TCG coverage for SMEs on megaprojects

Microentrepreneurs included for first time

The Thai Credit Guarantee Corporation (TCG) is set to guarantee loans for small and medium-sized enterprises (SMEs) seeking job contracts under the government's 2-trillion-baht infrastructure development plan.

Executive vice-president Wichet Warakul said the state-owned agency stands ready to provide SME credit guarantees to ensure ample funding for subcontracting from large contractors.

Small subcontractors typically must have working capital totalling at least 30% of a project's value, he said.

Mr Wichet expects the largest portion of investment disbursement under the megaproject development will occur in 2015.

The seven-year infrastructure investment is expected to kick off next year.

The 2-trillion-baht borrowing bill will be deliberated in the Senate in the coming days, while the opposition Democrat Party has threatened to take the bill to the Constitution Court if it passes.

Mr Wichet said TCG can recapitalise if a large number of small subcontractors seek credit guarantees and its present level of 6.7 billion baht proves insufficient.

However, that would require Finance Ministry approval, he said.

TCG now provides credit guarantees to contractors securing loans at Krungthai Bank for work on government projects.

Mr Wichet said TCG is seeking Finance Ministry approval to let it offer two new credit guarantee products.

One would be for microentrepreneurs such as wet market vendors, with a maximum guarantee of 200,000 baht each.

The other would be for One Tambon One Product (Otop) operators, with a maximum guarantee of 3 million baht.

Extending credit guarantees to microentrepreneurs will mean full coverage for all SMEs, no matter how small, said Mr Wichet.

Thailand has 2.65 million SMEs _ 1.78 million microentrepreneurs, 860,000 small operators and 10,000 medium-sized operators.

Microentrepreneurs are business owners with fewer than five employees.

TCG plans to provide guarantees for a combined 5 billion baht worth of loans to 50,000 microentrepreneurs, said Mr Wichet.

He said the state-owned financial institution is trying to persuade commercial banks to extend loans to microentrepreneurs, considered riskier than bigger operators.

A minimum credit guarantee of five years is planned, but the combined guaranteed amounts should be capped at a maximum of 10% of non-performing loans (NPLs).

The credit guarantee fee should be 1-3% of the loan amount, depending on risk. TCG's regular credit guarantee fee is 1.75%.

To compensate for potential NPLs of 25-50% of microfinance loans, TCG has asked the government to set aside 1 billion baht for loan-loss provisions, said Mr Wichet.

For Otop credit guarantees, TCG has set the guarantee total at 10 billion baht and the maximum guarantee period at seven years. It will be responsible for a maximum of 25% of Otop NPLs.

About the author

Writer: Wichit Chantanusornsiri
Position: Business Reporter