Sustaining A Guarantee System:Sustaining A Guarantee System:Issues, Challenges and Good Issues, Challenges and Good PracticesPractices

By:

Wan Azhar Wan Ahmad

Managing DirectorCredit Guarantee Corporation Malaysia Berhad

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1.0 About Credit Guarantee Basic Guarantee Principles Stages of Credit Guarantee System

2.0 Issues & Challenges

3.0 Best Practices Comprehensive Framework for Development of

SMEs CGC’s Transformation Plan Key Success Factors

4.0 Conclusion

ORDER OF PRESENTATION

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To influence & direct flow of credit.

Funds are used to back loans granted by lending institutions.

Funds available are used to build up reserves.

“Risk-sharing” principle.

1.0 About the Credit Guarantee Basic Guarantee Principles

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STAGES OF A GUARANTEE SYSTEM

-1

0

1

2

3

4

5

6

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Time 0 0.5 1 1.5 2 2.5 3 3.5 4Time

Gro

wth

Pre-Development

Seed

Growth

Matured

Identify Issue

• Access to financing for SMEs

• Solution: An intermediary between FIs and SMEs, i.e CGC

• Government support in terms of funding is essential

• Set-up & establish clear objectives of CGC

Expanding Outreach

• Creating greater acceptance of the g’tee

• Encourage other Government bodies to leverage / subscribe to g’tee concept

Repositioning

• G’tee system to be market driven

• Products to be commercially attractive

• Enhanced Risk Management

• Pricing based on risk

• Government’s funding reduced – efforts to build own reserve

Sustainability

• Financial Sustainability as an agenda

• G’tee system is market driven and transparent

• Products & services are market driven

• SME sector more informed – SMEs in position to ‘shop around for the best deal’.

1.0 About the Credit Guarantee Stages of Guarantee System

Creating Need

• G’tee to enhance bankability of SMEs

• Simple g’tee scheme

• Automatic cover

• Objective claims processing

• Government to regulate banks to participate (incentives / penalties)

Nurture

5

-1

0

1

2

3

4

5

6

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Time 0 0.5 1 1.5 2 2.5 3 3.5 4Time

Gro

wth Pre-

Develop-ment

Seed

GrowthMatured

• As business advances, lending pattern become more sophisticated with expansion of credit facilities eg. OD, tradelines, etc

• Portions of the loans can be guaranteed as FIs & SMEs are more knowledgeable

____________

• Max loan: USD167,000

• Limited facility – Term Loan

• Repayment over a fixed tenure

• Enable SMEs to learn the art of managing a loan

• G’tee schemes not sophisticated

• All loans are placed under g’tee to ensure proper monitoring and supervision.

________________

• Max loan: USD83,000

Nurture• Products are

developed jointly with FIs & feedback from SMEs to ensure relevance.

• Products are priced based on risk to benefit SMEs – better credit standing, hence lower cost of financing.

____________

• Max loan: USD3.3 mil

• SMEs able to leverage on a hybrid of products to optimize benefits.

• Infrastructure are sophisticated – information are timely and enhances credibility of SMEs.

• SMEs have an “upper hand” in availing to the best suited products in the market.

_______________

• Max loan: USD3.3 mil

1.0 About the Credit Guarantee Evolution of Guarantee Based Lending

Note : Throughout the timeline, risk sharing will vary from 30% to 100% depending on sector, target group & risk threshold

Note : Throughout the timeline, risk sharing will vary from 30% to 100% depending on sector, target group & risk threshold

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1.0 About Credit Guarantee Basic Guarantee Principles Stages of Credit Guarantee System

2.0 Issues & Challenges

3.0 Best Practices Comprehensive Framework for Development of

SMEs CGC’s Transformation Plan Key Success Factors

4.0 Conclusion

ORDER OF PRESENTATION

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ContinuousSupport

from Stakeholders

Risk BasedPricing of

Products & Services

Credit Bureauto address

credit standingOf SMEs

SUSTAINABLE GROWTH

2.0 Issues & Challenges

Risk Management

• Can’t rely on explicit support - funding, grants, budgetary allocation

• More implicit support required without monetary reliance - e.g. endorsement of schemes, bureau support, counter g’tee, etc.

Profit Oriented

Not Profit Motivated

• To change “subsidy mentality “ to pricing based on risk

• Establishing a pricing model to commensurate with different risks of SMEs

• SMEs unaware of their credit standings

• New acts (CRA & PDP) which may impede development of Bureau’s data sharing/ exchange initiatives

• Inculcate “risk management culture” - High risk SMEs may not be able to avail to g’tee.

