SMALL AND MEDIUM ENTERPRISES
CREDIT GUARANTEE SCHEME
DRAFT POLICY AND OPERATIONAL GUIDELINES
BANK OF TANZANIA
EXPORT CREDIT GURANTEE SCHEME
SMALL AND MEDIUM ENTERPRISES CREDIT GUARANTEE SCHEME
(SME-CGS)
PART I
POLICY
1.0 Objective
The Scheme is geared towards promoting and supporting
Enterprises (SME), which have a significant role in the
enabling environment for expanding and facilitating
requirements. This is in pursuance to the National Policy
2002.
the Small and Medium
economy, by creating
access to financing
on SME Development,
The following strategies are set to achieve the above objective;
(i)
(ii)
To provide credit guarantees to participating financing institutions
relating to short and medium term financing to SMEs
To cooperate with various stakeholders in promoting SMEs
entrepreneurial skills.
This document therefore provides an overview of the framework within
which the SME-Credit Guarantee Scheme shall operate.
2.0 Interpretations
In this document and unless the context otherwise require reference to;
“Expiry date” means the expiration date of the credit facility issued to an
SME by a financing institution.
“Extended due date” means the expiration date on the additional due date
of the credit facility issued to an SME by a financing institution
“Small and Medium Enterprises (SME)” means, enterprises which is
registered and owned by Tanzanians nationals engaged in formal
undertaking with capital investments ranging from TZS 5 million up
to TZS 200 million.
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“Participating Financing Institution” means a bank or financial institution
as defined in the Banking and Financial Institutions Act, 1991 with
network, ability and facilities to increase participation of SME in
economic activities.
Other financial intermediaries not specified in the Banking Financial
Institutions Act, 1991 may participate in the Scheme through the
Participating Financing Institution
“Sponsoring and promoting Institution” means any institution that
supports and promotes the SMEs.
3.0 Funds
The sources and applications of the funds shall be as follows
3.1 Government contribution;
(i)
During 2003/2004 financial year TZS 500 million to cater for
SME-CGS and
(ii)
Resolved to inject up to TZS 3 billion in 4 years.
3.2 Other sources of funds
(i)
(ii)
(iii)
(iv)
(v)
3.3 Uses of funds
(i)
(ii)
(iii)
Contributions
Grants and loans
Guarantee fees
Income from Investments
Any other source as may arise during the operations
of the Scheme
Settlements of claims.
Operational expenses.
Any other use as may arise during the operations of
the Scheme.
4.0 Eligibility Requirement
4.1 The Maximum Credit Facility to be guaranteed
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The Scheme shall only guarantee credit facilities that do not exceed
TZS 30 million or as shall otherwise be determined by the Scheme
from time to time.
4.2 The Financing Institutions
Financing institutions that are eligible for participating in the Scheme
shall meet the following eligibility requirements;
4.2.1 Shall be licensed financial institutions as per the Banking and
Financial institutions Act, 1991
4.2.2 Shall have network, ability and facilities to increase
participation of SMEs in economic activities.
4.2.3 Shall apply to the Scheme and upon acceptance enter into a
Whole Turnover Guarantee
4.3 The SME
The following are eligibility requirements for the SMEs:4.3.1 Formally registered entity and owned by Tanzanian citizens.
4.3.2 Having viable commercial projects, which are the basis of
requesting the credit facility.
4.3.3 Ready to offer any enforceable collateral including their
personal guarantee, with the condition of allowing
assignment of such collaterals to the Scheme
4.3.4 Having applied for a credit facility from a financial institution
relating to eligible projects on which the financial institution
has sought a guarantee cover from the Scheme.
4.4 The Eligible Projects
The Scheme shall target issuance of guarantees in respect to credit
facilities granted to SMEs for manufacturing, agriculture, trading and
service provision projects that are geared to promote the growth of
the economy. The projects shall include the following attributes as
shall otherwise be determined by the Scheme;
(i) Utilize local inputs,
(ii) Labour intensive
(iii) Export oriented
5.0 Scope of the Guarantee
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5.1 The scheme would have the following guarantee coverage for loans with
duration not exceeding 5 years;
5.1.1 Loans with duration of less than 1 year -------75%
5.1.2 Loans with duration of 1 to 3 years ------------80%
5.1.3 Loans with duration between 3 and 5 years---85%
5.2 Any change in the terms and conditions of guaranteed credit facility shall
only become effective upon obtaining the approval of the Scheme.
6.0 Leverage
The scheme with initial capital of TZS 500 million shall issue guarantee
cover of TZS 1,500 million making leverage ratio of 1:3
7.0 Collateral
7.1 Any enforceable collateral of the SME borrower is acceptable.
7.1.1 Assets financed by the guaranteed credit facility (pledged or
hypothetication)
7.1.2 Assets under lease arrangements.
7.2 The financing institution would be required to undertake the same
prudence in appraising the collaterals as it would in other credit
facilities based on the prudential requirements.
7.3 The collaterals shall be assignable to the scheme. This condition shall
be imposed in the agreement with the financing institutions.
8.0 Guarantee Fees
(i)
The guarantee fees shall be 1.5% of the total contingent liability of
the scheme at the time of issue of the guarantee and it is subject
to review from time to time by the Scheme.
(ii)
These fees apply for credit facilities that do not exceed 360 days, in
case of medium to long-term credit facilities; applicable guarantee
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fees shall be charged 0.75% per annum on the subsequent years
and would continue for the duration of the guarantee.
