Development of Portfolio Credit Guarantee Scheme for SME Lending

Area of Operation: Moldova

Duration of Assignment: December 2020 – June 2021

Name of Client: Finance in Motion GmbH

Project Description:

The COVID-19 crisis brought a 66% drop in new SME loan disbursements by financial institutions in Moldova. Although well capitalized and highly liquid, the local banks were reluctant to extend uncollateralized loans to SMEs. The credit guarantee fund (CGF) of Organization for Small and Medium Enterprise Sector Development (Moldova) –also known as ODIMM, provided loan guarantees on an individual basis for SMEs and applies a manual procedure of approving applications. This slowed down the approval process and represented a constraint for local banks, which were, as result, reluctant to use the fund’s guarantees at a larger scale and benefit from the financial instrument in full scope.

To mitigate the financial impact of the crisis for SMEs and to use the full potential of guarantees, the CGF developed and launched a portfolio guarantee scheme to increase efficiency, scale and outreach and effectively respond to the credit activity slowdown. This was supported by the domestic regulator allowing banks to apply lower risk weights of 20% for loans covered by CGF’s guarantees and thus reducing their capital charges.

Our Services:

  • Conducted a comprehensive survey among local banks on issues, challenges, and overall experience regarding the use of credit guarantee schemes. The survey also considered opinions on the introduction of the new portfolio credit guarantee scheme.
  • Assessed the current legal and regulatory framework vis-à-vis the introduction of the portfolio credit guarantee scheme and recommendations on required assignments.
  • Development of a portfolio credit guarantee product concept along with detailed manuals for CGF staff and partner banks to aid the implementation process.
  • Technical assistance for MIS software adjustment to incorporate the newly developed portfolio guarantee procedures.
  • Delivered training sessions for the CGF staff involved in the guarantee, monitoring, legal enforcement and recovery processes of banks operating with CGF guarantee products.
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