• Creating awareness of CGC’s changed role - Commercially Oriented whilst complementing Developmental Role

CRA – Credit Reporting Agencies ActPDP – Personal Data Protection Act

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1.0 About Credit Guarantee Basic Guarantee Principles Stages of Credit Guarantee System

2.0 Issues & Challenges

3.0 Best Practices Comprehensive Framework for Development of

SMEs CGC’s Transformation Plan Key Success Factors

4.0 Conclusion

ORDER OF PRESENTATION

3.0 Best PracticesFinancing Landscape for SMEs

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6 Pillars of the Framework for the Development of SMEs

Ven

ture

Cap

ital

Cre

dit

En

han

cem

ent

Tra

inin

g

Mar

keti

ng

Ad

viso

ry

Fin

anci

ng

Fin

anci

ng

BIs & DFIs VCsInstitute for SMEs

Trading Companies, MNCs,etc.

National SME Advisory & Info Centre

CGC

• Product Segmentation

• Credit Information Services

• Business Consulting and

Advisory

• Risk Adjusted Pricing for

better returns from products

& services

• Investment Strategy

• Tapping capital market for

funds

New CGCSME Outreach Through Broader

Product RangeFinancially Sustainable

3.0 Best Practices CGC Transformation Plan

Commercially driven Financially sustainable

Complement Financial Institutions Involvement in social development agenda tied to Government support

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CGC Transformation PlanProduct Segmentation

Current Products available :

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- Credit Enhancer Scheme- Enhancer Express Scheme- Small Business Express- Direct Access Guarantee Scheme- Flexi Guarantee Scheme- Portfolio Guarantee- Securitization

- Credit Enhancer Scheme- Enhancer Express Scheme- Small Business Express- Direct Access Guarantee Scheme- Flexi Guarantee Scheme- Portfolio Guarantee- Securitization

Commercial- Attractive & flexible features- Generate returns

Commercial- Attractive & flexible features- Generate returns

Government-backed Schemes

- High developmental content (Programme Lending)- Backed by Government via

- Funding - Risk sharing

Government-backed Schemes

- High developmental content (Programme Lending)- Backed by Government via

- Funding - Risk sharing

- Green Technology Financing Scheme- SME Modernization Facility- SME Assistance Facility - SME Assistance Guarantee Fund - Franchise Financing Scheme- Tabung Projek Usahawan Bumiputera-i

- Green Technology Financing Scheme- SME Modernization Facility- SME Assistance Facility - SME Assistance Guarantee Fund - Franchise Financing Scheme- Tabung Projek Usahawan Bumiputera-i

GUARANTEE PRODUCTSGUARANTEE PRODUCTS

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Establishment of Credit Bureau

-- One stop centre for credit information and ratings on SMEs and One stop centre for credit information and ratings on SMEs and

micro-businesses.micro-businesses.

- - A platform for SMEs and micro-businesses to build, maintain and A platform for SMEs and micro-businesses to build, maintain and

enhance their track record & credit standing.enhance their track record & credit standing.

-- Promotion of sound credit culture amongst SMEs.Promotion of sound credit culture amongst SMEs.

CGC Transformation PlanCredit Information Service

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Credit Bureau - Bridging the Credibility Gap

CGC Transformation PlanCredit Information Service

LACK OF COLLATERALLACK OF COLLATERAL INADEQUATE INFORMATIONINADEQUATE INFORMATION

SMEs & Micro-businesses need to build a credit TRACK RECORDSMEs & Micro-businesses need to build a credit TRACK RECORD

Credit Reports

Credit Reports

Financial Institutions can improve

TIMELINESS & ACCESS TO FINANCING

Financial Institutions can improve

TIMELINESS & ACCESS TO FINANCING

Scope of Advisory Services:

Assist SMEs in preparation of loan documentation To enhance viability and reduce default cost

Challenges Measuring the input & output Quantifying strategic outcome Lack proper infrastructure – as not core activity No economies of scale Advisory services not holistic – lack expertise

Action Plan Collaboration with Strategic Partners with proven

track record.

CGC Transformation PlanBusiness Consultant & Advisory

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Support & from

Government –Financial & non-

financial

Establishment of a Risk-Sharing

Mechanism

Credit Bureauto address

credit standingOf SMEs

KSF in line with best practice ….

End-to-End handholding

& advisoryservices

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CGC Transformation PlanKey Success Factor

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1.0 About Credit Guarantee Basic Guarantee Principles Stages of Credit Guarantee System

2.0 Issues & Challenges

3.0 Best Practices Comprehensive Framework for Development of

SMEs CGC’s Transformation Plan Key Success Factors

4.0 Conclusion

ORDER OF PRESENTATION

Conclusion

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SMEs are enablers of

Government aspiration

Policies & key thrust areas to be given focus

Credit guarantee mechanism is of

strategic importance to SMEs in ensuring access to financing

SME SUCCESS