MSME Development Modernization Act of 2025

'ore oft's TWENTIETH CONGRESS OF THE ) First Regular Session REPUBLIC OF THE PHILIPPINES JUL 29 P2:00 SENATE RECEIV-D EV S. No. Introduced by Senator Bam Aquino AN ACT TO MODERNIZE THE DEVELOPMENT OF MSMES BY AMENDING REPUBLIC ACT. NO. 6977, OTHERWISE KNOWN AS THE MAGNA CARTA FOR SMALL ENTERPRISES, AS AMENDED BY REPUBLIC ACT NO. 9501, OTHERWISE KNOWN AS THE MAGNA CARTA FOR MICRO, SMALL AND MEDIUM ENTERPRISES EXPLANATORY NOTE Micro, small, and medium enterprises (mSMEs) are the backbone of the Philippine economy, comprising 99.5% of all businesses and generating over 60% of jobs in the country. Despite their economic significance, mSMEs face persistent barriers in accessing financing, technology, markets, and government support. These challenges are often exacerbated by inconsistencies in how mSMEs are defined and classified across agencies and programs. This bill seeks to amend the Magna Carta for mSMEs to reflect the bold reforms and strategic direction outlined in the Philippine mSME Development Plan 2023-2028. It is time to modernize the law that supports our entrepreneurs so they can thrive in today's fast-changing, digital, and competitive economy. A key reform introduced in this bill is the adoption of a harmonized MSME classification system using two objective and measurable criteria: employment size and annual sales turnover, thereby removing asset size as a determinant. This approach aligns with widely adopted international practices and responds to long- standing concerns from the private sector that asset size is outdated, inconsistently applied, and often distorts firm classification. The new thresholds provide a clearer and more relevant basis for determining MSME status across all government agencies and programs, enhancing consistency in the delivery of support and incentives. The proposed amendments introduce four other major reforms: 1. Unified MSME Classification and Data System - The bill codifies the harmonized classification approach and establishes a National mSME Information System.

With better data comes better policy and more targeted, effective support for our entrepreneurs. 2. Accelerated Digital Transformation - Digitalization is no longer a luxury; it's a necessity. The bill institutionalizes a national digital skills program for MSMES and creates a Digital Transformation Fund to help small businesses overcome cost barriers to technology adoption and innovation. 3. Improved Access to Finance - Access to capital remains a top concern for MSMEs. This measure strengthens the Small Business Corporation's mandate to offer innovative and non-traditional financing models- such as those based on movable assets- making credit more accessible, especially for startups and underserved enterprises. 4. Greater Participation in Government Procurement - The bill ensures that a meaningful portion of government procurement is set aside for mSMEs, coupled with provisions for prompt payment. This opens up a steady, reliable domestic market for our local businesses, boosting income and encouraging expansion. These reforms are a long-overdue investment in our country's job creators, innovators, and economic frontliners. By passing this measure, we give our mSMes a fairer shot at success, empower them to compete in a digital economy, and bring inclusive growth closer to every Filipino. In view of the foregoing, the passage of this bill is earnestly sought. Bam Orquiar

Offer of is TWENTIETH CONGRESS OF THE REPUBLIC OF THE PHILIPPINES First Regular Session ) P2:00 JUL 29 SENATE RECEI S. No. _ Introduced by Senator Bam Aquino AN ACT TO MODERNIZE THE DEVELOPMENT OF MSMES BY AMENDING REPUBLIC ACT. NO. 6977, OTHERWISE KNOWN AS THE MAGNA CARTA FOR SMALL ENTERPRISES, AS AMENDED BY REPUBLIC ACT NO. 9501, OTHERWISE KNOWN AS THE MAGNA CARTA FOR MICRO, SMALL AND MEDIUM ENTERPRISES Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

Section 1. Short Title. - This Act shall be known as the "MSME Development

2 Modernization Act of 2025."

Sec. 2. Section 3 of Republic Act No. 6977, as amended by Republic Act No.

