The Importance of Entrepreneurship in the Philippines: Why MSMEs Are the Backbone of Inclusive Economic Growth

In every barangay across the Philippine archipelago, from the bustling streets of Manila to the quiet coastal towns, micro-enterprises are more than just businesses—they are the lifeblood of communities. Representing 99.6% of all enterprises, MSMEs form the undeniable backbone of the national economy.

This article examines the strategic importance of entrepreneurship in the Philippines—its economic impact, role in inclusive development, links to innovation, key challenges, and policy priorities.

Why Entrepreneurship Matters to the Philippine Economy

1. MSMEs Make Up 99.6% of All Businesses

According to the Philippine Statistics Authority (PSA), out of 1.1 million business establishments in 2022, a massive 99.59% are MSMEs. This overwhelming dominance shows how deeply entrepreneurship is embedded in local communities—from sari-sari stores and service shops to small manufacturers and tech startups.

However, most enterprises are micro-businesses, comprising 90.49% of all MSMEs. This indicates a landscape where many entrepreneurs operate out of necessity rather than opportunity, often with limited capital and low productivity.

2. Entrepreneurship Drives Employment for Millions

MSMEs are responsible for 65.1% of total employment, generating over 5.6 million jobs. Micro-enterprises alone contribute 32.69% of MSME jobs, making them essential in supporting grassroots livelihood.

This makes entrepreneurship the largest source of work for Filipinos—more than large corporations, multinational firms, or government institutions.

3. Contribution to National Output

MSMEs contribute 36%–40% of national Gross Value Added (GVA). However, this contribution is disproportionately low compared to their 99.6% share of establishments, highlighting a significant productivity gap. This gap stems from the core issue: entrepreneurs are plenty, but productivity remains low, mainly due to limited access to technology, financing, and markets.

Entrepreneurship as a Tool for Poverty Reduction and Inclusive Development

1. A Pathway Out of Poverty

Studies show that entrepreneurship helps Filipino households escape poverty and reduces the risk of falling back into it. For near-poor families, running a small business acts as a form of economic insurance, decreasing vulnerability to inflation, job loss, and shocks.

Entrepreneurship supports national poverty reduction efforts, especially with the poverty rate dropping to 15.5% in 2023 and the goal of 9% by 2028.

2. Promotes Regional Development

Because the Philippines is an archipelago, MSMEs naturally spread economic activity across regions—including rural and far-flung areas. Regionalized programs by DTI, BSP, and NEDA support local industries and ensure that growth does not concentrate only in Metro Manila or large cities.

3. Local Success Stories: The OTOP Program

The One Town, One Product (OTOP) initiative strengthens local industries by promoting unique regional products.

In CALABARZON alone, OTOP Hubs generated ₱23.1 million in sales (2022–2023), showcasing how local entrepreneurship can generate real income and community-level impact.

Innovation and Digital Transformation: The Future of Philippine Entrepreneurship

1. Strong Policy Foundations for Innovation

The Philippines has enacted multiple laws supporting innovation, such as the Philippine Innovation Act and the Innovative Startup Act.

Despite top performance in ICT services and high-tech exports, the country’s Global Innovation Index ranking declined in 2022, revealing a need to strengthen research, development, and commercialization.

2. MSMED Plan 2023–2028: Digitalization at the Core

The Department of Trade and Industry (DTI) outlines digital transformation as the main strategy to improve productivity.

Key initiatives include:

• AI and Industry 4.0 adoption
• Affordable digital tools for MSMEs
• Stronger e-commerce systems under the Internet Transactions Act (RA 11967)

This modernization push is essential for MSMEs to scale and remain competitive.

3. Regional Inclusive Innovation Centers (RIICs)

These centers create partnerships among universities, government, and the private sector. In 2021 alone, RIICs facilitated 100 multi-stakeholder collaborations, helping bring research solutions to market and supporting region-based innovation.

4. The Startup Ecosystem

Fintech, e-commerce, and entertainment dominate startup investments. However, high-impact sectors like agritech, healthtech, and greentech need more funding to support national developmental goals.

Challenges and Barriers Hindering MSME Growth

1. The MSME Financing Gap

Access to capital remains the single biggest barrier for entrepreneurs.

Although banks are legally required to allocate 10% of their loan portfolio to MSMEs, actual lending stands at only 4.59%.

Many banks prefer paying penalties rather than lending to small businesses due to perceived risks.

As a result, entrepreneurs turn to informal lenders charging high interest rates, limiting expansion and investment.

Fintech solutions—digital banks, e-wallets, and alternative lending platforms—now help close this gap by offering faster, more accessible financing.

