Reassessing MSME Classification Thresholds in the Philippines: Evidence of Structural Finance Misalignment from Sectoral Cluster Analysis

Abstract

Micro, small, and medium enterprises (MSMEs) in the Philippines are classified primarily using static, asset-based
thresholds established by law. Despite their policy centrality, these thresholds have remained unchanged whilst the
enterprise landscape has undergone substantial growth and structural change. This paper uses the Asian Development
Bank’s Asia SME Monitor (ASM) 2025 dataset for the Philippines to empirically reassess the adequacy of the current MSME
classification framework. Using national data on enterprise counts, employment, and bank lending across seven sectors for
2019–2024, the paper undertakes a multi-dimensional assessment: it constructs sector-level profiles combining MSME
population shares, employment shares, and loan shares; applies k-means++ clustering to identify structural finance
archetypes; and examines temporal trends in access to finance. Cluster analysis consistently reveals three sector profiles: a
mass-market sector (wholesale and retail trade) with broadly proportional enterprise, employment, and loan shares; a
labour-intense but chronically underfinanced sector (other services); and a group of sectors with disproportionately high
loan shares relative to their MSME population. Critically, MSME loans as a share of total bank lending declined from 6.1% in
2019 to 3.9% in 2024, even as MSME count grew by 24.2%. Geographic concentration is severe: 83.8% of MSME loans were
extended in Metro Manila, where only 17.8% of MSMEs are located. These structural misalignments support a reframing of
MSME policy beyond uniform size thresholds toward sector-informed, risk-differentiated support frameworks.