Get to know NaCGA: Changing the Guarantee Mechanism in Thailand

On August 13, 2024, the Cabinet approved the “National Credit Guarantee Agency” or NaCGA, an effort to improve and enhance the guarantee mechanism of the government in Thailand to increase SMEs’ access to capital and small business owners who need funds but lack sufficient collateral.

Aims and Characteristics of NaCGA

National Credit Guarantee Agency (NaCGA) is a state-owned corporation that is not a government corporation or a state enterprise, which provides flexibility and speed of operation. The main purpose is to change the guarantee system in Thailand, especially for SMEs and small businesses that often have difficulty accessing financial resources from major financial institutions due to a lack of sufficient collateral.

NaCGA will provide a Direct Guarantee, which means a credit risk assessor of the debtor, from data review, personal risk assessment, fee assessment, and letter of guarantee issuance. NaCGA’s revenue will come from three main sources: government contributions, contributions from loan operators, and fees from loan applicants.

Operational procedures of NaCGA

The operation of NaCGA will begin with a simple and transparent procedure as follows:

Apply for a loan: Those who wish to apply for a loan must contact NaCGA for a guarantee.
Risk Assessment: NaCGA will assess the risk of loan applicants based on the information received.
Fee calculation: The guarantee fee will be determined according to the debtor’s risk level. The government and financial institutions will help support the expenses.
Letter of Guarantee issuance: When the calculation and approval are completed, NaCGA will issue a letter of guarantee to the loan applicant.
Implementation: The applicant shall submit a letter of guarantee to the financial institution for a loan.
Credit approval: Financial institutions will consider approving loans because of the guarantee from NaCGA.

Goals and Benefits of NaCGA

The establishment of NaCGA is primarily aimed at:

Promote access to financial resources: NaCGA will allow SMEs and retail businesses to access a wide range of funding sources at appropriate and in line with the risk, to reduce their reliance on informal debt.
Promote economic development: The NaCGA will help push key industries in line with the government’s policy and support the country’s economic development.
Stabilize the economy: NaCGA will act as a mechanism to maintain economic stability in the event of a financial crisis or risk.

Advantages and Precautions

Advantages:

Reduce financial costs: Risk-based pricing will help reduce the cost of access to funds for SMEs.
A wide range of access: NaCGA will provide access to a wide range of funding sources, including credit guarantees from non-banking and debentures.
Counseling and Knowledge: NaCGA will provide financial advice to help access appropriate funding sources.

Precautions:

Accurate risk assessment: NaCGA requires an accurate risk assessment to avoid unexpected risks.
Transparency in the fee calculation: The determined fee must accurately and fairly reflect the risks.

The establishment of the National Credit Guarantee Agency (NaCGA) is an important step in improving Thailand’s guarantee mechanism, which will make it easier for SMEs and retail businesses to access diverse sources of funds, reduce financial costs, and increase flexibility in accessing NaCGA. This will be an important part of Thailand’s economic promotion and long-term stability of the economic system.

References from
thaigov / thaipublica