end
of the previous quarter, and make it available for small enterprise
credit
as herein contemplated. The portion mandated to be so set aside shall
at
least be, five per cent (5%) by the end of the year of the effectivity
of this Act, ten percent (10%) by the end of the second year through
the
end of the fifth year, and five percent (5%) by the end of sixth year
and
may come down to zero by the end of the seventh year.
The
Central Bank in consultation with the Council, shall formulate rules
for
the effective implementation of this provision: Provided, That the
purchase
of government notes, securities, and other negotiable instruments, with
the exception of such instruments as may be offered by the SBGFC, shall
not be deemed compliance with the foregoing provision.
The
SMED Council shall set up the appropriate systems to monitor all loan
applications
of small enterprises in order to account for the absorptive capacity of
the small enterprise sector.cralaw:red
The
Central Bank shall furnish to the Small and Medium Development Council
on a semestral basis regular reports on the lending institutions
compliance
with the above provisions on the mandatory credit allocation for small
enterprises.cralaw:red
Sec.
14. Penal Clause. — The Central
Bank shall impose administrative sanctions and other penalties on the
lending
institution for non-compliance with provisions of Act. In addition, the
president, members of boards of directors, and other officers of the
erring
lending institutions shall be individually liable for imprisonment of
not
less than six (6) months and a fine of not less than Five hundred
thousand
(P500,000) each.
CHAPTER
IV
Sec.
15. Separability Clause. — The
provisions of this Act are hereby declared to be separable. If any
provisions
of this Act shall be held unconstitutional, the remainder of the Act
not
otherwise affected shall remain in full force and effect.chanrobles virtual law library
Sec.
16. Repealing Clause. — All laws,
executive orders, rules and regulations, or parts thereof, inconsistent
herewith are hereby repealed or modified accordingly.
Sec.
17. Effectivity. — This Act shall
take effect upon its approval. chanrobles virtuallaw libraryred
Approved:
January
24, 1991
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