4 8289 and further amended by Republic Act No. 9501, is hereby further amended to read as follows: 6 "SEC. 3. Micro, Small and Medium Enterprises (MSMEs) as Beneficiaries. - For the 7 purposes of this Act, "Micro, Small, and Medium Enterprises" (MSMEs) shall be defined as any business activity or enterprise engaged in industry, agribusiness, and/or 9 services, whether a 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:] THAT SATISFIES THE FOLLOWING TWO CRITERIA: 14 (1) EMPLOYMENT SIZE, AND

1 (2) ANNUAL SALES TURNOVER, 2 BASED ON THE FOLLOWING THRESHOLDS: CATEGORY EMPLOYMENT SIZE ANNUAL SALES TURNOVER NOT MORE THAN 9 NOT MORE THAN PHP MICRO EMPLOYEES 8,000,000 MORE THAN PHP 8,000,000 SMALL 10 TO 49 EMPLOYEES UP TO PHP 40,000,000 MORE THAN PHP MEDIUM 50 TO 199 EMPLOYEES 40,000,000 UP TO PHP 250,000,000 3 AN ENTERPRISE SHALL BE CLASSIFIED IN THE HIGHEST CATEGORY FOR 4 WHICH IT SATISFIES BOTH CRITERIA AS PROVIDED ABOVE. 5 PROVIDED, THAT IN CASES WHERE AN ENTERPRISE SATISFIES ONLY ONE 6 OF THE REQUIRED CRITERIA IN TWO OR MORE ADJACENT CATEGORIES, 7 IT SHALL BE CLASSIFIED UNDER THE HIGHER APPLICABLE CATEGORY. THE 8 MICRO, SMALL AND MEDIUM ENTERPRISE DEVELOPMENT (MSMED) 9 COUNCIL SHALL ISSUE THE APPROPRIATE GUIDELINES UNDER THE 10 IMPLEMENTING RULES AND REGULATIONS TO ADDRESS SUCH INSTANCES AND ENSURE THE CONSISTENT AND EQUITABLE APPLICATION OF THIS 12 CLASSIFICATION SYSTEM, IN ACCORDANCE WITH THE INTENT OF THIS 13 ACT. PROVIDED FURTHER, THAT The above [definitions] CLASSIFICATION shall be subject to PERIODIC review and adjustments by the Micro, Small and Medium Enterprises Development (MSMED) Council under Section 6 of this Act, AT LEAST ONCE EVERY FIVE (5) YEARS, OR AS MAY BE WARRANTED, [or upon recommendation of sectoral organizations concerned,] taking into account inflation,

1 [and other] economic [indicators] CONDITIONS, AND THE RECOMMENDATIONS OF SECTORAL ORGANIZATIONS CONCERNED. THESE 3 ADJUSTMENTS SHALL ENSURE THE CONTINUED RELEVANCE AND 4 RESPONSIVENESS OF THE CLASSIFICATION SYSTEM. [The Council may use 5 other variables such as number of employees, equity capital and assets size.] 6 PROVIDED FINALLY, THAT THIS CLASSIFICATION SYSTEM SHALL SERVE AS 7 THE SOLE BASIS FOR DETERMINING MSME STATUS FOR ALL GOVERNMENT 8 AGENCIES AND INSTRUMENTALITIES FOR PURPOSES OF GRANTING 9 INCENTIVES, DELIVERING ASSISTANCE AND SUPPORT PROGRAMS, AND 10 DATA COLLECTION AND REPORTING. 11 The Council shall ensure that notwithstanding the plans and programs set for MSMEs as a whole, there shall be set and implemented other plans and programs varied and 13 distinct from each other, according to the specific needs of each sector, encouraging 14 MSMEs to graduate from one category to the next or even higher category.

