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

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Presentation on theme: "CREDIT GUARANTEE MANAGEMENT UNDER THE ECONOMIC CRISIS AND MEASURES TO BOOST ECONOMY By: DM Delute."— Presentation transcript:

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. 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 It is the financing arm of Dept. of Trade & Industry Started operations on July 16, Started operations on July 16, 1992.

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

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

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

6 GUARANTEE PROGRAM PERFORMANCE YEARTOTAL LOANS GUARANTEED (In Million Ph P) Increase (Decrease) % (3%) (26%) % (14%) (37%) Table 1 – Total Accounts Approved from Y2003-Y2008

7 COMPOSITE CLAIMS RATIO Y ear In Million Ph Pesos (Cumulative)* Claims Ratio (%) Total Loans Guaranteed Guarantee Payments (Gross) Guarantee Payments (Net of Recoveries) GrossNet 20036, , , , , , *Cumulative from

8 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 bankable 3.To highlight the surety nature of the SBC guarantee program where call on the guarantee can be made if the borrower will not pay. CREDIT GUARANTEE PROGRAM REDESIGNED Objectives:

9 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. Credit supplementation framework Credit supplementation framework 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. Risk-based orientation

10 Early Guarantee Review and Guarantee Call Provision SB 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 Credit supplementation framework Credit supplementation framework Pro-active Monitoring and Remedial Management Posture SB Corp. response to PFIs 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: Credit Evaluation Policy: BRR-based – Out of a 10-scale BRR-based – Out of a 10-scale BRR system, 1 represents lower BRR system, 1 represents lower risk and 10 the highest. BRR 5 risk and 10 the highest. BRR 5 is SBC passing mark. is SBC passing mark.

12 TABLE 3 – SB Corp. BRR SCORECARD IndicatorsItem Mark Total Score 1. Administration Experience of owners/management Owners age, health & Succession Financial Capacity of owners Attitude to banks Market Clients/Customers Increase in Sales

13 IndicatorsItem Mark Total Score 3. Production Suppliers Inventory Production/Service Capacity & Potential to Increase Business Location Financial Current Ratio Debt-to-Equity Ratio Debt Servicing Capacity Accounts Receivable Level Total Score100

14 TABLE 4 – BORROWER RISK RATING

15 1. 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. 2. 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. Guarantee fee structure Guarantee fee structure

16 Table 5 – Guarantee Fee Rate Borrower Risk RatingGuarantee Fee (p.a.) 11.00% 21.25% 31.50% 42.00% 53.00%

17 Account monitoring covenant & sanctions Account monitoring covenant & sanctions 1.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. 2.The monitoring schedule shall be BRR-based, as follows: TABLE 6 – BRR FREQUENCY TABLE 6 – BRR FREQUENCY BRR BRR-Review Frequency 1 or 2 Once a year full report with project visit 3 or 4 Once a year full report with project visit; plus semi- annual credit investigation (CI) update 5 Semi-annual full report with project visit

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

19 The Barangay Micro Business Enterprise(BMBE) Law & Creation of BMBE Development Fund 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 Law – provides exemption from income tax and minimum wage law to qualified micro entrepreneur in the countryside. BMBE DEVELOPMENT FUND – used to assist 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. 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.

20 End of presentation Maraming salamat po.


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