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FAQ
MICRO, SMALL & MEDIUM-SIZED ENTERPRISE FINANCING GUARANTEE SCHEME (MFGS) FAQ’s
FREQUENTLY ASKED QUESTIONS
What is a Credit Guarantee?
The Credit Guarantee is a financial tool that is provided to the Banks as a collateral to support their loans to MSMEs. It reduces the Bank’s risk when lending to MSMEs. The credit guarantee is a promissory note given by the Guarantor to repay part of the loan if the borrower fails to pay the loan.
Which countries use the Credit Guarantee to support financing to MSMEs?
More than 100 countries have the credit guarantee mechanism to improve MSME access to finance eg. Countries in ASEAN, Asia, Africa, Europe and Americas |
What are the benefits of the Credit Guarantee to the Banks?
- It is a Risk-Sharing tool to limit risk exposure of lending to MSMEs
- It enables Banks to lend higher loan amounts even when borrowers are unable to provide additional collateral
- The Bank is able to broaden its customer base with MSMEs as new customer segments
- Loans that are guaranteed by the Credit Guarantee has a lower capital requirement ie. Lower Capital Adequacy Ratio (CAR)
(LCGC has written to the Bank of Lao to obtain approval for granting capital relief to Banks for loans guaranteed by LCGC)
- Loans that are guaranteed by the credit guarantee requires lower loan provisioning under IFRS 9 which will enable the Bank to record higher profits
What type of loans can be guaranteed by LCGC credit guarantee?
Business Loans offered to MSMEs
- Term Loans
- Overdraft
- Revolving Facilities eg. Trade Facilities, Invoice Financing, Receivables Financing
