A PCG is a financial arrangement in which a guarantor (usually a government agency or a financial institution) promises to cover some of the losses in case a borrower defaults on a loan. DGB Guarantee which is a subsidiary of DBG has been established as an independent legal entity (own legal status, registration and DFI license) to offer this facility. This PCG design follows international practices and is guided by the World Bank’s Principles for public guarantee schemes for MSMEs.
To be a leading and trend setting, national, sustainable Credit Guarantee Company facilitating access to finance to SMEs by collaborating with its PFIs.
To support economic transformation in Ghana by increasing access to finance for SMEs in all sectors of the economy, with emphasis on priority sectors, through eligible participating financial institutions (PFIs) on a financially, environmentally, and socially sustainable basis.
To increase SMEs’ access to affordable and appropriate credit, with special attention for underserved group such as women-owned businesses (financial impact and additionality).
To increase SMEs’ economic output, productivity, and job creation with special attention to environmentally and socially sustainable production and green sectors (economic impact and additionality).
This PCG facility will provide loan guarantees for new SME loans with partial loan guarantee coverage through an indirect guarantee approach (with Participating Financial Institutions – PFIs) and there willl also be no interference from DBG Guarantee or other parties in the PFIs’ loan decision process and lending terms. The PCG product will open to Banks, Rural banks, Savings & Loans and MFIs for the first three years of operations and in an agreement with the regulator, open its doors to other licensed finanacial institutions from year 4 onwards.
- Lower the Risk for Lenders: One of the primary benefits of partial credit guarantees is that they reduce the risk for lenders. This, in turn, allows them to offer loans at lower interest rates to borrowers that may have previously been considered too high-risk.
- Improves Access to Financing: Partial credit guarantees can help businesses or individuals that have difficulty accessing financing due to a lack of collateral or creditworthiness.
- Encourages Banks to Lend: When banks have partial credit guarantees, they are more likely to lend to businesses or individuals that they may have otherwise declined due to risk factors.
- Boosts Investment: Partial credit guarantees can help stimulate economic growth by channeling investments into key sectors such as infrastructure, housing, or renewable energy.
- Supports Job Creation: By reducing the risk for lenders, partial credit guarantees make businesses more viable and, in turn, support employment creation.
- Can Build the Creditworthiness of Borrowers: Access to credit can help borrowers slowly build their credit portfolio, thereby improving their creditworthiness and making it easier to obtain financing in the future.
- Helps Fosters Financial Inclusion: Partial credit guarantees can help promote financial inclusion, especially for small and medium-sized enterprises (SMEs) and marginalized groups who would otherwise have limited access to capital.
- Overall, partial credit guarantees can help improve access to financing, support investment, and stimulate economic growth, while reducing the risk for lenders and borrowers alike.
The PCG offers two guarantee products (Working capital and CAPEX/investment) to PFIs. The working capital loan is a loan for less than 18 months and used for recurring expenses (salaries, inventories, inputs, utilities, etc.). Only loans to MSMEs (Businesses with Up to $5million (cedis equivalent) annual turnover) are eligible for this Product.
The CAPEX or investment loan on the other hand, is a loan for 18 months or longer, but shorter than 36 Months) or a long term loan (equal to or longer than 36 months). These are allocated to acquire or build a specific fixed asset (machine, warehouse, equipment, etc.). CAPEX loans are available for both MSMEs and Small Corporates (Small corporate are businesses with annual turnovers between $5million and $30 million (cedi equivalent). The guarantee coverage is applied pari-passu.
DBG Guarantee will focus on all sectors of activity apart from the agriculture sector and sectors defined in the Exclusion list. The agricultural value chain activities that are excluded from coverage by the PCG are inputs supply, primary production, processing, aggregation, transportation, storage, marketing, retail and export, where the activity is the core business of the enterprise (i.e., it makes up more than 50% of annual revenue). However, DGB Guarantee will complement (co-guarantee with) Ghana Agricultural Risk Insurance Fund (GIRSAL), which is a risk-sharing facility for agriculture and agribusiness established in 2016 by Bank of Ghana and supported by the African Development Bank.
Channels of delivery
Given the secondary business model, the PCG guarantee facilities are to be delivered to PFIs through the following channels:
The PCG facility issues a guarantee by deciding in its sole discretion whether a specific loan to an MSME qualifies for guarantee coverage. The PCG reviews such coverage requests on a case-by-case basis following a set of pre-defined internal criteria. Under the individual model, the PCG reviews the financial suitability of the MSMEs loan request.
All loans meeting a pre-agreed guarantee criteria are automatically approved up to a predefined threshold loan guarantee amount. The PFI does not need to request the DBG Guarantee’s approval for each individual loan therein. However, the PFI informs the PCG facility every two weeks (on the 1st and 15th day of each month) of the clients and loans included under the guarantee. Loan claims are dealt with on an individual basis. Blanket guarantees can be covered by the same guarantee framework agreement as individual guarantees. The approach of blanket guarantees is used as an intermediary step between individual and portfolio guarantee.
The PFI will be allocated a guarantee facility, i.e., a maximum amount that can be guaranteed and paid out as claims by the PCG facility. The guarantee facility maximum will be set in discussion between DGB Guarantee and the PFI, based on the results of the due diligence and assessment, as well as performance of previously issued individual and blanket guarantees. All loans meeting the pre-set guarantee criteria are automatically approved. The PFI does not need to request approval for the individual loans before disbursement, but will have to inform the PCG facility each month of the borrowers and loans included under the guarantee. Each portfolio guarantee is based on a specific guarantee agreement.