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CREDIT GUARANTEE CREDIT GUARANTEE MANAGEMENT UNDER THE MANAGEMENT UNDER THE
ECONOMIC CRISIS AND ECONOMIC CRISIS AND MEASURES TO BOOST MEASURES TO BOOST
ECONOMYECONOMY
By: DM Delute
The Small Business Guarantee and The Small Business Guarantee and Finance Corporation (SBGFC), now Finance Corporation (SBGFC), now also known as Small Business also known as Small Business Corporation) was created in 1991 by Corporation) was created in 1991 by virtue of the Magna Carta for SMEs.virtue of the Magna Carta for SMEs.
It is the financing arm of Dept. of It is the financing arm of Dept. of Trade & IndustryTrade & Industry
Started operations on July 16, 1992.Started operations on July 16, 1992.
VISIONVISION ““The champion for a globally The champion for a globally
competitive and viable mSME sector”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.”
MAJOR FINANCING MAJOR FINANCING PROGRAMSPROGRAMS
SME Wholesale LendingSME Wholesale Lending
Credit Guarantee ProgramCredit Guarantee Program
Retail Lending ProgramRetail Lending Program
Wholesale Microfinance ProgramWholesale Microfinance Program
ORGANIZATIONAL STRUCTUREORGANIZATIONAL STRUCTURE
Northern LuzonBDU
Southern LuzonBDU
VisayasBDU
MindanaoBDU
EVP – Financing Delivery Sector
President
GUARANTEE PROGRAM GUARANTEE PROGRAM PERFORMANCEPERFORMANCE
YEAR TOTAL LOANS GUARANTEED (In
Million Ph P)
Increase (Decrease)
2003 223 169%
2004 217 (3%)
2005 160 (26%)
2006 216 35%
2007 186 (14%)
2008 117 (37%)
Table 1 – Total Accounts Approved from Y2003-Y2008
COMPOSITE CLAIMS RATIOCOMPOSITE CLAIMS RATIO
Year
In Million Ph Pesos (Cumulative)*
Claims Ratio (%)
Total Loans Guaranteed
Guarantee Payments
(Gross)
Guarantee Payments
(Net of Recoveries)
Gross Net
2003 6,554 373 256 5.69 3.9
2004 6,771 375 215 5.54 3.2
2005 6,931 377 207 5.44 3.0
2006 7,147 384 199 5.37 2.8
2007 7,333 395 205 5.39 2.8
2008 7,450 406 206 5.45 2.8*Cumulative from 1993-2008
1. 1. To strengthen the program in both outreach To strengthen the program in both outreach and and sustainability, thus, better serving banks in sustainability, thus, better serving banks in their loan guarantee requirements and their loan guarantee requirements and expectations in terms of a robust and reliable expectations in terms of a robust and reliable guarantee call system guarantee call system
2.2. To provide a better fit for near bankable SMEs To provide a better fit for near bankable SMEs through more guarantee facility options, thus, through more guarantee facility options, thus,
assisting in their graduation from being pre-assisting in their graduation from being pre-bankable to being fully bankablebankable to being fully bankable
3.3. To highlight the surety nature of the SBC To highlight the surety nature of the SBC guarantee program where call on the guarantee guarantee program where call on the guarantee can be made “if the borrower will not pay”. can be made “if the borrower will not pay”.
CREDIT GUARANTEE PROGRAM REDESIGNED
Objectives:
Collateral Collateral consideration, consideration, including the credit including the credit guarantee is placed guarantee is placed solely under the solely under the Facility Facility Risk-Rating (FRR),Risk-Rating (FRR), and and the FRR factors should the FRR factors should only affect the pricing only affect the pricing of the loan and not the of the loan and not the credit decision.credit decision.
Credit supplementation framework Credit supplementation framework
The redesigned program The redesigned program adopts a risk-based adopts a risk-based lending framework, lending framework, moving away from moving away from traditional orientation traditional orientation of the collateral factor, of the collateral factor, and where evaluation is and where evaluation is purely based on risk purely based on risk factors pertaining to the factors pertaining to the borrower as aided by borrower as aided by the the Borrower Risk-Borrower Risk-Rating (BRR) system.Rating (BRR) system.
Risk-based orientationRisk-based orientation
Early Guarantee Early Guarantee Review and Guarantee Review and Guarantee Call ProvisionCall Provision
SB Corp. shall make an SB Corp. shall make an early issuance of the early issuance of the Certificate of Completeness Certificate of Completeness of Loan Documents, in of Loan Documents, in contrast to the earlier contrast to the earlier certification process where certification process where it would begin only upon it would begin only upon call on the guaranteecall on the guarantee
Credit supplementation Credit supplementation framework framework
Pro-active Monitoring Pro-active Monitoring and Remedial and Remedial Management PostureManagement Posture
SB Corp. response to SB Corp. response to PFI’s monitoring PFI’s monitoring compliance output shall compliance output shall be timely and focused, be timely and focused, with the end to prevent with the end to prevent further deterioration of further deterioration of the weakened business the weakened business and/ or credit position of and/ or credit position of the SME borrowerthe SME borrower
Credit Evaluation Policy:Credit Evaluation Policy:
BRR-based – Out of a 10-scale BRR-based – Out of a 10-scale
BRR system, “1” represents lowerBRR system, “1” represents lower
risk and “10” the highest. BRR 5risk and “10” the highest. BRR 5
is SBC passing mark.is SBC passing mark.
