No. Questions Answers
1 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..
2 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.
3 What are the benefits of the Credit Guarantee to the Banks?
  1. It is a Risk-Sharing tool to limit risk exposure of lending to MSMEs
  2. It enables Banks to lend higher loan amounts even when borrowers are unable to provide additional collateral
  3. 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) Bank is able to broaden its customer base with MSMEs as new customer segments
  4. Loans that are guaranteed by the credit guarantee requires lower loan provisioning under IFRS 9 which will enable the Bank to record higher profits
4 How does a Bank apply to be a Partner FI of LCGC?
    The Bank would have to write a letter to LCGC to express their interest on being a Partner FI (PFI) of LCGC. In the letter, the Bank will have to state the amount of Facility Size that the Bank would like to subscribe to be utilized.
    To accompany the letter, the Bank will have to attach the following supporting documents:-
    a) Profile of the Bank (background, shareholders, shareholding structure)
    b) Last 2 years of audited financial statements
    c) Information on NPL & Loans Written Off
    d) Credit Policy
    e) Loan Recovery Policy
5 How will LCGC approve the Bank’s application to be a Partner FI? All FI applications will be tabled to the Board of Directors (BOD) meeting for approval. The BOD meeting is held every quarter of the year.
6 What is the process and procedure for the Bank to apply for the credit guarantee?What is the process and procedure for the Bank to apply for the credit guarantee? 1. The borrower (MSME) will need to go to the Bank to apply for a business loan as the normal practice.
2. The Bank will process the borrower’s request and evaluate if the borrower can meet the loan requirements eg. Business track record, repayment capacity, purpose of the loan, good credit history etc
3. The Bank determines if it requires the credit guarantee to support the loan
applied. Thereafter, the Bank will submit the Guarantee Application to LCGC 4. LCGC will process the application to ensure that it has complied to the features of the MFGS
5. Once LCGC has approved the application, it will issue the Guarantee Certificate to the Bank
6. With the Guarantee Certificate, the Bank will then disburse the loan to the borrower
7 What is the turnaround time for LCGC to issue the Guarantee Certificate? The turnaround time to issue the Guarantee Certificate is 5 business days from the time the Guarantee Application is submitted to LCGC. This is subject to the accuracy of information submitted in the Guarantee Application. If LCGC finds the information is incorrect eg. Name of borrower differs from ID card, wrong details of collateral, incorrect loan details etc, it will return back to the PFI to amend the application. The turnaround time is based on a fully completed and accurate application submitted by the PFI.
8 What type of loans can be guaranteed by LCGC credit guarantee? Business Loans offered to MSMEs

1. Term Loans
2. Overdraft
3. Revolving Facilities eg. Trade Facilities, Invoice Financing, Receivables Financing
9 What is the Guaranteed Loan amount that can be applied for guarantee by LCGC? Each application is subject to:
Minimum LAK100 million
Maximum LAK4.0 Billion
10 What is the purpose of loans that can be guaranteed by LCGC? 1. Working Capital
2. Capital Expenditures
(Financing purchase of assets for speculative purposes is PROHIBITED. Only allowed for productive purposes. Margin of financing for assets < 85%)
11 What is the Guarantee Tenure? Minimum 1 year
Maximum 7 years.
If the loan is for 10 years, the guarantee coverage is only up to 7 years.
12 What is the guarantee cover provided by the credit guarantee? The Guarantee Cover (GC) is for the principal loan amount excluding interest & other charges. The GC are as follows:-
a. 80% of loan amount (Secured Guarantee)
eg. Loan amount of LAK2Bil, the Guaranteed Amount is LAK1.6Bil. The Bank will be liable for 20% of the loan ie. LAK0.40Bil
b. 70% of loan amount (Unsecured Guarantee)
eg. Loan amount of LAK3Bil, the Guaranteed Amount is LAK2.1Bil. The Bank will be liable for 30% of the loan ie. LAK0.90Bil
The Guaranteed Amount is the portion of loan amount guaranteed by LCGC.
13 What is Secured Guarantee? A Secured Guarantee is referred to a guarantee for loans that are secured by property (land & building) with a formal land title only. The valuation of the property is subject to 80% of the Bank’s approved valuation.
For example:
A MSME borrower applied for a loan amount of LAK2.0Bil and provided a property (land & building) with a valuation of LAK2.5Bil
The Bank has processed the application & evaluated the repayment capacity of the borrower and the purpose of the loan.
Subsequently, the Bank approved a term loan of LAK1.2Bil for 5 years secured against the Bank’s approved property valuation of LAK2.5Bil [48% Loan-To-Value (LTV)]
In order for the Bank to offer an additional loan of LAK0.8Bil, the Bank can apply for a Secured Guarantee to be additional collateral for the loan.
The additional loan of LAK0.8Bil will be guaranteed by LCGC for 80% coverage ie. LAK0.64Bil of the loan is the Guaranteed Amount. The Bank will be liable for 20% of the loan ie. LAK0.16Bil
14 What is Unsecured Guarantee? An Unsecured Guarantee is referred to a guarantee for loans that are NOT secured by any collateral.
The Unsecured Guarantee will act as a collateral to the Bank for the loan with a guarantee coverage of 70%. LCGC will be liable for 70% of the loan amount whilst the Bank is liable for 30%.
15 What are the sectors eligible for credit guarantee? Agriculture
Trade
Services
Handicraft
Industry
Priority Sectors
1. Manufacturing ie. Agricultural processing, handicraft, agriculture (crop) production & livestock farming
2. Trading on wholesale of agricultural products for manufacturing/processing & for export
3. Services in the tourism sector

Guarantee Cover @ 80% for Priority Sectors (Secured & Unsecured Guarantee)
Guarantee Fee @ 1.0%pa for Priority Sectors (Secured & Unsecured Guarantee)
16 What are the Eligibility Criteria for Borrowers? 1. Classified as MSME based on Decree 04/GOL
2. Legally registered & operating in accordance to laws of Lao PDR (formally registered or with local provincial authority license)
3. Business is majority Laotian owned
4. Business is operated in Lao PDR
5. Business operated for at least 2 years
6. Good loan repayment records in the last 1 year

(any records of NPL must be resolved with a cooling-off period of 1 year)
7. Have the repayment capacity for the loan
8. Not blacklisted or under the sanction list
9. Business activities not listed under the Negative List
10. Any relationship of the borrowers with key personnels of the Bank or LCGC must be disclosed