Finance Ministry restructuring credit guarantee to help SMEs access loans

Currently, the Thai Credit Guarantee Corporation (TCG) helps SMEs with insufficient collateral to secure loans from banks. SMEs pay a guarantee fee to TCG, with rates varying by the type of guarantee. The government supports up to 30% of this fee.

The new entity will operate with the agility of a private firm while functioning as a government body. It will provide credit guarantees for SMEs with insufficient collateral, allowing them to join the guarantee mechanism before approaching banks, Phaophum said.

This mechanism will function similar to an insurance policy for businesses, with the government subsidising a part of the fee to mitigate the risk of non-performing loans (NPLs). 
If an SME defaults, the new entity will cover the outstanding amount.

Additionally, this organisation will assess the risk of each SME, with guarantee fees adjusted according to the level of risk, he said.
Data connectivity would be utilised to analyse and evaluate the risk in each case, and a larger pool of guaranteed SMEs would share the risk, reducing the overall fees and decreasing the need for government budget allocations.

This mechanism had already proved successful in various countries, Phaophum said.

“This mechanism will eliminate the risk for entrepreneurs, making banks more willing to offer loan products, thereby improving access to credit. The proposal would soon be submitted to the Cabinet for approval, followed by legislative amendments, which would take some time,” he added.

In addition to economic stimulus measures such as the 500 billion baht digital wallet project, the Ministry of Finance is pushing for increased credit in the economic system.

Previously, the Cabinet had approved two loan projects with a total value of 55 billion baht: the Ignite Thailand loan project worth 5 billion baht, managed by the Government Savings Bank; and the TCG’s Portfolio Guarantee Scheme Phase 11 (PGS 11) with a guarantee value of 50 billion baht. The government allocated 8.275 billion baht from the annual budget to subsidise interest and guarantee fees for entrepreneurs.

The Finance Ministry also is developing a low-interest loan project in collaboration with the Government Savings Bank. This involves a “soft loan” scheme worth 100 billion baht, offering loans to commercial banks at 0.1% interest for further lending to new SME customers. 

Although the exact interest rates have not been set, it is expected that the rates for the first 1-3 years will be around 3.5%, and 5-6% for years 4-5. This measure has been discussed in the Economic Cabinet meeting and is currently being developed for submission to the Cabinet.

Phaophum emphasised the importance of long-term economic restructuring, which must not be overlooked. However, short-term economic stimulus is necessary to maintain economic appeal and purchasing power for future planning to succeed.

The ministry is pushing for long-term structural reforms, such as supporting branchless banks (virtual banks) and introducing a retirement savings lottery. Although these initiatives would take time to show results, they are essential for promoting savings mechanisms in the country, Phaophum said.