Govt to overhaul lending system with new credit guarantee agency

The Ministry of Finance and the Bank of Thailand have drafted comprehensive legislation to establish a National Credit Guarantee Agency (NaCGA), Deputy Finance Minister Phaophum Rojanasakul revealed on Tuesday.

The proposed National Credit Guarantee Agency Act, comprising eight chapters and 132 sections, aims to transform Thailand's lending landscape and support small and medium-sized enterprises (SMEs) in accessing vital funding. Following recent public consultations, the draft legislation is scheduled for submission to the Cabinet next month.

"The NaCGA will serve as a crucial mechanism to reshape Thailand's lending system, strengthen entrepreneurs' bargaining power, and help businesses, particularly SMEs, access funding with financial costs appropriate to their individual risk profiles," Phaophum explained.

The agency will operate as a state body, though not as a government department or state enterprise. Its primary function will be risk assessment and provision of credit guarantees to borrowers, including non-bank entities and bond issuers.

Under the proposed framework, borrowers will first approach the NaCGA for credit-guarantee assessment before applying for loans from financial institutions.

The agency will evaluate entrepreneurial credit risk through individual assessments and risk-based pricing, utilising databases and credit risk models developed from financial and alternative data sources.

Successful applicants will receive a "credit guarantee certificate" after paying a modest fee based on their risk profile; costs will be partially subsidised by the government and participating financial institutions. Borrowers can then submit this certificate when applying for loans.

Financial institutions will be more inclined to approve loans, as the NaCGA will partially or fully guarantee the credit risk. In cases of default, the agency will assume the risk according to agreed terms.

The legislation mandates numerous organisations to provide anonymised data for the NaCGA's credit-risk modelling system, including the Bank of Thailand, the Revenue Department, the Customs Department, the Land Department, utility authorities, and the National Credit Bureau, among others.
 

Funding Structure

The agency will derive funding from four primary sources:

• Government subsidies
• Guarantee fees from entrepreneurs
• Annual contributions from banks proportional to their business loan portfolios

Contributions from non-bank entities using NaCGA services
Two committees will oversee NaCGA:

• A policy supervisory board chaired by the finance minister, responsible for setting policies and strategic direction
• An operational supervisory board comprising government agency representatives and experts in fields including accounting, law, technology, statistics, SME business, and capital markets

Phaophum emphasised that establishing the NaCGA would not only enhance the government's credit guarantee mechanism but also foster "a new ecosystem for fundraising in the Thai business sector".