MSMEs and Cooperatives: Twin Pillars of Inclusive Economic Development

Engr. Santiago S. Lim, MBA, GICD, ChE

Graduate Member

Institute of Corporate Directors

Economic development in the Philippines is too often framed around large enterprises, foreign investments, and headline GDP figures. These matter, of course. But they obscure as much as they reveal. Sustainable, inclusive growth is built from the ground up — by entrepreneurs who risk their savings to start a business, by workers who show up and create value daily, and by communities that pool resources to improve their collective welfare. Yet these grassroots economic actors often receive less attention than large corporations and headline investment figures, despite their outsized contribution to employment, livelihoods, and community resilience.

Two sectors have consistently driven this process: micro, small, and medium enterprises and cooperatives. Out of 1.24 million registered business establishments in the country, MSMEs account for 99.63 percent — only 4,568 are large enterprises.  They employ roughly 63 percent of the Philippine workforce and contribute about 40 percent of GDP.  Cooperatives are not a marginal force either. There are more than 20,000 registered cooperatives in the country, with a combined membership of 12.1 million individuals and 334,300 employees.  Together, these two sectors generate livelihoods at a scale no other segment of the economy matches — and anchor local communities that larger institutions routinely overlook.

The Power of Entrepreneurship

MSMEs are routinely called the backbone of the Philippine economy. The cliché endures because it is essentially true — but the human reality behind the statistics is worth dwelling on.

My years with SBCorp offered a close view of what that reality looks like under pressure. A well-structured loan or credit guarantee could be the difference between a small business surviving a lean season and closing permanently. I also saw what happened when financing arrived too late, or not at all. For MSMEs, lack of access to capital is not a peripheral concern — it is frequently the binding constraint. Lift that constraint, and the enterprise thrives. Leave it in place, and potential goes unrealized, often permanently. 

Nothing tested that proposition more severely than the COVID-19 pandemic. A nationwide DTI survey found that around 38 percent of MSMEs were forced to close during the height of the lockdown in the second quarter of 2020.  The response mounted through SBCorp was substantial. Under the Bayanihan to Recover as One Act, PHP 8.08 billion was allocated to SBCorp to expand the Bayanihan CARES program — an interest-free, collateral-free financing facility for MSMEs adversely affected by the pandemic. By the time the program wound down, PHP 8.20 billion in loans had been approved to more than 50,000 MSMEs  — covering trading, manufacturing, services, agriculture, tourism, and more. The closure rate, which had spiked to 38 percent at the lockdown’s peak, fell to 5 percent by the end of 2021 as credit reached businesses that would otherwise not have survived. That is what targeted financing, delivered at scale, actually does.

The numbers also reflect the sector’s underlying vulnerability. Micro enterprises — those with fewer than ten workers and assets below PHP 3 million — make up the overwhelming majority of MSMEs. Most operate without formal credit lines, collateral, or the financial buffers that larger firms take for granted. If 63 percent of employment rests on this foundation, the stability of that foundation is a national concern, not merely a sectoral one.

The Strength of Collective Action

Where MSMEs demonstrate the power of individual initiative, cooperatives demonstrate something different: what becomes possible when people decide to act together rather than alone.

Visits to cooperative leaders from Luzon to Mindanao during my tenure at CDA left a strong impression — not of large balance sheets, but of organizations that had built something harder to replicate: trust, accumulated over years of delivering credit, marketing support, and social services that neither the market nor the government was adequately providing. Cooperatives succeed or fail on that trust. When governance weakens or leadership turns self-serving, the trust erodes — and with it, the organization’s reason for existing.

The sector’s scale makes this governance imperative concrete. With over 12 million members — roughly one in ten Filipinos — cooperatives are not a niche instrument of development. They are a mainstream economic institution, and the obligations that come with that scale are commensurately serious.

Why Governance Is Not Optional

Work at the Board level of SBCorp, and later as its Executive Vice President and COO, reinforced something observable across every sector: the difference between institutions that endure and those that do not is rarely strategy or capital. It is governance.

This holds for a barangay credit cooperative as much as it does for a listed corporation. Governance sets the framework within which decisions get made, risks get managed, and accountability to stakeholders gets maintained. Weak governance produces poor outcomes even under well-intentioned leadership. Strong governance allows organizations to survive transitions — in leadership, in markets, in the operating environment — that would otherwise be fatal.

For cooperatives, the governance challenge is compounded by a specific dynamic: growth. A cooperative that begins with fifteen members and informal processes may serve ten thousand members two decades later to become a billionaire cooperative. The structures adequate for the former are almost never adequate for the latter. That is not a failure. It is a predictable consequence of success — one that demands deliberate institutional investment before the gap becomes a crisis.

Building the Leaders Institutions Need

Sound governance does not emerge on its own. It requires directors who ask tough questions, officers who report accurately, and members who hold both accountable. That kind of leadership culture must be built and continuously renewed.

At CDA, it became clear that director and officer development was not keeping pace with the sector’s growth. Cooperatives were expanding in economic significance faster than their leadership capacity was being built. Collaborative initiatives with governance-focused organizations addressed part of the gap. The need, however, remains substantial.

The same dynamic appears in MSMEs that aspire to grow beyond their founding stage. Entrepreneurial instinct carries a business through its early years. Whether it survives the transition to a larger, more complex organization depends on something harder to teach: governance capacity. That is why investing in directors, officers, and future leaders is not an educational exercise. It is a structural requirement.

Complementary, Not Competing

MSMEs and cooperatives are sometimes discussed as if they represent competing philosophies — one market-driven, the other community-driven. The distinction rarely holds in practice. Many cooperative members are also MSME owners. Many MSMEs depend on cooperative supply chains or cooperative financial services.

More important than what separates them is what they share: a dependence on capable people, sound institutions, and enabling policy. Address those shared foundations, and both sectors strengthen. Neglect them, and both underperform — regardless of how much capital is injected or how many programs are launched.

The numbers cited at the outset are worth returning to here. More than 99 percent of businesses. Sixty-three percent of employment. Twelve million cooperative members. These are not statistics about a peripheral sector awaiting development. They describe the actual structure of the Philippine economy as it exists today. Sustaining that structure requires taking governance, leadership development, and institutional capacity as seriously as financing and market access. That shift in emphasis — from inputs to institutions — may be the most consequential reorientation the sector still needs to make.

Author Profile: Santiago S. Lim, is a chemical engineer, governance practitioner, and business executive with more than three decades of experience in manufacturing, entrepreneurship, finance, and public sector leadership. He previously served as Assistant Secretary and Administrator of the Cooperative Development Authority (CDA) and as Board Director and Executive Vice President and Chief Operating Officer of Small Business Corporation (SBCorp). He is a Graduate of the Institute of Corporate Directors (GICD) and has held senior leadership positions in both government and private-sector organizations. His professional experience spans corporate governance, MSME development, cooperative advancement, manufacturing operations, supply chain management, and enterprise leadership.

Sources: Department of Trade and Industry (DTI) MSME Statistics; Cooperative Development Authority (CDA) Statistics; SBCorp Bayanihan CARES Program Reports.

The views expressed in this article are solely those of the author and do not necessarily reflect the views, policies, or positions of the Institute of Corporate Directors (ICD), the Cooperative Development Authority (CDA), Small Business Corporation (SBCorp), or any other organization with which the author is currently or has previously been affiliated.