Cabinet set to mull NaCGA draft law

Bill aims to reform credit guarantee system to allow broader access to credit for entrepreneurs, writes Wichit Chantanusornsiri

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The Finance Ministry looks set to propose for cabinet consideration today the draft bill for the National Credit Guarantee Agency (NaCGA), a new facility for small and medium-sized enterprises (SMEs) that provides direct guarantees for a low fee.

This legislation represents a challenge for the government, which is striving to increase access to formal credit for domestic entrepreneurs. Surveys indicate 40% of the country's 3.2 million SMEs still face difficulties accessing formal credit.

PURPOSE OF NACGA

The push for the NaCGA bill — which the cabinet has already approved in principle — aims to reform the credit guarantee system currently operated by the Thai Credit Guarantee Corporation (TCG), to allow broader access to credit for entrepreneurs.

However, the draft bill stipulates that financial institutions must contribute to NaCGA's fund, which will serve as a capital source for providing credit guarantees. This is in addition to government contributions, which are required to provide initial funding of 10 billion baht, and the guarantee fees paid by the entrepreneurs themselves.

The bill proposes that financial institutions must contribute to the fund at a rate not exceeding 0.3% per year of the total volume of domestic business loans issued by commercial banks and specialised financial institutions. The effective rate will later be announced by the ministry via regulation.

A source from the financial sector who requested anonymity said at present financial institutions are not required to contribute to a fund for use in credit guarantees for entrepreneurs, making them reluctant to make such contributions.

Meanwhile, Deputy Finance Minister Paopoom Rojanasakul said the draft law is expected to go before the cabinet on May 13, following the earlier approval in principle of the bill.