The financial sector reforms of 1991 created a better environment for the free market and improved financial services in the country. However, access to credit, especially in the agricultural sector and for Small and Medium Enterprises (SMEs) remained a challenge.
In an effort to address these challenges, the Government established a Credit Guarantee Scheme geared towards promoting and supporting private sector by creating an enabling environment for expanding and facilitating access to financial resources, to stimulate employment and export; thereby contributing to economic growth.
The Bank on behalf of the Government administers two Credit Guarantee Schemes (CGS) namely Export Credit Guarantee Scheme (ECGS) and Small and Medium Enterprises Credit Guarantee Scheme (SME-CGS).
Features of Credit Guarantee Schemes:
This Scheme was established in July 2002 with the objective to support borrowers with viable export oriented projects but lacking adequate collateral to secure credit facility from Financial Institution by issuing credit guarantees
The ECGS covers a maximum of 75 percent of the principal amount of the credit facility with duration not exceeding one year and a maximum of 50 percent of the principal amount of the credit facility with duration exceeding one year. In respect of crops whose production and marketing cycle exceeds twelve (12) months but not more than fifteen (15) months, the scheme covers a maximum of 75 percent.
This scheme was established in September 2005 with the objective to support SME borrowers with viable projects, but lacking adequate collateral to access credit facilities from Financial Institutions by issuing credit guarantees.
The SME-CGS covers up to 50 percent of the principal amount for credit facility between fifty million shillings (TZS 50,000,000.0) and one billion shillings (TZS 1,000,000,000.0) with duration between one (1) and five (5) years.
The applicant should submit their loan applications a financial institution registered under the Banks and Financial Institutions Act of 2006. Once the choice of a financial institution is made, the loan applicant might be guided by the financing institution to submit a detailed business plan proposal and other requirements.
The financial institution will conduct the normal lending appraisal using prudent banking principals, business discretion and due diligence while adhering to the existing prudential requirements. The appraisal shall also include checking with the Credit Reference Bureau and verifying the borrower’s business registration.
After the financial institution is satisfied with the credit worthiness of the applicant, it will approve the loan and apply for credit guarantee under either the SME-CGS or ECGS in a pre-specified format. The Bank shall assess and evaluate the application in accordance with the CGS Policy and Operational Guidelines.
The process will also involve appraising Financial Institution’s Credit Assessment report and due diligence report of the project before making decision of either in favor or against the application. If all criteria met the Bank on behalf of the Government shall issue guarantee to FIs to enable granting of loans to prospective borrowers.
The financial institution shall conduct normal monitoring of the performance of the loan and submit periodic reports to the Scheme.