Operation mechanism of credit guarantee fund for small and medium sized enterprises

Illustration image. Source: Internet

The Circular stipulates the principles of financial management for this fund. Specifically: the Credit Guarantee Fund is financially autonomous and responsible for its own operations. At the same time, it must preserve and develop capital, offset costs and risks in operations while operating on the principle of publicity, transparency, savings and efficiency.

Credit guarantee funds have to comply with regulations on ensuring the capital and property safety of the fund. In particular, the fund must buy property insurance, risk insurance for credit guarantee activities and other insurance in accordance with the law and set up risk provisions. Besides, it is not allowed to use operating capital for monetary trading, securities investment, capital contribution, purchase of shares of enterprises, real estate business or other disallowed business activities and investment.

The Ministry of Finance also stipulates the handling of loss of property of credit guarantee funds. When suffering loss of property, the Credit Guarantee Fund must set up a council to determine the level of loss, cause, responsibility and handling.

Specifically, they must clearly identify objective causes, force majeure (natural disasters, epidemics, fires, unexpected accidents, political risks) and subjective causes. If it was caused by subjective reasons, individuals and organisations causing losses must compensate for damage in accordance with law provisions. Credit guarantee funds shall specify the compensation and decision on compensation levels in accordance with law and take responsibility for their decisions. If the property has purchased insurance, it will be handled in accordance with the insurance law. The loss value after compensating by compensation of individuals, organisations and insurance organisations and the use of reserves which is provided in the expenses, if it is not enough, will be accounted into the expenses in the period of the credit guarantee fund.

The Circular will take effect from June 1, 2019 and applies from the fiscal year 2019.

Earlier, in early 2018, the Government issued Decree 34/2018/ND-CP on the establishment, organisation and operation of credit guarantee funds for small and medium enterprises.

The Government stated clearly: Credit guarantee fund is a non-budget state financial fund established by the provincial People's Committee, operating without profit, preserving and developing capital; performing the function of granting credit guarantees to small and medium enterprises.

The credit guarantee fund operates under the model of a limited liability company owned by the State with 100% charter capital.

Subjects entitled to credit guarantee granted by credit guarantee funds are small and medium-sized enterprises according to the provisions of the Law on Small and Medium Enterprises Support and guiding documents with potential for development but not yet eligible to access bank credit in areas prioritised for credit granting under the provisions of this Decree.

The small and medium enterprises that borrow capital for investment and production in the following areas will be given priority to consider granting credit guarantees: Areas of credit priority under the guidance of the State Bank. In each period; sectors or projects in the area of ​​local socio-economic development priorities in each period.