The core service provided by CGFT are credit guarantees, which cover a significant share of the default risk of a credit. In case of default of the borrower, the lender recovers the value of the guarantee from CGFT.
Currently, CGFT provides guarantees for the loans ranging from USD 10,000 to USD 500,000 or equal value in the Tajik Somoni.
In selecting the loans CGFT relies on clear and well-defined eligibility criteria:
- SME size of maximum: 500 employees, USD 15 million annual turnover, USD 15 million total assets - all three criteria to be met
- At present, CGFT guarantees loans, which are limited to the maximum duration of 60 months
- Eligible sectors include private sector activities except housing; trade finance is restricted to exclude pure import / re-export investments. In case of trade finance a physical set-up of the respective business in Tajikistan is required
- Eligibility of borrowers: Borrowers can be individuals (single ownership, partnership, family business) or legal entities (incorporated companies) with private and business residence in Tajikistan
- Borrower's business needs be feasible and generating sufficient cash-flow / income so as to provide sufficient repayment capability; borrowers need to be creditworthy, both individually (i.e. in respect of his/her entrepreneurial suitability, managerial and technical know-how and experience) and materially (i.e. in respect of their financial position)
- Eligible loan purposes include working capital and fixed assets
With these eligibility criteria in place the loan conditions (e.g. collateral rules, interest rates) are set at the discretion of the PFIs. Hence, the PFIs remain in the driver's seat throughout the lending process.
Credit guarantees provide multiple benefits for PFIs and SMEs and contribute to the macro-economic development of Tajikistan.
Benefits for PFIs:
- Financial service innovation and a focus on the customer needs
- Increasing of lending volume without drastic risk increase
- Profit increase
- Outreach to previously inaccessible target groups
- Guarantees serve as external collateral substitution and resolve the issue of the lack of the collateral by the borrowers
- Risk sharing with the PFIs allows to mitigate objective and subjective risk perceptions, which are salient to the PFIs
Benefits for SMEs:
- Easier access to financing
- Loan sizes and conditions appropriate to the need and repayment capacity
- Realizing growth potential and higher income
- Private sector development
- Creation of additional income and employment for the local population
- Overall strengthening of the Tajik financial sector
- Cushioning of the economic crisis
These benefits make CGFT's credit guarantees a valuable tool, well-suited for the development of the financial sector in the challenging economic context of Tajikistan.