2. Regulatory Complexity and Low Compliance

Awareness of government programs is high, but participation remains low.

Many MSMEs struggle with:

• Complex requirements
• Registration fees
• Compliance costs (e.g., labor laws, local permits)

Only 14% of businesses are registered with Department of Labor and Employment (DOLE) —reflecting a major formalization gap that prevents MSMEs from scaling or joining larger value chains.

3. Difficulty Entering Global Value Chains (GVCs)

To join global supply networks, MSMEs must meet strict international standards and scale requirements. The lack of certifications, capital, and technical expertise limits export readiness, even though inclusion in GVCs is one of the most effective ways to improve productivity.

The Strategic Role of OFWs in Entrepreneurship

1. Remittances as Economic Fuel

OFW remittances reached $32.54 billion in 2022, equivalent to 11% of GDP. These inflows support millions of households and provide a stable source of consumption and savings.

2. OFWs as Future Entrepreneurs

A significant 32% of overseas workers start businesses while abroad. Meanwhile, 44.4% of returning OFWs use financial assistance to start a livelihood.

Policy must therefore shift from viewing remittances purely as a source of consumption towards empowering OFWs to become investors, entrepreneurs, and industry leaders in the Philippines.

Policy Priorities for Scaling Philippine Entrepreneurship

To transform the entrepreneurial landscape into a globally competitive ecosystem, policies must address:

1. Financing Reforms

• Strengthen credit guarantees
• Adjust penalty structures for banks
• Expand fintech involvement
• Support alternative capital channels like P2P lending and invoice financing

2. Aggressive Digitalization

• Affordable digital tools
• AI adoption
• E-commerce protection via RA 11967
• Digital skills training

3. Streamlined Regulations

• Simplified business registration
• Easier compliance for micro-enterprises
• Localized support through DTI and LGUs

4. Innovation and Startup Support

• Increase R&D funding
• Support commercialization of university research
• Boost investments in agritech, healthtech, and greentech

5. Integration into Global Value Chains

• Training for export standards
• Assistance in certifications
• Stronger participation in ASEAN and global markets

Key Takeaways: Importance of Entrepreneurship in the Philippines

1. It drives national employment. MSMEs provide over 65% of all jobs in the Philippines, making entrepreneurship the backbone of livelihood and labor market stability.
2. It fuels inclusive economic growth. Small businesses spread economic activity across cities, provinces, and rural areas—reducing dependency on Metro Manila and promoting balanced regional development.
3. It supports poverty reduction and protects vulnerable households. Entrepreneurship helps lift families out of poverty and reduces the risk of falling back into hardship, functioning as a critical resilience mechanism for low-income communities.
4. It strengthens local industries and cultural identity. Programs like OTOP Philippines showcase local products, empower local artisans, and preserve regional heritage while boosting income opportunities.
5. It encourages innovation and digital transformation. Modern MSMEs adopting digital tools, AI, and Industry 4.0 technologies contribute to higher productivity, competitiveness, and long-term economic sustainability.
6. It expands opportunities for global market participation. Filipino entrepreneurs who meet international standards can join global value chains, increasing exports and attracting foreign investment.
7. It mobilizes OFW remittances into productive investments. With many OFWs starting or planning businesses, entrepreneurship becomes a strategic channel for transforming remittances into job-creating enterprises rather than short-term consumption.
8. It builds resilient and self-sustaining communities. Local enterprises create economic buffers during crises, help stabilize local supply chains, and support faster recovery during disruptions.
9. It empowers individuals with economic mobility and independence. Entrepreneurship allows Filipinos to control their income streams, pursue opportunities outside traditional employment, and build long-term wealth.
10. It strengthens the national economic foundation. With 99.6% of businesses classified as MSMEs, entrepreneurship is not just a sector—it is the core structure of the Philippine economy.

Entrepreneurship, embodied by the millions of MSMEs that make up 99.6% of Philippine businesses, is more than an economic sector—it is the nation’s economic backbone. It provides the jobs, community resilience, and regional balance that large corporations alone cannot. However, as the data shows, a significant productivity gap persists.

The strategic path forward is clear. To shift entrepreneurs from survival to scale, a coordinated effort is required: closing the financing gap through fintech and bank reforms, accelerating digitalization to boost competitiveness, and streamlining regulations to encourage formalization. By doing so, and by strategically channeling OFW capital and talent into venture creation, the Philippines can build an entrepreneurial ecosystem that is not only productive and inclusive but also globally connected.

The potential is immense. A fully empowered MSME sector will be the driving force behind achieving the nation’s goal of a 9% poverty rate by 2028 and securing sustainable, inclusive economic growth for all Filipinos.