9.0 Role of the Institutions
The roles of the institutions that participate in the SME credit
guarantee scheme;
9.1 The Participating Financing Institutions
(i)
(ii)
(iii)
Appraising and assessing the SME credit applications
(initiated by Stakeholders or any direct applications
from the SMEs) by strictly adhering to the existing
prudential requirements and on the commercial
prudence of the project.
Managing the collateralized assets (where applicable)
directly or subcontracting.
Establishing movable assets/ collateral registers.
9.2 The ECGS
(i)
(ii)
(iii)
(iv)
Issue policy and operational guidelines for the
scheme.
Delegation of some of the roles of the scheme
Establishing criteria to qualify for delegated
participating financing institution.
Renewal and accepting or rejecting participating
financing institution.
9.3 The Sponsoring and Promoting Institutions
(i)
(ii)
(iii)
10.0
Business development services, including Marketing
Monitoring and performance auditing of the SMEs
Establishing legal collateral registers for SMEs. .
The privity of contract
For the purposes of privity of contract, the contracts shall be as follows
10.1
10.2
10.3
ECGS and the Financing Institutions
The Financing institutions and the Borrower
The Financing institutions and Sponsoring
Institutions
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and
Promoting
11.0
General
(i)
Privy between financing institution with Sponsoring and
Promoting Institutions shall apply where the Stakeholders have
initiated an SME and on that basis the financing institution has
approved the credit facility.
(ii)
Other SMEs that choose not to pass through the Sponsoring and
Promoting Institutions may also be accepted by the financing
institutions and submitted to the Scheme for consideration
PART I
OPERATIONAL GUIDELINES
12.0 Financing institutions shall make applications for guarantees in the
prescribed Forms provided in the Whole Turnover Guarantee.
13.0 The head offices of the financing institution shall make all applications for
guarantees to the Scheme
14.0 Application forms shall be duly completed. Along with the applications
financing institutions shall forward project/business plan, loan agreement,
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credit assessment audited financial statements and any other relevant
document.
15.0 Upon approval of the guarantee application and payment of non-refundable
guarantee fee stipulated in the Whole Turnover Guarantee, the Scheme
shall issue a guarantee certificate.
16.0 The maximum guarantee cover shall be as follows or as shall otherwise be
determined by the Scheme;
(i)
(ii)
(iii)
Loans with duration of less than 1 year -------75%
Loans with duration of 1 to 3 years ------------80%
Loans with duration between 3 and 5 years---85%
17.0 When the credit facility is sanctioned after the date of issue of the
guarantee, the financing institution shall inform the Scheme the date on
which such facility has been availed.
18.0 A guarantee shall become void if no disbursement is made within 30 days
from the date of issue.
19.0 Where the credit facility issued by a financial institution is discontinued, the
financing institution shall immediately notify the Scheme whereupon the
guarantee shall cease forthwith.
20.0 The liability of the Scheme in respect of guaranteed credit facility shall end
as and when the effectiveness of the guarantee ceases due to any of the
following circumstances.
(i)
(ii)
(iii)
(iv)
The borrowers liability with the financing institution in respect
to the guaranteed credit facility has been relinquished.
Expiry
Failure by the financing institution to disburse the guaranteed
credit facility within 30 days from the date of issue.
Discontinuation of the guaranteed credit facility by financing
institution.
21.0 Financing institutions shall operate the guaranteed credit facility in
accordance with the requirements of Prudential Regulations issued by the
Bank of Tanzania from time to time, and bring to the notice of the
Scheme any adverse features noticed by them.
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22.0 The guarantee shall come into effect on the date of its issue, and unless
earlier terminated will remain operative for the period indicated in the
guarantee certificate.
23.0 Any guaranteed credit facility not repaid or adjusted on the due dates
should be classified as “watch” and reported to the Scheme. While this will
be in the nature of early warning, participating financing institution seeking
to invoke guarantees in respect of such accounts should file claims in
accordance with the provisions of the Whole Turnover Guarantee.
24.0 Claims shall be submitted by the head office of the financing institution in
the prescribed Forms of the Scheme.
25.0 Where the claim is approved the amount payable in respect of the
guaranteed credit facility shall be on the contingent liability at such rate or
as shall otherwise be determined by the Scheme, as follows;
(i) Loans with duration between 3 and 5 years --------85%
(ii) Loans with duration of 1 to 3 years------------------ 80%
(iii) Loans with duration of less than 1 year------------ 75%
26.0 Any amount received from the Scheme by the financing institution in
payment of a claim should not be credited to the account of the borrower
who shall remain liable to the financing institution for his indebtedness as if
no guarantee had been furnished. The borrower whose account is covered
by a guarantee under the scheme is not entitled to any benefit out of the
claim under the guarantee. The financing institutions should, therefore,
credit the amount received from the Scheme towards any claim under a
guarantee to a Specified Account.
27.0 The financing institution shall, in respect of the guaranteed credit facility for
which a claim has been paid, be responsible for recovering the debt and in
so doing exercise the same diligence in recovering from the borrower the
amount due in all the ways open to it as if no guarantee had been issued
for the purposes of recovering the amount in accordance with the
provisions of the Management of Risk Assets Regulations, 2001.
28.0 The financing institution shall submit to the Scheme monthly reports
detailing all debt recoveries made.
29.0 Any debt recovered after payment of a claim will be shared between the
concerned financing institution and the Scheme in the proportion in which
the loss has been borne.
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BANK OF TANZANIA
DIRECTORATE OF FINANCIAL MARKETS
SEPTEMBER 2003.
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