What is a Credit Guarantee Corporation?
Credit Guarantee Corporation (CGC) is a financial institutions that provides Credit Guarantees to borrowers so that Banks and Finance Companies can lend to borrowers.
What is the Purpose of CGC in PNG?
The purpose of CGC in PNG is to provide Credit Guarantees to Micro, Small and Medium Enterprises (MSMEs) where their loan applications are assessed by Banks and Finance Companies to be viable but lack adequate loan security.
Government is currently providing MSME funding to Bank South Pacific (BSP) and National Development Bank (NDB) only. If the MSME funding is provided to CGC, the MSME funding can be available to customers of all Banks and Finance Companies so more people can benefit and new sectors can be covered.
What are the benefits of CGC to PNG?
CGC will benefit PNG in the following manner:
- Make finance for MSMEs more accessible;
- Default risk is transferred from Banks and Finance Companies to CGC and therefore interest rate to MSMEs should reduce; and
- MSME customers of all Banks and Finance Companies can benefit – not just BSP and NDB customers.
This will contribute towards boosting the MSME Sector growth and therefore boosting the economic growth and providing employment to Papua New Guineans.
How can the CGC be sustained?
CGC will be sustained through premiums (guarantee fees) charged to Banks and Finance Companies for credit guarantee services and interest on funds invested in Treasury Bills and Stocks. Overtime it can earn interest on wholesale lending to Micro Banks and Savings & Loans Societies for targeted sectors aligned with development objectives.
Loan made to MSMEs will have met the viability criteria and therefore mitigating the risk of default.
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