Fulfilled pledge and forgotten audit

The government yesterday launched the National Credit Guarantee Institution (NCGI) to enable small and medium enterprises (SMEs) to obtain collateral-free loans.

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The new outfit will offer a 67% guarantee to banks that issue loans without collaterals, ranging from Rs. 500,000 to Rs. 25 million. It is likely to be a viable venture, given the state underwriting and the involvement of some banks therein, with the Asian Development Bank providing technical support and an initial capital of USD 50 million.

The NPP government has thus fulfilled one of its main election pledges. The NPP, in its manifesto, “A Thriving Nation, A Beautiful Life”, promised to introduce “a collateral-free loan scheme of up to Rs. 10 million, contingent on feasibility and credit score, through the financial sector to provide crucial financial support to micro, small and medium-scale entrepreneurs.” However, the proof of the pudding is said to be in the eating.

It will be quite an effort to sustain the feasibility of the collateral-free loan scheme. The prevalent get-and-forget debt culture has eroded financial discipline among borrowers, much to the detriment of the interests of financial institutions, whose stability must not be compromised under any circumstances.