In a bustling corner of Mindoro, a small sari-sari store owner opens shop before sunrise. Like many Filipino microentrepreneurs, she’s survived inflation, typhoons, and supply disruptions. What she hasn’t survived is her third loan rejection in two years. Her application to a digital lending platform was denied again—no credit score, no bank history.

Meanwhile in Manila, fintech headlines tout aggressive growth. A local lending startup just raised millions in venture capital. But for business owners like her, these gains might as well be happening in another country.

The fintech boom is real, but it reveals a painful truth: progress isn’t always inclusive. Despite app-based credit products and mobile financing tools, many MSMEs still operate in a void, turning to high-risk lenders just to stay afloat.

The Data Doesn’t Lie: MSMEs Still Locked Out

Micro, small, and medium enterprises (MSMEs) make up 99.6% of all registered businesses in the Philippines and employ over 60% of the workforce. Yet they receive just 4.63% of total loans from the banking sector, according to the Bangko Sentral ng Pilipinas (BSP).

This stark mismatch reflects more than just cautious lending behavior—it’s a systemic problem that leaves many businesses undercapitalized and unable to scale. In effect, it creates a survival game where only the privileged few can grow, while the rest must hustle or stagnate.

Who Gets Left Behind? Barriers MSMEs Still Face

Why do so few MSMEs access formal credit?

Many are unregistered or lack traditional assets as collateral. Others fail to meet Know-Your-Customer (KYC) requirements or stumble through digital applications written in English or designed for tech-savvy users.

More critically, rural business owners struggle with poor internet connectivity and lack access to trusted financial advice. For them, the so-called democratization of finance feels like a gated community.

The Rise of Informal Lending in the Shadows

In the absence of inclusive formal lending, many turn to informal channels. Loan sharks offering "5-6" schemes still roam markets, and local lending circles thrive in tight-knit barangays.

These networks are fast, flexible, and familiar—but also dangerous. Interest rates can exceed 20% per month, and repayment is often enforced through social pressure or threats.

Business groups are increasingly sounding the alarm. According to a recent community forum in Negros Occidental, small entrepreneurs feel trapped: banks won't take a chance on them, while informal lenders take advantage of them.

The Fintech Disconnect: Innovation Without Inclusion?

In Metro Manila and Cebu, startups like SeekCap and First Circle are digitizing SME lending. Algorithms assess risk, while borrowers get quick decisions through apps. But these innovations rarely trickle down to the provinces.

Many digital lenders cater to more established businesses or those with existing credit trails. Meanwhile, the sari-sari store owner with only an e-wallet history remains invisible.

Alternative scoring tools based on phone usage, inventory turnover, or digital payments remain underused. The technology exists, but the incentives to deploy them in lower-margin, higher-risk segments are weak.

Where Do We Go From Here?

Experts suggest a few ways forward:

• Simplify digital onboarding, including translations in local dialects.
• Support blended finance models that combine government guarantees with private capital.
• Expand literacy programs that teach entrepreneurs how to build credit histories.
• Promote community-based fintech, including co-op-backed platforms that better understand rural borrower profiles.

These won’t be one size fits all solution, but they move the needle toward dignity and inclusion.

Filipino MSMEs are resilient, resourceful, and relentless. But they should not have to rely on predatory lenders or blind faith to survive.

Until fintech platforms and financial institutions find ways to truly meet small business owners where they are—geographically, linguistically, and economically—the shadows will remain crowded. Progress must be judged not by who moves fastest, but by who is finally brought along.

‍