Having been established as a vital financial support corporation, Credit Guarantee Fund (KGF) facilitates the access of SMEs and non-SME businesses to finance, and provides strategic support to Turkey’s growth and development. KGF Deputy General Manager Caner Teberoğlu told us KGF’s mission and activities.
First, please tell us what Credit Guarantee Fund is and give some information about its history. When and by whom was it founded and what is the purpose of its foundation?
Credit Guarantee Fund (KGF) was founded by the Cabinet Decree numbered 93/4496 and dated 14 July 1993, and started its activities by granting its first guarantee in 1994. As a guarantee institution, KGF provides access to finance for those Small and Medium Sized Enterprises (SMEs) that can’t benefit from bank loans due to insufficient collateral, by assisting them as a “joint guarantor”. As noted in the relevant Cabinet Decree, KGF was founded to ease access to finance for small and medium sized enterprises, farmers, merchants, craftsmen and self-employed entities in need of collateral in terms of credit worthiness, and in accordance with this purpose it was exempted from taxes and dues.
KGF is a joint-stock company which consists of 3 main shareholders. Approximately 1/3 of the shares belongs to TOBB (Union of Chambers and Commodity Exchanges of Turkey), 1/3 to KOSGEB (Small and Medium Industry Development Organization), and 1/3 to twenty seven banks and private finance institutions. Besides, TESK (Confederation of Turkish Tradesmen and Craftsmen), TOSYOV (Turkish Small and Medium Enterprises, Self-Employed People and Executive Foundation) and MEKSA (Foundation for the Promotion of Vocational Training and Small Industry) are among the shareholders.
KGF does not directly transfer funds, but like other guarantee institutions around the world it facilitates the access to finance by standing as a guarantor at predetermined rates for the credit-seeking firm. This places the Credit Guarantee Fund between banks and other funding institutions (such as KOSGEB and TUBITAK).
What is the relation between KGF and the Secretariat of Treasury? How much does the state support this fund?
The Secretariat of Treasury provided TRY 1 billion to KGF firstly in 2009 with the Cabinet Decree, which allowed KGF to provide guarantees for TRY 10 billion. The said fund was updated in years, raised up to TRY 25 billion with the latest Cabinet Decree, creating a guarantee volume of TRY 250 billion. The Secretariat of Treasury provides counter guarantee and transfers funds in case of indemnification.
Can you clarify this new Cabinet Decree? What changed, why was it necessary?
With this protocol, the guarantee volume for SMEs has been increased from USD 3 million to 12 million. Previously, among the companies which are not ranked as SMEs only exporters would receive guarantees for up to USD 50 million, but now not only exporters but all businesses which are not ranked as SMEs can receive guarantees for up to TRY 200 million. Moreover, the Portfolio Guarantee System allows the SMEs and non-SME business to get a reply within the same day for their demands up to TRY 12 million and TRY 50 million respectively. The commission rate for guarantee applications has been decreased to 0.03% from 0.5-2%, besides receiving guarantee commission for the following years and application fee have been cancelled.
In addition;
- There will be a non-payment period for maximum one year for working capital loans,
- Guarantee ratio for SMEs has been increased to 90% from 85%,
- Guarantee ratio for non-SME firms has been increased to 85% from 75%,
- In relation to guarantee requests of banks for the bank-originated and Eximbank-originated TRY/FC loans of SMEs and non-SME exporters and businesses that have foreign exchange earnings, the guarantee ratio has been increased to 100% from 85%,
- Validity of the receipts of discharge from taxes and social security premiums has been increased to 90 days from 30 days for guarantee applications.
How do you evaluate the current status of the private sector in Turkey? Will the Credit Guarantee Fund relieve the financing needs of producers and exporters with this new decree?
Credit Guarantee Fund has provided TRY 114 billion guarantee to 157 thousand businesses, assuring access to TRY 128 billion loan as of 14 April 2017. This is a significant volume. I believe this has been a huge relief particularly for SMEs which have difficulty in accessing finance.
As you know, there are some problems related to the new Special Consumption Tax (OTV) regulation for non-fuel petroleum products. Especially lubricant producers and exporters are under pressure due to illegal production. Do you think this is a way to overcome the problems stemming from the guarantee obligation?
KGF is the biggest supporter of all sectors in the access to finance. I believe the difficulties faced by businesses in the lubricants sector in terms of financing will be significantly relieved with the latest regulation.
