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CREDIT GUARANTEE MANAGEMENT UNDER THE ECONOMIC CRISIS AND MEASURES TO BOOST ECONOMY

CREDIT GUARANTEE MANAGEMENT UNDER THE ECONOMIC CRISIS AND MEASURES TO BOOST ECONOMY. By: DM Delute. The Small Business Guarantee and Finance Corporation (SBGFC), now also known as Small Business Corporation) was created in 1991 by virtue of the Magna Carta for SMEs.

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CREDIT GUARANTEE MANAGEMENT UNDER THE ECONOMIC CRISIS AND MEASURES TO BOOST ECONOMY

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  1. CREDIT GUARANTEE MANAGEMENT UNDER THE ECONOMIC CRISIS AND MEASURES TO BOOST ECONOMY By: DM Delute

  2. The Small Business Guarantee and Finance Corporation (SBGFC), now also known as Small Business Corporation) was created in 1991 by virtue of the Magna Carta for SMEs. It is the financing arm of Dept. of Trade & Industry Started operations on July 16, 1992.

  3. VISION MISSION “Develop and provide financial services and capacity building support programs in a progressive and sustainable manner to empower mSMEs as viable businesses.” “The champion for a globally competitive and viable mSME sector”

  4. MAJOR FINANCING PROGRAMS SME Wholesale Lending Credit Guarantee Program Retail Lending Program Wholesale Microfinance Program

  5. President EVP – Financing Delivery Sector Northern Luzon BDU Southern Luzon BDU Visayas BDU Mindanao BDU ORGANIZATIONAL STRUCTURE

  6. GUARANTEE PROGRAM PERFORMANCE Table 1 – Total Accounts Approved from Y2003-Y2008

  7. COMPOSITE CLAIMS RATIO *Cumulative from 1993-2008

  8. CREDIT GUARANTEE PROGRAM REDESIGNED Objectives: 1. To strengthen the program in both outreach and sustainability, thus, better serving banks in their loan guarantee requirements and expectations in terms of a robust and reliable guarantee call system 2. To provide a better fit for near bankable SMEs through more guarantee facility options, thus, assisting in their graduation from being pre- bankable to being fully bankable3. To highlight the surety nature of the SBC guarantee program where call on the guarantee can be made “if the borrower will not pay”.

  9. Credit supplementation framework Risk-based orientation Collateral consideration, including the credit guarantee is placed solely under the Facility Risk-Rating (FRR), and the FRR factors should only affect the pricing of the loan and not the credit decision. The redesigned program adopts a risk-based lending framework, moving away from traditional orientation of the collateral factor, and where evaluation is purely based on risk factors pertaining to the borrower as aided by the Borrower Risk-Rating (BRR) system.

  10. Credit supplementation framework Early Guarantee Review and Guarantee Call ProvisionSB Corp. shall make an early issuance of the Certificate of Completeness of Loan Documents, in contrast to the earlier certification process where it would begin only upon call on the guarantee Pro-active Monitoring and Remedial Management Posture SB Corp. response to PFI’s monitoring compliance output shall be timely and focused, with the end to prevent further deterioration of the weakened business and/ or credit position of the SME borrower

  11. Credit Evaluation Policy: • BRR-based – Out of a 10-scale BRR system, “1” represents lower risk and “10” the highest. BRR 5 is SBC passing mark.

  12. TABLE 3 – SB Corp. BRR SCORECARD

  13. TABLE 4 – BORROWER RISK RATING

  14. Guarantee fee structure • The guarantee fee rate is based on the BRR of the SME borrower. Corresponding change is made thereafter depending on the fluctuation of the BRR as obtained from the review and account monitoring. • The guarantee fee is computed based on the estimated probability of default under the BRR, the cost of the 1/3 contingent liability fund of SB Corp. for the program, and the computed transaction cost. Presently, the fee ranges from 1.0% to 3.0% per annum.

  15. Table 5 – Guarantee Fee Rate

  16. Account monitoring covenant & sanctions • The PFI shall be required to conduct a review of the BRR which includes a project visit on the SME borrower, and to make a timely report for submission to SB Corp. This will allow an early response from SB Corp. in case of BRR deterioration. • The monitoring schedule shall be BRR-based, as follows: • TABLE 6 – BRR FREQUENCY

  17. Other Government Support Programs Creation of Credit Surety Fund -Contributed by participating coops, LGUs, Banks and Central Bank. -Used to guarantee clean loans of mSMEs who are members of coops and obtained loans from banks

  18. The Barangay Micro Business Enterprise(BMBE) Law & Creation of BMBE Development Fund BMBE Law – provides exemption from income tax and minimum wage law to qualified micro entrepreneur in the countryside. BMBE DEVELOPMENT FUND – used to assist mSMEs in various requirements such as skills training, entrepreneurship development, business advisory, technology intervention, technology incubation/commercialization, policy advocacy, database development, business matching activities, trade fairs, etc.

  19. End of presentationMaraming salamat po.

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