Sec. 3. A new section, to be designated as Section 3-A, is hereby inserted after

16 Section 3 of the same Act, as amended, to read as follows: 17 "SEC. 3-A. NATIONAL MSME INFORMATION SYSTEM." - THERE IS HEREBY ESTABLISHED A NATIONAL MSME INFORMATION SYSTEM, WHICH SHALL BE A CENTRALIZED DIGITAL DATABASE OF ALL REGISTERED MSMES IN 20 THE COUNTRY. THE DTI, THROUGH THE BUREAU OF SMALL AND MEDIUM ENTERPRISE DEVELOPMENT (BSMED), SHALL LEAD ITS ESTABLISHMENT AND MAINTENANCE. ALL NATIONAL GOVERNMENT AGENCIES AND LOCAL GOVERNMENT UNITS (LGUS) ARE HEREBY MANDATED TO INTEGRATE THEIR EXISTING MSME DATABASES INTO THIS NATIONAL SYSTEM. THE PSA SHALL PROVIDE TECHNICAL ASSISTANCE TO ENSURE DATA INTEGRITY AND STATISTICAL VALIDITY. ANONYMIZED AND AGGREGATED DATA FROM THIS SYSTEM SHALL BE MADE PUBLICLY AVAILABLE TO SUPPORT POLICY RESEARCH AND MARKET ANALYSIS.

Sec. 4. Section 11-B of the same Act, as amended, is hereby further amended

to read as follows: "SEC. 11-B. Corporate Structure and Powers. - The SB Corporation shall: 4 XXX For this purpose, the SB Corporation subject to compliance with the rules and regulations to be issued by the Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission, shall have the following functions and duties: 8 XXX 9 "(H) DEVELOP AND ADMINISTER INNOVATIVE FINANCING PROGRAMS 10 THAT GO BEYOND TRADITIONAL DEBT-BASED LENDING. THIS SHALL 11 INCLUDE THE OPERATIONALIZATION OF RISK-BASED LENDING METHODOLOGIES, SUPPORT FOR MOVABLE ASSET-BASED LENDING IN 13 LINE WITH THE FULL IMPLEMENTATION OF THE PERSONAL PROPERTY SECURITY ACT (REPUBLIC ACT NO. 11057), AND THE CREATION OF 15 FINANCING WINDOWS FOR MSMES ADOPTING GREEN AND SUSTAINABLE 16 TECHNOLOGIES. 17 "(I) BROADEN ITS CREDIT GUARANTEE FACILITIES TO ENCOURAGE 18 PRIVATE FINANCIAL INSTITUTIONS TO LEND TO START-UPS, EARLY- 19 STAGE ENTERPRISES, AND MSMES IN HIGH-RISK BUT HIGH-POTENTIAL 20 SECTORS."

Sec. 5. A new section, to be designated as Section 16, is hereby inserted after

Section 15 of the same Act, as amended, with the succeeding sections renumbered

accordingly: 24 "SEC. 16. MANDATORY MSME PARTICIPATION IN GOVERNMENT PROCUREMENT, - TO OPTIMIZE THE DOMESTIC MARKET AND SUPPORT 26 LOCAL ENTERPRISES, ALL PROCURING ENTITIES OF THE NATIONAL 27 GOVERNMENT, ITS DEPARTMENTS, BUREAUS, OFFICES, AND AGENCIES,

1 INCLUDING STATE UNIVERSITIES AND COLLEGES (SUCS), GOVERNMENT- 2 OWNED AND/OR CONTROLLED CORPORATIONS (GOCCS), AND LOCAL 3 GOVERNMENT UNITS (LGUS), SHALL ENSURE THE PARTICIPATION OF 4 LOCAL MSMES IN GOVERNMENT PROCUREMENT. 5 (A) MANDATORY SET-ASIDE. - ALL PROCURING ENTITIES SHALL SET ASIDE 6 AT LEAST TWENTY PERCENT (20%) OF THEIR TOTAL PROCUREMENT 7 VALUE FOR GOODS AND SERVICES FOR THE YEAR TO BE EXCLUSIVELY 8 SOURCED FROM LOCAL MSMES. THE GOVERNMENT PROCUREMENT POLICY 9 BOARD (GPPB) SHALL, WITHIN SIX (6) MONTHS FROM THE EFFECTIVITY 10 OF THIS ACT, ISSUE THE NECESSARY RULES AND REGULATIONS TO IMPLEMENT THIS PROVISION. 12 (B) SIMPLIFIED BIDDING PROCESS. - THE GPPB SHALL CREATE A SIMPLIFIED BIDDING PROCESS WITH REDUCED DOCUMENTARY REQUIREMENTS FOR PROCUREMENT PROJECTS BELOW A THRESHOLD TO BE DETERMINED BY THE BOARD, WHICH ARE RESERVED FOR MSMES. (C) PROMPT PAYMENT. - ALL PROCURING ENTITIES SHALL PAY THEIR MSME SUPPLIERS FOR DELIVERED GOODS AND RENDERED SERVICES WITHIN A MAXIMUM PERIOD OF THIRTY (30) CALENDAR DAYS FROM THE SUBMISSION OF COMPLETE DOCUMENTS. ANY UNJUSTIFIABLE DELAY IN PAYMENT SHALL BE SUBJECT TO PENALTIES AS PRESCRIBED BY THE 21 GPPB."

