The Small Business Credit Guarantee Corp has an ambitious goal to expand its guarantees to cover those who want to raise funds from the stock market.
"We want to move towards credit-enhancement activities, in order to help small and medium-sized enterprises (SMEs) raise funds from the equity market, working closely with the International Finance Corp and the Asian Development Bank" said SBCG chairman Pichit Akrathit in an interview with The Nation.
SBCG now provides credit guarantees for those who borrow money from both state-owned and commercial banks. This year, it plans to offer combined credit guarantees of up to Bt30 billion. As of last Friday, it had granted Bt9.2 billion.
Pichit said if he was unable to meet the Finance Ministry's target, he would not fall far short, because guarantee granting had gained momentum over the past few months.
SBCG has relaxed its conditions by doubling its guarantee ceiling to Bt40 million per borrower and waiving fees in the first year of a contract.
If SBCG's credit guarantees reach Bt30 billion, it is estimated that the bank loans it helps cover will be worth about Bt100 billion.
"SBCG can be a very important policy tool for the government to encourage banks to lend to SMEs. It is better than creating a new bank " Pichit said.
Establishing a new bank would cost a lot of money, but by using the SBCG, the government will save the money, because commercial banks will do their job, he said.Commercial banks are reluctant to lend, because they perceive higher risks during the downturn. They also avoid lending money to start-up firms for fear of higher risks. SBCG credit guarantees can allay such fears.
Pichit said Japan and South Korean had operated credit-guarantee schemes for 90 and 70 years, respectively, to promote innovation and technology to strengthen their economies. Other advanced economies, such as the United States, implemented similar tools.
Thailand has had SBCG for 18 years, offering a rather complicated financial service, the essential role of which is not understood by most people and some policy-makers, he said.
Borrowers, particularly SMEs, know very little about SBCG's role, so they miss the opportunity to access bank loans or gain better deals.
"The combined capital of all SMEs is estimated to be Bt6 trillion, out of Bt8 trillion representing the capital of all corporations, except financial institutions. However, only 20 per cent of SMEs with that Bt6-trillion capital can access credit," Pichit said. "Therefore, there is a lot of room for expanding credit to SMEs."
He said under his leadership, SBCG had begun to directly contract with SMEs, promising them credit guarantees for loans from any bank of the SME's choosing.
Moreover, he plans to set up a mutual fund to provide loans for SMEs while the SBCG acts as guarantor for the borrowers.
Pichit also wants to offer credit enhancement for investors seeking to raise funds by issuing corporate bonds in the capital market. If the bonds are partially guaranteed by the SBCG, investors will be able to raise funds at lower cost.The latter two steps will require amendments to the law, so it could take three to five years before they become available, he said.