Some 40% of the country’s 3.2 million SMEs still face difficulties accessing formal credit.
The Finance Ministry looks set to propose for cabinet consideration on Tuesday the draft bill for the National Credit Guarantee Agency (NaCGA), a new facility for small and medium-sized enterprises (SMEs) that provides direct guarantees for a low fee.
This legislation represents a challenge for the government, which is striving to increase access to formal credit for domestic entrepreneurs. Surveys indicate 40% of the country’s 3.2 million SMEs still face difficulties accessing formal credit.
Purpose of NaCGA
The push for the NaCGA bill — which the cabinet has already approved in principle — aims to reform the credit guarantee system currently operated by the Thai Credit Guarantee Corporation (TCG), to allow broader access to credit for entrepreneurs.
However, the draft bill stipulates that financial institutions must contribute to NaCGA’s fund, which will serve as a capital source for providing credit guarantees. This is in addition to government contributions, which are required to provide initial funding of 10 billion baht, and the guarantee fees paid by the entrepreneurs themselves.
The bill proposes that financial institutions must contribute to the fund at a rate not exceeding 0.3% per year of the total volume of domestic business loans issued by commercial banks and specialised financial institutions. The effective rate will later be announced by the ministry via regulation.
A source from the financial sector who requested anonymity said at present financial institutions are not required to contribute to a fund for use in credit guarantees for entrepreneurs, making them reluctant to make such contributions.
Meanwhile, Deputy Finance Minister Paopoom Rojanasakul said the draft law is expected to go before the cabinet on May 13, following the earlier approval in principle of the bill.
According to Mr Paopoom, while the maximum contribution rate is 0.3% of each financial institution’s total business loan portfolio, the actual contribution rate may be significantly lower once this law is enforced.
He said mandating contributions from financial institutions is meant to incentivise them to utilise NaCGA’s services more frequently. This will help reduce the cost burden of credit assessment for the financial institutions, as NaCGA will take over the role of evaluating loan quality on their behalf.
Controversies and concerns
During the public hearing process for this draft law, which is required under the constitution, some participants suggested that the contribution to the fund — calculated based on the domestic business loan portfolio of financial institutions at a rate not exceeding 0.3% — should only apply to the portion of loans for which NaCGA provides cred
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