Sec. 6. A new section, to be designated as Section 17, is hereby inserted with

the succeeding sections renumbered accordingly: "SEC. 17. MSME DIGITAL TRANSFORMATION AND CONNECTIVITY. - THE STATE RECOGNIZES THE CRITICAL ROLE OF DIGITALIZATION IN ENHANCING MSME COMPETITIVENESS. TO THIS END, THE FOLLOWING SHALL BE PURSUED:

1 (A) NATIONAL DIGITAL SKILLS PROGRAM FOR MSMES. - THE DEPARTMENT 2 OF INFORMATION AND COMMUNICATIONS TECHNOLOGY (DICT), IN 3 COORDINATION WITH THE DTI AND THE TECHNICAL EDUCATION AND 4 SKILLS DEVELOPMENT AUTHORITY (TESDA), SHALL ESTABLISH AND 5 IMPLEMENT A CONTINUOUS NATIONAL DIGITAL SKILLS PROGRAM. THIS 6 PROGRAM SHALL PROVIDE ACCESSIBLE AND AFFORDABLE TRAINING FOR 7 MSME OWNERS AND THEIR EMPLOYEES ON CRITICAL DIGITAL 8 COMPETENCIES, INCLUDING E-COMMERCE, DIGITAL MARKETING, 9 CYBERSECURITY, AND THE USE OF BUSINESS PRODUCTIVITY TOOLS. 10 (B) DIGITAL ADOPTION FUND. - THERE IS HEREBY CREATED AN MSME 11 DIGITAL ADOPTION FUND, TO BE ADMINISTERED BY THE SMALL BUSINESS 12 CORPORATION, WHICH SHALL PROVIDE GRANTS AND SOFT LOANS FOR MSMES TO ACQUIRE OR SUBSCRIBE TO ESSENTIAL DIGITAL SOLUTIONS, INCLUDING BUT NOT LIMITED TO ENTERPRISE RESOURCE PLANNING 15 (ERP) SYSTEMS, CUSTOMER RELATIONSHIP MANAGEMENT (CRM) 16 SOFTWARE, AND OTHER PRODUCTIVITY-ENHANCING TECHNOLOGIES. 17 (C) CONNECIIVITY FOR UNDERSERVED AREAS. - THE DICT, IN PARTNERSHIP WITH THE PRIVATE SECTOR, SHALL PRIORITIZE THE 19 ESTABLISHMENT OF AFFORDABLE AND RELIABLE HIGH-SPEED INTERNET 20 CONNECTIVITY, INCLUDING SATELLITE AND OTHER ALTERNATIVE TECHNOLOGIES, IN RURAL AND GEOGRAPHICALLY ISOLATED AREAS TO ENSURE THAT ALL MSMES CAN PARTICIPATE IN THE DIGITAL ECONOMY."

Sec. 7. Implementing Rules and Regulations. — Within ninety (90) days from

the effectivity of this Act, the Department of Trade and Industry, in consultation with the MSMED Council and other relevant stakeholders, shall promulgate the necessary rules and regulations for the effective implementation of this Act.

Sec. 8. Separability Clause. - If any provision of this Act is declared

unconstitutional or invalid, the other provisions not affected thereby shall remain in full force and effect.

Sec. 9. Repealing Clause. - All laws, decrees, executive orders, rules and

regulations, and other issuances inconsistent with this Act are hereby repealed or modified accordingly.

Sec. 10. Effectivity. - This Act shall take effect fifteen (15) days after its

5 publication in the Official Gazette or in a newspaper of general circulation. Approved,