CGFT Business Model
CGFT is based on a secondary business model. CGFT uses credit guarantees as instruments for benefiting borrowers (Tajik small and medium enterprises – SMEs ) through intermediary vehicles (Partner Financial Institutions – PFIs). The model allows CGFT to ensure the balance of interests among its target groups, as on one hand the PFIs secure their loan portfolios and on the other hand the borrowers benefit from easier access to finance.
The business model is verified by the success of its sister project – ACGF – Afghan Credit Guarantee Foundation. Based on lessons drawn from ACGF, CGFT relies on carefully selected PFIs and efficiency of its operations. Furthermore, the guarantee applications are checked against well-defined eligibility criteria developed in accordance with international best practice.
CGFT's financial viability is secured by its prominent international donors and specific German financial requirements of supervision. These conditions enable CGFT to be a reliable partner for PFIs with quick and uncomplicated payout mechanisms.
“Guarantee schemes share to a large extent in the banks risk, reducing its overall exposure. They provide additional qualitative information which completes the more financially-oriented analysis of the bank, allowing the latter to further improve its risk assessment... They are supervised and reliable financial intermediaries. The guarantee is a high quality collateral, usually available upon demand.”
“In many countries, Credit Guarantee Schemes (CGSs) represent a key policy tool to address the SME financing gap, while limiting the burden on public finances.”
“The World Bank Group estimates that up to 68 percent of formal SMEs in emerging markets are either unserved or underserved by financial institutions, with a resulting credit gap estimated to be close to $1 trillion.”