Understanding Credit Guarantee-Interview with LOLC Microfinance Institution
June 9, 2023Understand Credit Guarantee
Read and Download in PDF: Hear from Our PFIs – Interview with LOLC Microfinance Institution
1. What is LOLC’s perspective toward the credit guarantee schemes and why does LOLC to partner with CGCC?
- LOLC Management is pleased to participate with CGCC to seize the partnership opportunity to further expand the market through new lending with CGCC guarantees. This credit guarantee scheme is very important for both LOLC and its clients, especially those who do not have collateral to provide access and encourage small and medium enterprises in Cambodia to access easy capital at low-interest rates to rehabilitate, start or expand their businesses.
- LOLC joins CGCC as a participating financial institution, seeing that this credit guarantee scheme plays an important role in supporting the overall national economic growth, giving access to small and medium enterprises in Cambodia to access to financing to rehabilitate, start and expand their businesses, at the same time providing local employment opportunities for people to have jobs and income to support their families.
2. How do the credit guarantee schemes benefit LOLC and your customers?
In collaboration with CGCC, LOLC has the opportunity to further expand the potential market and have the confidence to expand lending to potential clients who have enough repayment capacity and want to expand their businesses but do not have sufficient collateral. In addition, the CGCC credit guarantee scheme plays an important role in fulfilling the needs of clients to expand their business and eliminate their worries from the words, “No matter how good his/her business is, without collateral, they are not able to borrow money from microfinance institutions or banks”. But now, even without collateral, clients can borrow money from microfinance institutions or banks to do business if they are able to make repayments and have a clear business plan.
3. What is LOLC’s strategy in structuring loans with CGCC’s guarantees? What are the main criteria of LOLC’s loan assessment?
In fact, LOLC has developed some clear strategies in structuring loans under the CGCC credit guarantee, such as:
- Providing loans to clients who have clear and legal business, good cash flow, good credit history, whether the clients have collateral or no collateral, especially lending to clients who are small and medium enterprises (SMEs) aiming to expand their businesses, which contribute to society by providing employment to people with a decent income to support their daily family life.
- Providing loans to clients who have a risky business but expect the business to improve soon.
- Providing loans to key priority sectors that can contribute to the rehabilitation and upliftment of clients affected by the Covid-19 pandemic, which LOLC expects clients’ businesses to improve soon.
To assist potential clients in obtaining a guaranteed loan, LOLC has some criteria for loan assessment as the following:
- Clients shall have clear and legal businesses.
- Clients shall have a good cash flow to be eligible to get the loan and be able to repay it back.
- Clients shall have a good reputation and good repayment history.
- Clients shall have a clear business plan and clear purpose of using the loan effectively.
- Clients can have some working capital in their business.
- The client’s business is in good condition with quality products and services, reasonable prices, market needs, staff, and leaders with experience and skills.
- Clients who have or do not have collateral or have collateral but not sufficient can also get the loan.
4. LOLC is CGCC’s Top 4 PFIs in disbursing guaranteed loans in 2022. What is the LOLC’s strategy to keep up with this momentum and to further expand the disbursement of guaranteed loans in 2023?
LOLC will continue providing more credit to clients, for those who have collateral and no collateral, to meet their needs for all sectors to improve their living standards and to continue contributing to the royal government to promote economic growth in Cambodia. Through this, LOLC will further encourage the branch management to disseminate this credit guarantee scheme widely to all target customers, especially new customers who have not yet received a loan from LOLC, for clients who have collateral or do not have collateral or have collateral but not sufficient. The most important thing is that clients have a clear legal business, a good reputation, a good credit history, strong cash flow, and good business conditions.
5. Besides providing guaranteed loans, what LOLC and CGCC should do together to support the MSMEs in Cambodia?
In addition to providing credit services, CGCC and LOLC will continue working together to support non-financial services to increase the understanding or additional skills related to financial literacy to entrepreneurs, especially small and medium business owners in Cambodia, to give them more knowledge on governance, financial literacy such as cash management, expense management, which contributes to more efficient business management of clients.