TABLE 3 – SB Corp. BRR SCORECARDTABLE 3 – SB Corp. BRR SCORECARD
Indicators Item MarkTotal Score
1. Administration
Experience of owners/management
Owners’ age, health & Succession
Financial Capacity of owners
Attitude to banks
5.0
5.0
5.0
5.0
20
2. Market
Clients/Customers
Increase in Sales
7.5
7.5
15
Indicators Item Mark Total Score
3. Production
Suppliers
Inventory
Production/Service
Capacity & Potential to
Increase Business Location
4.0
4.0
4.0
3.0
15
4. Financial
Current Ratio
Debt-to-Equity Ratio
Debt Servicing Capacity
Accounts Receivable Level
7.5
7.5
30.0
5.0
50
Total Score 100 100
Risk Description Probability of default 5 years Per Moody’s
Score Risk quality
1 Excellent 2% > 89 Very Low risk 2 Strong 3% 80-89 Low risk 3 Good 4% 70-79 Moderate risk 4 Fair 6% 60-69 5 Acceptable 8% 55-59 High risk 6 Marginal 15% 50-54 7 Insatisfactory 30% 45-49 Very high risk 8 Substandard 50% 40-44 9 Doubtful 80% 35-39
10 Expected Loss 100% < 35
TABLE 4 – BORROWER RISK RATING
1.1. The guarantee fee rate is based on the BRR of the SME The guarantee fee rate is based on the BRR of the SME borrower. Corresponding change is made thereafter borrower. Corresponding change is made thereafter depending on the fluctuation of the BRR as obtained depending on the fluctuation of the BRR as obtained from the review and account monitoring.from the review and account monitoring.
2.2. The guarantee fee is computed based on the estimated The guarantee fee is computed based on the estimated probability of default under the BRR, the cost of the 1/3 probability of default under the BRR, the cost of the 1/3 contingent liability fund of SB Corp. for the program, contingent liability fund of SB Corp. for the program, and the computed transaction cost. Presently, the fee and the computed transaction cost. Presently, the fee ranges from 1.0% to 3.0% per annum. ranges from 1.0% to 3.0% per annum.
Guarantee fee structureGuarantee fee structure
Table 5 – Guarantee Fee RateTable 5 – Guarantee Fee Rate
Borrower Risk Rating Guarantee Fee (p.a.)
1 1.00%
2 1.25%
3 1.50%
4 2.00%
5 3.00%
Account monitoring covenant & sanctions Account monitoring covenant & sanctions
1.1. The PFI shall be required to conduct a review of the The PFI shall be required to conduct a review of the BRR which includes a project visit on the SME BRR which includes a project visit on the SME borrower, and to make a timely report for borrower, and to make a timely report for submission to SB Corp. This will allow an early submission to SB Corp. This will allow an early response from SB Corp. in case of BRR response from SB Corp. in case of BRR deterioration.deterioration.
2.2. The monitoring schedule shall be BRR-based, as The monitoring schedule shall be BRR-based, as
follows: follows: TABLE 6 – BRR FREQUENCY TABLE 6 – BRR FREQUENCY BRRBRR BRR-Review FrequencyBRR-Review Frequency
1 or 21 or 2 Once a year full report with Once a year full report with project visitproject visit
3 or 43 or 4 Once a year full report with Once a year full report with project visit; plus semi-project visit; plus semi-annual credit investigation annual credit investigation (CI) update(CI) update
55 Semi-annual full report with Semi-annual full report with project visitproject visit
Other Government Support ProgramsOther Government Support Programs
Creation of Credit Surety FundCreation 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 -Used to guarantee clean loans of mSMEs who are members of coopsare members of coops
and obtained loans from banksand obtained loans from banks
The Barangay Micro Business The Barangay Micro Business Enterprise(BMBE) Law & Creation of Enterprise(BMBE) Law & Creation of BMBE Development FundBMBE Development Fund
BMBE Law – provides exemption from income tax BMBE Law – provides exemption from income tax and minimum wage law to qualified micro and minimum wage law to qualified micro entrepreneur in the countryside.entrepreneur in the countryside.
BMBE DEVELOPMENT FUND – used to assistBMBE DEVELOPMENT FUND – used to assist
mSMEs in various requirements such as skills mSMEs in various requirements such as skills training, entrepreneurship development, business training, entrepreneurship development, business advisory, technology intervention, technology advisory, technology intervention, technology incubation/commercialization, policy advocacy, incubation/commercialization, policy advocacy, database development, business matching database development, business matching activities, trade fairs, etc.activities, trade fairs, etc.
End of presentationEnd of presentation
Maraming salamat po.Maraming salamat po.