Банкеръ Weekly



The establishment of a guarantee fund is a major problem for providing access to financing of small and medium-sized enterprises (SMEs). This was the thesis around which representatives of Biochim Commercial Bank, the Bulgarian Industrial Association and the Agency for SMEs, united at a debate on the tendencies in ensuring credits to the small business, held in the National Palace of Culture (NDK) on April 14 and 15. The idea for the establishment of a guarantee fund was underlying in the programme for government of the incumbent Cabinet and part of it was even realized - the National Fund for Microcrediting was set up and it began work in the beginning of 2002. The State invested BGN20MN in it and from that amount the so-called king's credits are still released, intended for launching or expanding already existing small businesses. Loans under that programme are from BGN5,000 to BGN15,000 and are extended through banks that are partners of the Ministry of Labour and Social Policy, which is the trustee of the guarantee fund. The new idea is similar to the already realized one, but it concerns guarantees of considerably higher credits. Back in August 2002, the then deputy finance minister Gati Al-Djeburi gave his principle agreement for setting up a municipal guarantee fund for SMEs. The establishment of such an institution, that would be covering part of the risk when loans are allocated to small businesses, was suggested by the Consultative Council for SMEs with the Agency for SMEs. However, it was never realized. The terms for extending municipal guarantees to small firms had to be specified. Now again the proposal comes form the Agency for SMEs. According to its Chairman Angel Despotov, Bulgaria is the only country in Central and Eastern Europe without a guarantee fund. He specified that a bill for setting up such an institution is was already under draft, and it would be moved to the Government for discussion in the second half of 2004. Peter Harold, Executive Director of Biochim (owned by Bank Austria), offered assistance in the form of experience gathered by Austrians in that respect. The main reasons why Bulgarian small enterprises have problems with providing investment credits are that they do not possess real estates to offer as collateral to the banks and that they do not have a sufficient credit history either, Mr. Harold said. From the bank's point of view, however, launching credits to small companies is much more expensive than financing a big company with the same amount of money. He also explained there was a similar problem in Austria, too, but it was solved by the establishment of an insurance fund. It allowed the banks and the State to equally share the risk of having a loan to a small company unsettled. That method facilitated the Austrian banks in financing small businesses and they cut the credit interests, Mr. Harold added. The reason is that insurance funds in Europe take up from 50% to 90% of the risk in case a customer fails to pay either the interest or the principal of the loan.The Chairman of the Bulgarian Industrial Association Bozhidar Danev also defined the setting up of an insurance fund as a major problem facing the crediting of small companies. However, he said, amendments to the legislation are also needed in the part concerning the establishment of a single liabilities register and a venture capital fund.

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